Al Mussell, Holly Mayer and Larry Martin
National Post
June 26, 2002

A recent Financial Post column questioning the economic benefits of sustaining a Canadian farm industry has stirred a debate between an agri-food think-tank and writer Lawrence Solomon. Their arguments are outlined below.

Among certain academics and urban activists, a school of thought has emerged that argues cities are getting a raw deal out of the Canadian union. The spin of some urban activists is that this has occurred because public funds are misallocated away from cities to rural regions and the resource-based economic activities that occur in them. The leader of this school of thought is Lawrence Solomon of the Urban Renaissance Institute in Toronto (he also has followers – oddly enough – on staff at the Toronto Star). In one of Solomon’s latest contributions to this ill-conceived argument (Re: “Record Harvest of Profits All Came From Subsidies,” June 13), he describes the problem as being “transfers of wealth from the cities to the countryside to prop up marginal farms, logging towns and other unsustainable settlements.”

This school of thought (and Mr. Solomon, in particular) has advanced two arguments to support this position: (1) Net farm income in Canada is less than the subsidies paid to farmers, therefore supporting agriculture is an overall loss to society, and (2) Development of cities has been unequivocally hampered by misallocation of public spending in rural areas rather than cities. Both arguments, if correct, would suggest that the public should turn its back on agriculture and rural areas, and focus on cities as the sole source of development. These arguments are patently false.

With respect to the first argument, Mr. Solomon has made an annual rite of passage out of manipulating and exaggerating farm subsidy numbers to make it appear as though agriculture is a net drain on the Canadian economy. Here’s what he does:

– He assembles data on total government transfers to agriculture, that include expenditures on food inspection, research and development and food aid, most of which goes to pay civil servants, not farmers, and most of which is for programs that confer consumer benefits. Just over 50% of this amount is actually cash paid to farmers.

– He then takes this (inflated) data on government transfers and divides it by farm income not received from government transfers to obtain the “farm subsidy ratio.” He finds this ratio to be $3.53 per dollar of farm income.

But think about this ratio for a moment. It measures subsidies relative to income not received from subsidies. Most people would ask: What portion of a farmer’s income comes from subsidies? Mr. Solomon asks: What portion of a farmer’s income not from subsidies comes from subsidies?, which is absurd. His methodology is not only meaningless; it is incredibly misleading. We have corrected his errors before and demonstrated that, while very large, government cash payments to farmers are significantly less than net farm income, and that net farm income is positive, not negative as he claims. But Mr. Solomon has apparently elected to ignore this. This is a classic case of the statistician using statistics to find what he wants to find. Because of this manipulation, he concludes that agriculture has been losing money for the past decade and, therefore, is a terrible investment for the taxpayer. Behind this one, there is a whole host of equally incredible conclusions (for example, that there should be no farms in the Prairies, where land is inexpensive and that farms should only exist around cities, where land is extremely expensive. We know that the Post has an editorial point of view, but we do not understand why it continues to print material that is simply wrong.)

Development in rural and urban areas exists in an equilibrium with one another. A portion of public spending (or economic growth in general) in rural areas will necessarily flow to urban areas, just as a portion of urban spending flows to the rural area. Rural areas supply products and services that are consumed (or further processed) in urban areas, and receive payment, some of which is spent on products and services from the urban centre. Similarly, some of the returns in urban areas are spent in rural areas. This mechanism is fundamental to the process of regional development, and it argues for a balanced policy approach.

To suggest that rural areas are not worthy of public spending is simply incorrect. Cities are a crucial part, perhaps the most important part, of regional development. Some have erroneously convinced themselves that cities are the only source of growth, and that the rural hinterlands that cities service are actually a barrier to urban growth. This kind of local thinking ignores the bigger picture of regional development that gives rise to cities in the first place, along with the continuing economic importance of agriculture and other primary resource industries to economic growth – both urban and rural. In any event, the case for investment in cities should be made on its merits, not on the basis of data manipulated to achieve a desired outcome.

To read Lawrence Solomon‘s response to this article, please see “The Real Facts About Farm Income”

To read the Lawrence Solomon article that sparked this debate, please see “Record Harvest of Profits All Came From Subsidies“: