All Things Considered: September 2007

Pulling A Fast One.  Farm programs seem to work best when few need them

Canada is putting together a new set of farm support policies. On the surfacethey look remarkably like an old set of policies put in place by the last Conservative government.

There is an income insurance scheme, which may or may not resemble GRIP (Gross Revenue Insurance Program), there is a NISA-like savings program, there are the crop insurance schemes and there is disaster assistance. It all looks remarkably like Don Mazankowski’s four pillars program from 20 or so years ago.

What is unknown at this point are the details, and in farm programs death is in the details.

GRIP worked fine in Ontario. But it failed in Saskatchewan because it couldn’t keep up with collapsing grain prices and because farmers looked for the crops enjoying the best government support and began to farm the program.

NISA (Net Income Stabilization Account) worked fine for those with money they could save, but wasn’t as good for those going broke. Crop insurance was already well established and worked just fine.

But the emergency assistance program never seemed to satisfy. It was plagued by the too little, too late syndrome and cynics were always able to point to politics as the driving force behind any payout.

The new programs should work better, because crop prices are much better. Farm programs seem to work best when few need them.

However it will be interesting to see if the programs can be designed to help if input prices keep skyrocketing. Everyone knows what has happened to fuel prices, what is less recognized is that fertilizer prices have also jumped. If those prices keep rising, and interest rates continue to climb, we could easily be back to the bad old days of the cost, price squeeze.

The last time this happened prices weren’t bad, but they had flattened. Costs, however, kept rising and eating away at net incomes. It was a bit like Chinese water torture with the constant drip, drip of rising costs.

It will also be interesting to see if they can convince farmers to pay premiums into the new stabilization program. Given how poorly CAIS has performed and a general reluctance to pay premiums into a program that may not pay out for a while, there could be a number of farmers who decide opting out is the best course. If the new savings program is like NISA, the system triggering payouts will have to be more sophisticated. Other Canadians may take a look at the program. If they do and if the economy softens – watch out.

They might start asking why they have to depend on an Employment Insurance Program that takes billions from their paycheques, generates billions of dollars for the federal treasury and pays out peanuts. They might start calling for their own NISA-type employment insurance program.

That would be enough to send Ottawa into a blind panic. Instead of receiving billions a year and using it to finance other programs, it would have to put billions into individual employment insurance accounts. It would be enough to convince the government to kill NISA or anything like it.

Another factor will be the new U.S. Farm Bill. It looked for a while that Canadian farmers might get a reprieve from competing against the U.S. Treasury. It was expected that Congress would take advantage of high corn and wheat prices to cut back on farm program spending.

But that seems increasingly unlikely. The mainline U.S. farm groups mounted a furious lobby to protect the support programs and keep the billions pouring out of Washington D.C. to Iowa, Indiana, Illinois and the rest of the Midwest.

In moving the legislation forward, Congress paid no attention to the current WTO talks. There wasn’t even a hint that they recognized or cared that the legislation could make it very difficult to come up with something to satisfy Brazil, India and 50 or so other nations who are determined to get the U.S. to change its ways.

It’s also worth noting that a federal court recently threw out the federal government’s pet scheme to weaken the Canadian Wheat Board’s control of barley exports and sales of malting barley. The run-up to the court decision is complicated involving a messy plebiscite and intriguing government manoeuvring. But the bottom line is that there is a legislated method for removing crops from the wheat board and the government didn’t follow it. It tried to proceed by way of regulation when it should have used legislation.

Government lawyers must have recognized this and they must have told their political masters. In effect the government tried to pull a fast one and failed. n