Agricultural subsidies in Canada 1991-2000

Lawrence Solomon and Douglas Paisley

June 18, 2001

For every dollar that Canadian farmers earned over the last 10 years, federal and provincial governments supplied an average of $3.76 in agricultural subsidies. Ontario – at $6.60 in subsidies for every $1 in farm profit – is home to the most heavily subsidized farming operations in the country. No province operated a profitable farm economy for the past decade.

These findings follow Agricultural Subsidies in Canada 1990-1999, an Urban Renaissance Institute report published last year, which revealed that between 1990 and 1999, Canada’s governments provided an average of $3.55 in subsidies for every dollar earned by a Canadian farmer. This year’s data shows that the economic inefficiency of Canada’s farm sector has increased.

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.

In April 2001, the George Morris Centre responded to Agricultural Subsidies in Canada 1990-1999. Its report, To Tell the Truth on Farm Subsidies, stated:

There has been a lot of public discussion lately about farm incomes in Canada and the role of agricultural subsidies. Lawrence Solomon of the Urban Enterprise Institute [sic] has been at the forefront of   these discussions. His argument is that as a result of exorbitant subsidies, the government is sponsoring the industrialization of agriculture, which threatens the family farm at untold environmental costs.

The George Morris Centre’s report had two criticisms. First, it criticized the items that Agricultural Subsidies in Canada 1990-1999’s counted as subsidies, stating that:

The total government transfers data that the authors use as a measure of farm subsidies contains items that are not farm subsidies. A farm subsidy is a payment directed at farm income support; we    have some of these, and they are distortionary and support inefficiency. However, the Solomon-Zippin report includes (along with legitimate subsidies) regulatory transfers (from marketing systems that increase farm prices but involve no cash transfers from government to farmers), government expenditures that fund agricultural research, and food inspection/grading.

The George Morris Centre does not consider regulatory transfers, such as price supports provided by marketing boards, to be subsidies. This position is not credible. It is at odds with the understanding of most economists, and it is also at odds with the international organizations that define and measure subsidies, such as the OECD and WTO.

The George Morris Centre also criticized Urban Renaissance Institute for excluding government transfers from the income data (and, as a result, profit) that farmers report:

The authors take net farm income (aggregate farm profit) and deduct government payments to farmers to obtain farm income not received from government. Then, they take total government transfers and divide it by farm income not received from government to obtain the farm subsidy ratio. But what they calculate is government transfers as a percentage of income not received from government transfers, which is absurd. How can you have something as a percentage of what you don’t have?

Our study compared the subsidies provided to the farm sector with the profitability of the farm sector. We believe that profits are an important indicator of an industrial sector’s value, and that subsidies provided to that sector must be weighed against the sector’s actual profitability. The George Morris Centre’s approach would inflate the agricultural sector’s apparent profitability by counting some subsidies as profits. We see no merit in this approach.

Graph 1

Canada - ratio of farm subsidies to net farm income
For every dollar that a Canadian farmer earns federal and provincial governments provide $3.76 in subsidies. Since last year’s report on farm subsidies by the Urban Renaissance Institute, Ontario has surpassed Newfoundland as the most heavily subsidized province in Canada for the last 10 years. British Columbia and Prince Edward Island remain the least subsidized provinces with farm subsidy ratios of approximately two and three respectively.

Graph 2

Canada - ratio of farm subsidies to net farm income
Central Canada has the highest farm subsidy ratio in Canada. Both Eastern and Western Canada are below the national average by between 15 and 20 percent.

Graph 3

farm subsidies
Low and sometimes non-existent adjusted total net incomes across Canada account for exceptionally high farm subsidy ratios in 1991. Where the adjusted total net income is negative, as in 1992, the farm subsidy ratio is incalculable. This is indicated by the bar running off the graph with an arrow.

Graph 4

farm subsidies
According to “Net farm income and farm cash receipts” released by Statistics Canada’s The Daily, farmers incurred declines in net cash income in Prince Edward Island of -53.6%, Newfoundland -32.8%, and New Brunswick -27.4% in 2000 and the first quarter of 2001, contributing to higher farm subsidy ratios in all of Eastern Canada. Over a 10-year period the eastern provinces continue to be Canada’s least subsidized region with gradually declining farm subsidy ratios.

Graph 5

farm subsidies
The central provinces are the most heavily subsidized region in Canada. The figures shown on the graph exclude property tax concessions. A recent Agriculture and Agri-Food Canada report on agricultural property tax programs for the year 1997 showed that Ontario and Quebec obtain almost 75 percent of property taxes rescinded across Canada.

Graph 6

farm subsidies
According to “Net farm income and farm cash receipts” released by Statistics Canada’s The Daily, program payments soared 44.8% to $2.8 billion in 2000. Most of this increase was paid out under the Alberta Farm Income Assistance Program, the Canada-Manitoba Adjustment Program and the Canada-Saskatchewan Adjustment Program: initiatives designed to help farmers adjust to the elimination of transportation subsidies at a time of low prices. In eight out of 10 years, British Columbia has remained below the national average farm subsidy ratio. The other western provinces show a similar consistency interrupted by soaring farm subsidy ratios due to low or negative adjusted net income figures.

Graph 7

farm subsidies
Newfoundland has the second highest farm subsidy ratio in Canada over the past 10 years largely due to a consistently low adjusted net income. From 1998 to the present, considerably lower net payments to producers have nearly doubled the province’s adjusted total net income from previous years.

Graph 8

farm subsidies
Prince Edward Island had Canada’s second highest farm subsidy ratio in 2000. Statistics Canada attributes the poor farm economy in 2000 to decreased incomes caused by lower potato prices. However for the last 10 years, Prince Edward Island has the country’s second lowest farm subsidy ratio.

Graph 9

farm subsidies
Nova Scotia has the eighth highest farm subsidy ratio. For the past ten years the farm subsidy ratio has remained steady while 10-year trends for the province show adjusted total net income to be gradually increasing and government transfers to be decreasing.

Graph 10

farm subsidies
New Brunswick has the seventh highest farm subsidy ratio. Like Nova Scotia, New Brunswick has maintained a steady farm subsidy ratio that is generally consistent with the national average. Also, like Nova Scotia, New Brunswick’s farm economy has seen an overall increase in adjusted total net income: from approximately $15,000 in 1991 and $32,000 in 2000; and a gradual decrease in government transfers: from about $75,000 in 1991 to about $45,000 in 2000.

Graph 11

farm subsidies
Quebec has Canada’s third highest subsidy ratio. Quebec has continued to stay well below its high farm subsidy ratios from the beginning of the decade dropping from 10.27 for 1991 to 2.48 for 2000.

Graph 12

farm subsidies
The highest farm subsidy ratio in Canada, 6.60, is Ontario’s. The year 2000 marks the end of a steady decline in government transfers, which have increased by 25% over the previous year. The adjusted total net income is a third of 1998’s, despite significant increases in net payments to producers. Note the increase in farm subsidy ratios for 1999 and 2000.

Graph 13

farm subsidies
Manitoba has Canada’s fifth highest farm subsidy ratio. In 2000, declining government transfers returned to their highest level since 1996. Also in 2000, the adjusted total net income has increased by nearly 50% over the previous year after more than halving in 1999. 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

farm subsidies
Saskatchewan has Canada’s fourth highest farm subsidy ratio. According to Statistics Canada, Saskatchewan received a large increase in government transfers: +63% in direct program payments over the previous year. This and declining incomes gave Saskatchewan the country’s lowest adjusted total net income for 2000: -$200,876

Graph 15

farm subsidies
Alberta has Canada’s sixth highest farm subsidy ratio. Statistics Canada reported that direct program payments in 2000 had tripled since the previous year. Since 1995, the adjusted net income for Alberta has dropped by 150%, to -$232,302. This is the second lowest adjusted total net income for 2000. 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

farm subsidies
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 1999 and 2000 with ratios of .99 and .77 respectively.

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 transfer, payment and income statistics for 1999 and 1998, released since last year’s Agricultural Subsidies in Canada 1990-1999, 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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