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All Things Considered: April 2006

On top of the volcano


January 15, 2008
By Jim Knisley


Topics

About 15 years ago I interviewed a recently appointed federal
agriculture minister and wrote that after decades in politics, he had
finally climbed to the political mountaintop and found that he was
standing on a volcano.

About 15 years ago I interviewed a recently appointed federal agriculture minister and wrote that after decades in politics, he had finally climbed to the political mountaintop and found that he was standing on a volcano.

As overwrought as the imagery was, it was correct then and is likely more appropriate today.

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British Columbian MP Chuck Strahl, Canada’s new agriculture minister, no doubt knows he is on a volcano and that his job is to relieve the damage when the thing erupts.

Unfortunately, he has no time. The lava is already flowing and damage is everywhere.

Take for example the grain industry – it is a wreck. On the Prairies, wheat, barley and even canola prices are weak. World markets are a subsidized mess and there is no end in sight.

In Ontario, corn prices have fallen to the point that corn producers took the politically risky move of asking for and getting countervailing duties on subsidized U.S. corn that was flooding the market.

In livestock, BSE and B.C.’s avian influenza outbreak are still top of mind as are the massive costs.

There is also little joy to be found in the fruit and vegetable industries, where low cost (and sometimes subsidized) international competition is the name of the game. There are even reports that a number of well-financed estate wineries that opened with high hopes just a few years ago are shutting down and selling out.

Only the supply-managed sectors show stability, but a bit of caution may be in order here because quota prices are becoming prohibitive. One Ontario producer recently penciled out the payback on setting up a fully commercial broiler operation and found it was 99 years. His family opted for broiler-breeders instead.

The agricultural problems facing Strahl and the new government are immense and, making matters worse, they are not made in Canada. Things began to unwind about 20 years ago when the European Union stopped having to import massive amounts of food.
Unfortunately, for world markets, they continued the subsidy programs that were used to increase production. The result was Europe went from being a net importer of foodstuffs to a subsidizing net exporter.

The Americans responded by declaring economic war. For decades, the U.S. government would jump into the market and buy up surplus stocks whenever commodity prices dipped. They would put their purchases in storage to be sold on the market when prices strengthened.

The U.S. also had a set-aside program that would pay farmers to cut production whenever storage stocks became burdensome. In effect, the U.S. was employing supply management.

In the mid-1980s the Americans scrapped that program claiming that other countries were taking what the Americans saw as “their” markets and began to subsidize production.

The first to feel the effects of this were Prairie grain farmers. Prices for wheat plunged and the farmers turned to Ottawa and their provincial capitals for the first of what was to become many emergency assistance programs.

The governments recognized that agriculture was no longer the open market paradise described in economic textbooks and developed a stabilization program that would hopefully eliminate the need for emergency aid. The program failed.

Over the last two decades, a series of stabilization programs have been developed. All looked good on paper and all – including the most recent, the CAIS program – failed.

With the luxury of 20/20 hindsight it is easy to see why. Stabilization programs, even the best of them, react to what has happened and are based on a rolling average of prices, margins or returns from previous years. The result is that the money comes out later than needed and in a deteriorating price and income situation, the programs stabilize at lower and lower levels.

Inevitably this results in demands for emergency aid which most often is “too little, too late,” according to farmers.

This brings us back to the new government and the new minister. The Conservative plan for stabilization with an emergency aid add-on has been tried in the past and failed.

Perhaps, they can throw a lot more money in the pot to make that combination work, but people shouldn’t get their hopes up.

There are only two models out there that have, in their own ways, been successful. One is the European/American model where government guarantees the price or return from a crop or commodity and makes up the difference when market prices are below target.

These programs also include (especially in Europe) a variety of add-ons that further bolster incomes.

The other approach is the Australian. Australia pays no production subsidies but has programs to help those who want to leave farming. Australia also has its wheat board, which it intends to keep as a monopoly because its farmers believe it is essential in a world market dominated by subsidized production and cutthroat competition.

It’s worth noting that the new Canadian government has, as the other major plank in its farm program: the elimination of the Canadian Wheat Board’s monopoly on the export of Prairie wheat. Going where even the Australians won’t may be brave and perhaps reckless.
Given the troubles afflicting Canadian farmers, bravery is required, but recklessness is not.

Meanwhile, we can only hope that Minister Strahl can navigate his way around the volcano. This likely means he will have to embark on a new path and break with the stabilization and emergency aid patterns of the past.

While those programs provided short-term respite, they all eventually lead back into the lava.


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