Agricultural Subsidies in Canada 1992-2001

Lawrence Solomon and Carrie Elliott

June 13, 2002

In 2001, according to Statistics Canada, total net farm income rose 31.8% to $3.7 billion. Farmers’ earnings, however, were exceeded by direct subsidies. In addition to direct subsidies, Canada provides indirect subsidies to the agriculture sector. Over 10 years, the federal and provincial governments supplied approximately $3.53 in agricultural subsidies for every dollar earned by a Canadian farmer. No province operated a profitable farm economy over the past decade.

These findings come from the Urban Renaissance Institute’s annual report, Agricultural Subsidies in Canada 1992-2001. They follow last year’s Agricultural Subsidies in Canada 1991-2000, which revealed that between 1991 and 2000, Canada’s governments provided an average of $3.76 in subsidies for every dollar earned by a Canadian farmer. Eliminating 1991 data from the study accounts for this difference. Even though farmers in 2001 were heavily subsidized, 1991 was a record year for farm subsidization.

This study highlights the role of agricultural subsidies on Canada’s farm economies. The calculated farm subsidy ratio measures the degree of inefficiency in a farm economy — the higher the subsidy, the greater the degree of inefficiency.

The 2001 provincial subsidy/profit rankings, from most to least subsidized, are as follows: Ontario, Alberta, Quebec, Nova Scotia, New Brunswick, Manitoba, Newfoundland, British Columbia. Canada as a whole, as well as Prince Edward Island and Saskatchewan all ran negative adjusted net incomes, making a farm subsidy ratio incalculable. Since 1992, Ontario received the most in agricultural subsides, followed by Newfoundland, Quebec, New Brunswick, Saskatchewan, Nova Scotia, Manitoba, Alberta, Prince Edward Island, and British Columbia. Last year Ontario’s farm sector surpassed Newfoundland’s as the most heavily subsidized over the last decade.

The level of subsidies that we report understates the direct and indirect financial assistance that Canadian farmers receive. Our findings are limited to subsidies that Statistics Canada and Agriculture and Agri-Food Canada reports for domestic consumption. Agriculture and Agri-Food Canada report a significantly higher level of subsidy for use by international bodies such as the World Trade Organization and the Organization for Economic Cooperation and Development, which require that the data conform to an internationally agreed upon format. The international format is used, for example, to help resolve trade disputes.

In addition, our study excludes the subsidy that farmers receive through property tax concessions, which Agriculture and Agri-Food Canada stopped reporting after 1996 due to variances in tax policy among provinces and a controversy over the appropriate method of determining the value of concessions. These unreported concessions are substantial. In October 2000, Agriculture and Agri-Food Canada released a report on agricultural property tax concessions that provided estimates of concessions for 1997 ranging from $70 million to nearly $1.1 billion, depending on the assumptions made.
Graph 1: Provincial Comparison

For every dollar that a Canadian farmer earns, federal and provincial governments provide $3.53 in agriculture subsidies. For a second year in the Urban Renaissance Institute study, Ontario’s farm sector is the most heavily subsidized in Canada over the last decade. British Columbia and Prince Edward Island remain the least subsidized, with farm subsidy ratios of approximately two and three respectively.

Graph 2: Regional Comparison

Central Canada has the highest farm subsidy ratio in Canada. Both Eastern and Western Canada are below the national average.

Graph 3: Canada

In 2001, a negative national adjusted net income accounts for an incalculable farm subsidy ratio. Similarly, the agriculture sector received more funding than income in 1992. This is indicated by the bar running off the graph with an arrow. A national low adjusted net income accounts for the exceptionally high ratio in 2000.

Graph 4: Eastern Canada

Over a 10-year period the eastern provinces have a slightly lower farm subsidy ratio, at 3.26, than Canada’s at 3.53.

Graph 5: Central Canada

The farm sectors in the central provinces are the most heavily subsidized in Canada, with a ratio of 5.23. The figures shown on the graph exclude property tax concessions. Ontario and Quebec obtain almost 75% of property taxes rescinded across Canada.

Graph 6: Western Canada

In this study, heavy subsidization to the prairie provinces both early and late in the decade results in soaring or incalculable farm subsidy ratios from low or negative adjusted net income figures. In eight out of 10 years, British Columbia’s farm sector has been below the national average farm subsidy ratio.

Graph 7: Newfoundland

Newfoundland has the second highest farm subsidy ratio in Canada. From 1991 to 1994, Newfoundland received substantial government transfers, consistently lowering the province’s adjusted net income. Since 1998, however, Newfoundland’s farm subsidy ratio remained below the national average.

Graph 8: Prince Edward Island

In 2001, a 39% decrease in potato production in P.E.I. contributed to a steep drop in the value of inventories. This resulted in a negative adjusted net income for the province. For the past 10 years, however, Prince Edward Island has the country’s second lowest farm subsidy ratio.

Graph 9: Nova Scotia

For the past ten years Nova Scotia farmers have generally received more subsidies than the national average. Since 1999, however farm subsidization has decreased. In 2000-2001, according to Statistics Canada, Nova Scotia recorded the greatest decrease in government transfers ($13 million).

Graph 10: New Brunswick

For the past three years New Brunswick’s farm ratio has been below the national average. Throughout the decade, however, New Brunswick’s farm ratio has often been higher than Canada’s.


Graph 11: Quebec

Quebec has Canada’s third highest subsidy ratio. The year 2000 was a record year for Quebec farm subsidization over the past ten years. Quebec’s farm economy received approximately $11.17 for every dollar earned. Statistics Canada reported that government transfers to Quebec increased $94 million in 2000-2001.

Graph 12: Ontario

Ontario has the highest farm subsidy ratio in Canada. Starting in 1999, subsidies began increasing, reaching record levels in 2000-2001. The province’s low adjusted net income during these years results in soaring farm subsidy ratios.

Graph 13: Manitoba

Manitoba is below Canada’s decade-long farm subsidy ratio average. For the past two years government funding has tapered off from its 1999 high. Manitoba’s farm economy is unprofitable over the 10-year period, but achieved a marginal profit in 1996 with a farm subsidy ratio of .82.

Graph 14: Saskatchewan

Saskatchewan has Canada’s fifth highest farm subsidy ratio over a 10 year period. For the past two years, this study records Saskatchewan’s adjusted net income as the lowest in the country. In 2001, Saskatchewan’s adjusted net income stood at a -$757,109 record low because the province received the largest government transfer in over 10 years.

Graph 15: Alberta

In 2001, Alberta had Canada’s second highest farm subsidy ratio and the greatest increase in government transfers. For the past two years Alberta received substantial program payments and government transfers, resulting in a negative adjusted net income in 2000 (-$299,468), and a modest adjusted net income in 2001 ($47,641). In spite of having a 10-year farm subsidy ratio that makes Alberta’s farm economy a tax burden, it was marginally profitable in 1995 and 1996

Graph 16: British Columbia

British Columbia has Canada’s lowest farm subsidy ratio: less than half the national average. While its 10-year ratio shows it to be an unprofitable farm economy, British Columbia’s farms operated with a marginal profit in 2001 with a ratio of .87, surpassing its previous 1999 ratio of .99.

The data used in this study is drawn exclusively from Statistics Canada and Agriculture and Agri-Food Canada’s Data Book. The data has various inconsistencies and omissions. For example, Agriculture and Agri-Food Canada has never measured the benefits of preferential income tax treatments or subsidized power rates available to farmers. Agriculture and Agri-Food Canada provides different sets of subsidy estimates to the OECD, for use in the OECD’s calculation of Producer Subsidy Estimates (PSEs) and Total Subsidy Estimates (TSEs). The OECD’s PSE and TSE estimates are used in trade negotiations, and have greater international acceptance than the figures provided by the Data Book. In 1998, the PSE estimate was $5.3 billion, and the TSE $7.2 billion, compared to $3.7 billion shown in the Data Book. PSE and TSE figures are not available by province. Were they available, the national subsidy would be almost twice as high as that shown by the Data Book. Because the difference between the two estimates derives largely from market price supports provided to the supply managed commodities, and in particular to milk, Quebec and Ontario would be shown by the PSE and TSE measures to be receiving the bulk of the additional subsidies. The PSE includes property tax concessions to farmers but not income tax concessions to farmers.Agriculture and Agri-Food Canada’s data for its Data Book is reported on an April 1-March 31st fiscal period, its data for the OECD is reported on a “PSE-year” that attempts to accommodate the different characteristics of various programs, and Statistics Canada’s data, which draws upon income tax returns, tracks the calendar year. While some inconsistencies would negate others, the net effect understates the extent of subsidies that Canada’s agricultural sector – and especially Quebec and Ontario’s agricultural sectors – receive.

Data for government transfers, net payments to producers and total net income is periodically updated by Agriculture and Agri-Food Canada and Statistics Canada. Adjusted total net incomes, transfer payments and income statistics for 2001 and 2002, released since last year’s Agricultural Subsidies in Canada 1991-2000, are used for this report.
Data for government transfers, net payments to producers and total net income is periodically updated by Agriculture and Agri-Food Canada and Statistics Canada. Adjusted total net incomes, transfer payments and income statistics for 2001 and 2002, released since last year’s Agricultural Subsidies in Canada 1990-2000, are used for this report.


Calculations:

Adjusted total income = total net income-net payments to producers

Farm subsidy ratio = government transfer/adjusted total net income

When net payment to producer is greater than the total net income, adjusted total net income is negative. The farm subsidy ratio cannot be calculated using negative values and therefore a “*” is recorded in the table and is represented by a bar running off the margin on the graph.


References:

1. Statistics Canada, Agricultural Economics Statistics, Catalogue 21-603UPE, May 2001

2. Farm Income, Financial Conditions and Government Assistance – Data Book, Table D, March 2001

3. Agricultural property tax concessions and Government Transfers to Agriculture – Executive Summary, Table B, December 2000

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