Chuck Strahl was a newly minted agriculture minister barely settled into a new office last winter when the grim advice began to come in.
Departmental officials voiced serious concerns with the country’s primary agriculture support system, the Canadian Agricultural Income Stabilization program.
Advice from bureaucrats projected CAIS spending of $6.5 billion over five years, $1 billion higher than targeted, raising government concerns about the program’s costs.
Yet even with the projected over spending, the program was only stabilizing farmers’ incomes at ever-lower levels as most farm margins continued to fall.
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As well, department advisers said, the new Conservative government could expect growing farmer demands for more support, including government recognition that price-depressing foreign subsidies should be offset by government payments.
The bureaucrats opposed that idea, arguing it would encourage farmers to continue to produce crops that lose money.
Despite the gloomy analysis, officials told the new minister that CAIS actually was a success, popular among farmers and doing what it was designed to do, according to departmental documents obtained by Ottawa-based researcher Ken Rubin through access-to-information requests.
“There is good industry support for CAIS and (production insurance) programming,” said an undated memo prepared to offer advice to the new minister. “Participation is high in each program and producers do recognize their purpose and usefulness.”
Under government confidentiality rules, the advice to Strahl from his senior officials has been removed from the documents. Only the underlying analysis is available.
The documents go on to tell Strahl that all is not rosy.
“A number of industry representatives have suggested that the CAIS program should be enhanced to provide support to fixed long-term levels,” said the memo on “farm income pressures” prepared after the Conservatives came to power last January.
“This goal of supporting fixed long-term income would run counter to the current purpose and principles of BRM (business risk management) programming.”
And the bureaucrats already were warning that CAIS spending was well over budget.
“Affordability is a federal concern as well,” said one departmental analysis labelled “secret.”
“It is forecasted that current BRM programming will cost $1 billion above the five-year $5.5 billion federal funding target, raising the challenge of bringing spending in line with the funding.”
It noted provincial concerns about program costs as well, an issue that has been championed by Saskatchewan, Manitoba and Prince Edward Island.
“There will be a need to balance provincial and federal government concerns over affordability with industry expectations for richer and more responsive BRM programming,” said the memo.
As well, an analysis of the program prepared internally reported that by 2004, just the second year of the CAIS program, its margin-based trigger was not providing enough support to keep much of Canadian agriculture viable.
Program triggers were covering less than full allowable expenses and depreciation.
“The implication of this is that Canadian agriculture would have been unprofitable at the Canada level without other assistance during 2003 and 2004,” said a memo on farm income trends. “In this respect, it would appear that the CAIS program is currently stabilizing a margin which is insufficient to maintain a profitable industry.”
It was a reality that farm organizations have noticed and analyzed. Their explanation has typically been that foreign subsidies create a “trade injury” in trade-dependent sectors that should be recognized by the government.
A 2005 departmental fact sheet on CAIS made it clear that senior Agriculture Canada officials believe compensation for trade injury or declining margins would be inappropriate encouragement for farmers to continue growing crops they cannot sell at a profit.
Support programs that under-compensate for regular market losses encourage farmers to change crops or business plans.
“Implementing trade injury compensation would have Canada go down the same route as the U.S., which keeps producers doing the same things they did in the past by distorting market signals,” said the departmental document.
“It is widely recognized that high subsidies lead to higher land prices, ultimately raising costs for future farmers. Canada’s decoupled programs have led to more diversification and production of value-added products relative to the U.S.”
Canadian farm groups insist if producers are to compete successfully in world markets, government support payments should be competitive with foreign policies.
The Agriculture Canada memo suggests there is a deliberate policy not to compete with foreign programs so Canadian farmers do not become too dependent on government support.
The departmental memo says CAIS entitlements are deliberately designed to ignore support foreign governments give to their farmers.
“It keeps our industry focused on emerging opportunities rather than existing products with declining margins.”
