The real facts about farm income

Lawrence Solomon
National Post
June 26, 2002

The George Morris Centre, Canada’s only agricultural think-tank, can’t stomach the analyses performed by the Urban Renaissance Institute: It finds the data we use exaggerated and manipulated, and the conclusions we draw based on this data patently false, if not laughable. These are serious charges, if true. Fortunately, readers will have little difficulty deciding for themselves. As George Morris must know, we have not assembled the data that it finds exaggerated. Agriculture Canada assembled it, using data from Statistics Canada. After Agriculture Canada assembles the data, Agriculture Canada sums it, and presents the sum and its component numbers in its annual report, Farm Income, Financial Conditions and Government Assistance Data Book. We do not report one penny of subsidy that does not have Agriculture Canada’s blessing.

George Morris describes our methodology in a convoluted manner that can only confuse readers. Here is the methodology, without George Morris’s embellishment: We divided the total subsidy, as reported by Agriculture Canada, by the amount that farmers earned from their farming activity. Nothing complicated or outlandish here. Over the last 10 years, the subsidies totalled $45,883,078; the farmers earned $13,007,567. Dividing one number by the other shows that for every dollar that a farmer earned, Canadians provided $3.53 cents in subsidies to the agriculture sector. That’s how much, under our current farm subsidy programs, Canadians as a whole spent to keep farmers in business.

George Morris implies that most of the subsidies my institute deals with are not really subsidies but payments for civil servants or for food and safety inspections. And that the bulk of the subsidies benefit Canadian consumers. Who provides the subsidies and who receives them is easily understood.

Agriculture Canada reports three types of subsidies. The largest type – which in the most recent year accounts for 48% of the total – involves monies that go from taxpayers to farmers. These direct payments chiefly fund export crops, thus lowering the cost of food for foreign consumers – mostly rich-country consumers in the United States, Japan, and the EU – but not for Canadian consumers.

The next largest type – which accounts for 33% of agricultural subsidies – involves subsidies from Canadian consumers to farmers. Through marketing boards and other mechanisms, governments set high prices by limiting the supply of basic commodities such as milk, eggs, chickens and wheat. In the case of milk, Canadians pay twice the market price due to this subsidy, in the case of eggs, 22% extra. On average, Canadians pay 20% more for commodities produced by Canadian farmers. Affluent Canadians, who spend relatively little on basic foods, are not hit hard by these inflated food prices. Not so in the case of poor Canadians, for whom food often represents their largest expenditure after shelter.

The third type of subsidy – 19% of the total – is paid by taxpayers to third parties who support the efforts of farmers. These subsidies, which Agriculture Canada calls “indirect subsidies,” pay for research and development and extension services (consulting services provided by agents sent to farmers’ fields) and provide grants to producer organizations, such as farm lobby groups. Out of this 19% also comes the cost of quality control, which represents 5% of total subsidies. The cost of buying grain or other food aid is not considered a subsidy to farmers, as George Morris seems to believe, and does not show up in the subsidy figures that either we or Agriculture Canada report.

Despite appearances, George Morris does not object to Agriculture Canada’s subsidy numbers. These numbers are internationally accepted and commonly used by agricultural economists, in Canada and other countries. But normally, the subsidies are compared to the gross revenue that farmers receive, a large number that makes the level of subsidy seem relatively small.

In contrast, we compare the subsidies to actual profits – a much more meaningful indicator of an industry’s value to society. The harsh, unadulterated truth – that agriculture is a net drain on the Canadian economy, and a terrible investment for the taxpayer – seems more than George Morris can accept. Particularly since George Morris takes the wrong lesson from the facts. It assumes that we think “the public should turn its back on agriculture and rural areas, and focus on cities as the sole source of development.” And that we’d like rural subsidies to be diverted to cities.

Not so. Initially, we want to divert subsidies that now support uneconomical rural industries to generous buyout packages for uneconomic farmers, loggers and miners, to leave them and the environment whole. After the buyouts are complete, we’d like to see an end to all rural industrial subsidies. City subsidies, in the relatively few instances where they occur, should end immediately.

The result of eliminating farm subsidies would be a much smaller farm commodity export business, since we would no longer be exporting at a loss, and a much larger number of farmers producing for the domestic market, since food prices would drop, in both supermarkets and restaurants, making food more affordable. Canadian farmers would compete less on price against subsidized Western farmers and Third World farmers, where Canadian farmers have no competitive advantage, and more on quality for high-value urban markets, where local farmers have a decided advantage. Canadians would eat better and for less, and farmers would be profitable for society as well as for themselves.

TOTAL SUBSIDIES:Year 2001: $4.86-billionSubsidies from taxpayers to farmers: 47.9%Subsidies from consumers to farmers: 33.4%

Subsidies from taxpayers to the agricultural sector: 18.8%

Source: Agriculture and Agri-Food Canada

To read “Food Fight,” the George Morris Centre’s response to Lawrence Solomon‘s article, click here.

To read the Lawrence Solomon article that sparked this debate, “Record Harvest of Profits All Came From Subsidies, click here.

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