CUPE-funded water report gets an F for objectivity

Posted on January 30, 2001 by Other News Sources

Lawrence Solomon
National Post
January 30, 2001

Because the private sector has proven to be so successful in improving water quality while lowering costs to taxpayers, water utility privatizations have been sweeping the world. Europe, Asia, South America and North America are all increasingly turning to private operators to remedy decades of government neglect and compromised regulation.

In Canada, the Canadian Union of Public Employees has been complicit in the decline of our country’s water systems. While our public systems crumbled, CUPE policies promoted bloated workforces that absorbed the money our governments needed to refurbish and safeguard our water works. Only when CUPE recognized that water utility privatizations could sweep Canada and invade its own turf — in 1997 — did CUPE spring into action with expressions of concern over the health of our water supplies.

CUPE formed Water Watch with other organizations, including Maude Barlow’s Council of Canadians, and in 1999 and 2000, CUPE published an annual report on privatization, warning of its danger to public health. Many in the press and the public dismissed these efforts, in good part because of CUPE’s often hysterical tone and its penchant for half-truths. CUPE condemned the U.K.’s water privatization, for example, citing an increase in dysentery and Hepatitis A that occurred after the privatization. CUPE didn’t mention that dysentery and Hepatitis A levels fluctuate, that research does not attribute the fluctuations to privatization, and that, in any event, dysentery and Hepatitis A levels soon dropped below the levels that existed under public ownership.

Unimpressed by CUPE arguments, municipal governments also dismissed them — Halifax and Vancouver, among others, decided to pursue water and sewage privatizations. CUPE needed help to bolster its credibility, and it found that help in the Sierra Legal Defence Fund, a law firm that represents CUPE’s Water Watch ally, Council of Canadians, at the Walkerton Inquiry. Earlier this month, CUPE and Sierra Legal unveiled a smart-looking study that came out of their collaboration — Waterproof: Canada’s Drinking Water Report Card.

Sierra Legal managed the Waterproof project well. It stripped away CUPE’s hyperbole and couched the union message in measured language. Unlike CUPE’s previous two reports, Waterproof got great press. But at its core, Waterproof remains a political document that conforms to CUPE’s agenda: It attacks privatization, corporate farming, provincial downloading, and the decision by governments to cut taxes rather than spend on social needs.

Presented as an objective, national report card on water quality standards, this CUPE-funded document compares Canadian jurisdictions to those of the United States and the European Economic Community and finds ours wanting against both. Most provinces get a C or worse and none receive the A that Waterproof gives the United States, in its view “a world leader in establishing strong and comprehensive [water quality] requirements.”

Yet despite its focus on privatization, Waterproof makes no mention — not even in footnotes — of the fact that private water utilities are common throughout the United States and EEC countries. It does not explain that private sector operators tend to be better trained and more knowledgeable, or that privately owned companies and their shareholders stand to suffer financially by losing contracts when they don’t provide their customers with good service and good water. Private operators, in short, have been gaining market share because they are more accountable.

Instead, turning principles of accountability on their head, Waterproof asserts that “Mounting pressure may force some municipalities to turn to the private sector to own and operate water systems, further muddying the waters of accountability.” The report doesn’t mention that the Hamilton utility flagrantly violated sewage standards for years while the system remained under public ownership, its union staff turning a blind eye to infractions. Only after a private corporation took over its operation has the union become critical and the law begun to be strictly enforced — the private operators have recently been slapped with 14 charges. CUPE offers not a shred of evidence to support its claim that private operators are less accountable to government regulators than are government bodies.

The report repeatedly lambastes governments’ failure to invest in needed infrastructure, linking this failure to their preoccupation with tax cuts. Fair enough. Canada’s publicly owned water system is in gross disrepair and Canadians must pay to restore its health. But although the U.K. water system also suffered from deplorable disrepair under public ownership, and the British also had to pay, CUPE has relentlessly criticized the U.K. water utility privatizations of 1989 for raising rates. CUPE gives the U.K. no credit for its improvements following privatization — water quality has improved dramatically, for example — but it generously gives the Ontario government a B for its post-Walkerton reforms, although, as it notes, these reforms won’t all come into place before 2002. No need to privatize, the report card on our drinking water systems seems to be telling us. “Ontario made strides towards addressing these issues” after Walkerton, Waterproof states several times, in several ways, implying that Ontario’s B rating can be easily brought up to an A with the passage of one or two pieces of legislation.

Waterproof tries mightily to blame the factory farm for environmental problems, and in this it is fully justified. Factory farms pose numerous environmental problems. To its discredit, however, the report tries too hard, leaving readers with the impression that factory farming may have caused the Walkerton tragedy. “First, there is some evidence that the source of the E. coli contamination in Walkerton may have been a farming operation. Second, modern-day farming operations are often industrial in scale, producing massive volumes of potentially contaminated animal waste.”

Some evidence? May have been a farming operation? The E. coli contamination came from a family farm — that is the clear finding of an elaborate Health Canada investigation presented to the Walkerton Inquiry. The Walkerton area has no factory farming operations involving cattle. In most of Canada, in fact, only the family farm poses a Walkerton- like threat — most provinces have few large cattle operations and E. coli 0157:H7, the only deadly form of E. coli, is not present in pigs.

Waterproof gets an A for slick packaging. It gets an F for objective analysis of the causes of, and cures for, Canada’s drinking water supplies.

Posted in NaturalResources_Water | Leave a comment

No water regulation without privatization

Posted on January 23, 2001 by Other News Sources

Lawrence Solomon
National Post
January 23, 2001

The Mike Harris government, regaining its feet after reeling from the Walkerton tragedy, is considering various types of privatization to fund the improvements needed to set Ontario’s water system aright.

Most of these — half-hearted measures designed to partially placate privatization foes — would fail miserably, giving Ontarians unfairly high rates, compromised regulation, poor water quality and weak environmental protections, and opening the province to a repeat of the bungled electricity deregulations that we’re seeing in Ontario, Alberta and California. Only one option — clean, uncompromised privatization — can provide citizens with clean, uncompromised regulation.

Water pipeline systems are natural monopolies. Because pure competition here is, for all intents and purposes, impossible, free market forces could never guarantee either reasonable rates or strict public safety. As a practical matter, only a government agency can set strict standards and only a government agency can be trusted enough to regulate with authority.

But governments cannot be fully trusted when they have a conflict of interest, such as when they’re regulating themselves.

Ontario’s power system provides one real-life example. The Ontario Energy Board, an independent government regulator, for decades provided excellent oversight over Consumers Gas, Union Gas and Centra, the province’s privately owned natural gas companies. At the same time, the board was a toothless regulator over government-owned Ontario Hydro which, thanks to the numerous concessions Hydro routinely extracted from its friends in government, ran roughshod over the province’s finances and environment.

Ontario’s water system provides another real-life example. For decades, whether under Tory, NDP or Liberal government, Ontario’s water system was allowed to fall into disrepair, with provincial regulators turning a blind eye to problems in both municipal and provincial water utilities.

For a government regulator to be most removed from the utility that it regulates, the utility must be in the private sector. This arrangement is not perfect but it is as near to perfect as any country, anywhere, has managed.

The world’s strictest water quality standards exist in the United States, the United Kingdom, France and other members of the European community, countries which welcome private sector water utilities. Even the Canadian Union of Public Employees, a fierce opponent of water privatizations, acknowledged the superiority of the United States and the EEC in a water quality report, produced with Sierra Legal Defence Fund, that it released last week.

“Canada lags far behind the United States,” the report explains, in calling the United States “… a world leader in establishing strong and comprehensive requirements” in water quality. In contrast, Canada’s publicly owned water utilities fared poorly in the union’s own study.

In several partial privatization approaches that the Ontario government — through its SuperBuild agency — is considering, the government would be directly or indirectly regulating itself. One approach, for example, would see the government creating publicly owned regional water utilities — akin to a series of Ontario Hydros for water — that the province would manage. SuperBuild is making brave noises about making consumers pay for the full cost of water services — necessary both to induce water conservation and to pay for the improvements the water systems so urgently require. Fine, in theory. In practice, government-owned utilities crumble under pressure from customers, who could throw their political masters out of office. Utilities then delay needed repairs for the next government to worry about. That’s one dominant reason why water utilities across the country arrived at their present state.

In another partial privatization option, the provincial government would let the municipalities own the utilities, as they now do, with the province forcing them to raise rates to finance improvements whenever necessary. SuperBuild forgets that, whenever the province has changed rules affecting municipalities in the past, the municipalities have proved to be powerful lobbyists, demanding — and receiving — subsidies from the province to pay for needed improvements. In the case of Ontario, the province has paid up to 90% of the cost of new municipal capital improvements, making the province loath to force on municipalities new requirements that will come back to haunt the provincial purse. That’s another dominant reason for the water utilities’ disrepair.

In her full privatization of the U.K. water system, prime minister Margaret Thatcher understood these dynamics very clearly. For decades, previous Labour governments and previous Conservative governments, fearing the consequences of either raising taxes or raising rates to maintain the water system, let the water system degrade. By the time Ms. Thatcher came to power, the U.K.’s publicly owned and publicly run system had one of the worst records in Europe. And avoiding the billions needed for improvements was no longer an option for her — the U.K. had joined the European Community, and was committed to meeting European standards.

Instead of having government raise the capital that the U.K.’s water systems needed — the tab would ultimately approach $100-billion — Ms. Thatcher privatized the water authorities, knowing they would be able to introduce the user-pay system that governments have rarely had the stomach to maintain. The water companies did raise water rates — by 38% over the decade following privatization — partly to provide shareholders with a return on their investment but mostly to overcome the decay that had come from decades of neglect. And although consumers weren’t happy with the price hike, they were happy with the results in water quality. Water quality shot up dramatically — by 1998, 99.8% of the 2.8 million tests conducted met the required standard, as drinking water has been largely purged of the fecal coliforms, pesticides and other unwanted chemicals.

The environment has also improved dramatically, with the number of rivers and canals classified as good or very good increasing from 37% to 59% within just five years, and the number of usable beaches increasing from 401 in 1989 to 463 in 1999. The private companies did all this while also increasing their efficiency — operating costs have steadily fallen, enabling the regulator to force rates down. In November, 1999, household rates dropped by about 12%, and they’re expected to stay stable. One bottom line: By 2005, the average annual household bill will be only £38 higher than it was in 1989 under public ownership, when both water quality from the tap and in the streams was poor. Another bottom line: The U.K. is now one of the world’s best regulated systems, with one government regulator for rates, one for water quality and a third for environmental protection.

Mr. Harris understands, as Ms. Thatcher did, that the private sector is inherently more efficient in business activities. Canada, like the U.K., faces a huge tab to pay for decades of neglect to our own water and sewage systems — an estimated $90-billion for the country, one-third of that for Ontario. If Mr. Harris entrusts the task to a private company, its shareholders bear the risks. If he entrusts an Ontario Hydro-style utility, whose excesses at the Darlington Nuclear Plant and elsewhere will be costing taxpayers and ratepayers for years to come, he will be exposing taxpayers to needless risk.

Mr. Harris should also understand that the government can only regulate effectively if government and industry get entirely out of bed with each other. Leave commercial operations to the private sector; leave regulation to the government.

Posted in NaturalResources_Water | Leave a comment

Got milk?

Posted on January 22, 2001 by Other News Sources

Responses
National Post
January 22, 2001

Responses to “Dairy farmers are milking Canadian consumers” by Lawrence Solomon.

As a former dairy farmer I felt it necessary to respond to Lawrence Solomon’s column, Dairy Farmers are Milking Canadian Consumers (Jan. 16). I gather Mr. Solomon would prefer to pay less at the grocery store for milk and milk products. Canada’s dairy farmers in Canada receive only 50¢ to 60¢ per litre of the $1.70 per litre he is likely paying at stores. The difference is paid to the processors and, of course, includes the grocery store’s markup. At the farm end, it sometimes can cost the dairy farmer 30¢ per litre to produce milk, depending on feed prices which are linked to world prices and weather. This leaves approximately 20¢ per litre to service any debt, to pay unrelated production costs (capital improvements, property taxes, income taxes) and to try to provide a comfortable life for family.

Canadians are willing to pay more for a good quality product, a product which, when consumed, does not pose a potential health risk. American milk is produced by factory- type dairy farms (it is not unusual for a U.S. dairy farm to have more than 1,000 milking cows, where the average Canadian dairy farm averages around 60 cows). Ineffective U.S. controls mean that the consumer is likely to drink milk laced with bacteria — high somatic cell counts, meaning U.S. producers are shipping milk from cows that have mastitis or other udder infections and diseases. American dairy producers are also known to ship milk laced with antibiotics such as penicillin. American dairy farmers, unlike Canadian dairy farmers, are worried about the all mighty dollar.

Mr. Solomon claims that the average dairy farm is worth $1-million, after debt. There is no way that the average 60- cow dairy farm is worth that much. The value of milk quota does increase the value of a farm, but does his research, if he did any, tell him that this milk quota may not exist much longer? The United States has gone to GATT and has won a round of talks, arguing that the Canadian Milk Quota system (along with the other quota systems such as eggs and chicken) is illegal under NAFTA, as the tariffs imposed by the Canadian government and the quota system itself go against NAFTA.

If the quota system disappears, the tariffs will disappear and American dairy products will flood the Canadian market. Does he think that the Canadian government will reimburse the average dairy farmer, who just lost $700,000? Highly unlikely, as this is one subsidy that the government could not get away with.

Mr. Solomon should consider these facts and support his fellow Canadians, not subject them to a scathing article read nationwide!!!!

P. Wilson, Fonthill, Ont.

In olden times, we are told, Robin Hood robbed the rich to give to the poor, but in the Canadian version, the Canadian Dairy Board robs the poor to give to the rich (farmers) who earn considerably more than their counterparts in the United States.

Add in the poultry board and the poorest (i.e., the single mothers on marginal income) are really hit as dairy and poultry are staples in the Canadian diet.

Enter the clever federal Liberals who have a subsidy program of $80-million for single mothers so they can give the farmers their loot.

Dean Eyre, Ottawa

Mr. Solomon’s article missed a big part of the milk-price picture.

I regard milk a necessity for my children and myself. Also pizza. I also love cheese on its own. However, with sirloin steak at $9 to $13 a kilo when the sales are on, and Canadian-made Swiss cheese at $17 a kilo almost always, I simply will not buy Swiss cheese more than about once a month and I tiny chunk at that!

When the Encyclopedia Britanica CD first came out it was priced at well over $1,000 when other encyclopedia CD ROMs cost $150. Now it’s $100 with others at $50. Encyclopedia Britanica smartened up and recognized that many units sold at a reasonable price bring in much more money than few units sold at an inflated price. Cheese producers do not recognize this basic truth. Canadians would eat much more Swiss cheese if the price were $6 a kilo rather than $17 a kilo. And the dairy industry would make much more money.

Bob Morris, Professor of Engineering, Carleton University, Ottawa

Posted in Agriculture (Rural) | Leave a comment

Dairy farmers are milking Canadian consumers

Posted on January 16, 2001 by Other News Sources

Lawrence Solomon
National Post
January 16, 2001

Canadian dairy products, thanks to our ingenious system of milk marketing boards, are among the best bargains available — if you’re an American corporation. Americans and others who operate in international markets, can buy Canadian cheese and other Canadian milk products at free- market prices or less. That’s because Canada’s milk marketing system — a byzantine complex of quotas and other controls — overcharges Canadians for milk and milk products whenever it can, and then uses the profits to subsidize both dairy farmers and exporters.

Next to foreigners, the best price for Canadian milk products goes to Canadian restaurants and other Canadian businesses who pay, for example, 30% more than the free- market price for the same Canadian cheese that foreigners obtain. This, too, is by design. Canadian companies can obtain Canadian cheese at the free-market price, but only if, for example, they want to export a cheese product to the United States for American consumption.

Canada’s dairy industry reserves the highest price of all — about twice the free-market price — for the men, women and children in the average Canadian household. Canadian householders can afford to pay a dollar or two extra when they pick up milk at the supermarket, our dairy farmers say, because milk represents a small part of the household’s total food budget.

The government and the dairy industry are both sheepish about sticking it to the Canadian consumer in order to boost the dairy farmer’s profits. But they can’t force Americans or other foreigners to pay inflated prices for our milk, and they don’t want government coffers — through an identifiable, easy-to-attack tax — to pick up the tab. That leaves the entire burden of supporting the Canadian dairy farmer on the Canadian consumer.

So far, the Canadian consumer has suffered in silence, partly because the dairy taxes are hidden from sight and partly because Canadians sympathize with the plight of the poor farmer. But Canadian consumers are nevertheless voting with their pocketbooks — by abandoning milk for less costly alternatives.

According to StatsCan, Canadians now drink about 10% less milk than we did a decade ago. Meanwhile, our consumption of soft drinks has soared by 17%. Dairy Farmers of Canada, a lobby group, deplores the fact that Canadians now consume more pop than milk, especially since children are paying for this trend with their health. In particular, according to the University of Saskatchewan’s Paediatric Bone Accrual Study, girls between the ages of eight and 18 — the critical period during which they build bone at sites especially susceptible to osteoporotic fracture later in life — are endangered.

The distorted market for milk products not only harms our health, it harms the Canadian economy and intrudes in other ways on how we live our lives. To take one small example, the dairy industry lets U.S.-based manufacturers of frozen pizza, such as DiGiorno, buy Canadian cheese at world prices, and international trade rules let Canadian frozen pizza manufacturers, like McCain’s, also buy Canadian cheese at the world price. But our elaborate dairy industry rules deny pizza parlours and other restaurants that serve pizza the right to buy cheese at world prices, forcing them to pay 30% more for their mozzarella than their frozen food competition. As a result, although Canadians have been eating out more, sales of restaurant-made pizza have been flat. Frozen pizza sales in Canada, meanwhile, have soared — particularly of U.S. pizza imports, whose sales are up 87%. The Canadian Restaurant and Food Services Association, on behalf of all restaurants — pizza accounts for over 10% of all restaurant sales — is today in federal court, hoping to force the Canadian Dairy Commission to give restaurants access to free-market prices for cheese, yogourt and ice cream, other dairy products in which restaurants have lost market share.

A win for the restaurant association won’t much benefit affluent Canadians, for whom the money saved represents a trifling amount. But for those families on a tight budget, for whom a meal out at a pizza parlour is a big treat, a win for the restaurant association could be the difference between eating in or eating out. A win for the restaurants would also allow more restaurants to offer milk to children, instead of soda pop, as their free drink on kids’ meals.

Unfortunately, a restaurant win won’t help the great majority of families with their bigger food worry: the cost of groceries. Despite the dairy lobby’s claims, dairy products represent a large component of the grocery bill, second only to meat — StatsCan reports dairy products and eggs represent 16% of the grocery bill, more than fruits, at 11%, or vegetables, at 9%. On February 1, when the latest round of dairy industry increases is imposed on Canadian consumers — 3.8%, bringing to 13.8% the increases since 1997 — the burden on Canadians of carrying the dairy industry will rise further.

Overcharging the average Canadian household — worth about $250,000 when all that it has in the world is added up — to support the dairy farmer – whose farm alone is worth an average of about $1-million, and that’s after the farm’s debt has been paid — is grossly unfair, apart from making no economic sense.

“It’s not delivery. It’s DiGiorno,” goes the punch line in Kraft’s highly successful frozen pizza U.S. ad campaign. In Canada, where the product sells under a different name, Kraft declares, “It’s not delivery. It’s Delissio.” Frozen pizza sales grew by an impressive 50% since 1995 in the United States; in Canada, frozen pizza growth, at 74%, is half again as large. It’s not delivery. It’s not Delissio. It’s the milk marketing board.

Reader responses to this article.

Posted in Agriculture (Rural) | Leave a comment

Presentation at Simcoe County Farmer’s Week in Barrie, Ontario

Posted on January 12, 2001 by Other News Sources

Lawrence Solomon

January 12, 2001

It’s a pleasure being here in Simcoe County, at a conference where so many of the presentations are focused on how to improve your technology and your business, to become competitive. That is the key to the future of the dairy industry, and I commend you and the organizers for it. It will be a bright future if you keep your eye on that ball.

My last speech was also to farmers, but those farmers — about 250 to 300 of them — weren’t as optimistic. That conference was in Brandon, Manitoba, and things couldn’t have been more glum.  Prices are down for them, farmers are leaving their land. Things aren’t perfect here but compared with farmers on the Prairies, Ontario farmers are blessed.  On average, of course, farmers across Canada are well off. The average farm’s net worth, on average, is about two-thirds of a million dollars and the average dairy farm is worth more like a $1-million. Just the farm, forgetting about your car, your investments, your RRSPs and pensions.  Your farm alone is worth four times what the average Canadian household has in the world.  So you are truly blessed, and I hope you will always be blessed. And I wish the same for non-farmers, too, especially for those who aren’t quite so well off as you are.

The farmers in Manitoba aren’t as well off as you are, and you know why. They’re competing against heavily subsidized farmers, and that can be tough, especially since they’re used to receiving government help. You have the luxury of supply management. That protects you from competitive pressures. Today. But don’t think that can’t change. It can change overnight. It changed in other dairy producing countries. And it can change here.  Bombardier has been making headlines this week, because this one company just received a $1.7-billion loan from Brian Tobin, our new trade minister.

Bob Friesen, the president of the Canadian Federation of Agriculture, made the national press on this story, with a point of view that has probably also occurred to many of you.  Why was there a lot of extra money to help a profitable aerospace company but no extra money to help farmers, he wondered.

“One industry shouldn’t be more important than another,” he said. ” … There’s no reason why the government shouldn’t do the same thing for the agriculture industry that it did for Bombardier.”

Mr. Friesen, I agree with you when you say that one industry shouldn’t be more important than another. But I disagree that either industry should be receiving subsidies from government.  And, Mr. Friesen, I can explain to you why support to agriculture has been steadily, steadily declining while the government continues to support Bombardier.  It isn’t just that farming has cost a cumulative $80-billion in subsidies since 1986, the year the government began systematically counting the costs, although that’s part of it.  And it isn’t because you’re now just 3% of the population, so your votes don’t count for that much anymore, although that’s also part of it.  No, the real reason that agriculture in Canada will continue to lose subsidies involves something far more profound than that.

We live in an era of high-tech, of globalization, and farming, as practiced in Canada, just doesn’t belong. You can tell yourselves that you’re internationally competitive, but policy makers and politicians know better.  Our government is backing high-tech, it’s backing added-value industries that can and do compete on international markets.  The Liberals are an urban party. That’s where the votes are. That’s why they encourage more immigration and that’s why they’re slowly withdrawing the subsidy structure that has supported the farm sector.

But even if the Liberals wanted to support you, they couldn’t for long. Here’s why the status quo can’t last , and why there will be a shake out in agriculture.  In this era of globalization the consumer is king and governments can no longer protect producers against consumers. This is not unique to farming. Just look at the list of industries that have lost their government protection. The electric monopolies are falling around the world; some are private, some are public. The government was powerless to protect them, even when the government itself owned them. Same for the natural gas monopolies, the mining companies, telephone monopolies, and for the airlines. The walls holding back international trade are crumbling.  Consumers want more value, they want more choice, more safety and they also want environmental protection considered. The walls are crumbling.

Look at the auto sector, the North American Auto Pact is being scrapped with the Big Three losing their power to keep imports out. In the financial services sector, consumers want better access to financial markets so the big brokerage houses, such as Merrill Lynch, have lost their grip and now discount brokers dominate the market. Soon the music industry will also lose its hold because of Internet technology, such as Napster. And other protected industries, like textiles, will also lose their traditional industry grip. Don’t think for a moment that agriculture is any different.

Consumers want choice and governments can’t help you. Agriculture will lose its grip. Globalization has taken power out of the hands of governments, out of the hands of producers, and given it to consumers. Globalization has changed the world irreversibly and it has also changed how Canadians see ourselves.

And that is another reason that the status quo won’t last. We no longer see ourselves as hewers of wood and drawers of water. The Internet is spearheading the new economy and Canadians are realizing that the new economy, not the old economy is important to us. Montreal, Toronto, Vancouver are among the leaders in the continent for the new economy. The Toronto stock exchange is now seen as a high tech exchange. It is no longer appreciated for the primary industries that it lists. Because agriculture is passe and the new economy is hip, politicians are rushing to cash in on the new economy. And they are cashing out of the old economy, which can be read in Paul Martin’s speeches. They are now all about the new economy.

That is why the “old economy” has been losing its subsidies and that is why agriculture will continue to lose its subsidies and its protections. Paul Martin’s mini-budget before the election was all about the new economy because that is where the government wants to make its mark. And this occurred even prior to an election when you would think they would be trying to court the farm vote.

Now in this room, and in your circles, some of you might think that agriculture looms large in the national economy. Let me give you the actual statistics, the actual size of agriculture in the Canadian economy is …… 1.6% of GDP. Agriculture is small, the entire resource sector in Canada, in fact, is less than 6% of GDP.  The new economy is big. Nortel had a bad day in September, when it lost a quarter of its value. The Globe reported that a quarter of its value amounts to 9% of the country’s GDP. They could also have reported that Nortel’s one-quarter loss is also six times the size of the entire agricultural sector in Canada. Agriculture is not an economic powerhouse. It is a niche in the Canadian economy.  The status quo will not last for another reason, too. City industries, and not rural industries, are now seen as the engines of the economy. Some farmers like to argue that people have to eat. As if that argument makes farmers more important than other producers; who provide housing materials, the fuel we need, the clothes we need, the cars we need and the services we all require.

We do need to eat, but we also need other goods and services.  The agriculture sector provides 1.6% of Canada’s goods and services. Farmers don’t take precedence over other sectors and politicians know where their bread is buttered.

The status quo won’t last for another reason as well, because of the environment. I work for an environmental group called Energy Probe Research Foundation. It has 30,000 supporters in Canada. My friends and colleagues also work for environmental groups, such as Sierra Club, or for Greenpeace. The general public may think that farming is benign environmentally, but environmentalists know better. We don’t like the energy intensity of a lot of agricultural practices, we don’t like the pesticide and fertilizer use, we don’t like the resulting soil degradation and we don’t like the resulting water pollution and fish kills, such as those we’ve seen in P.E.I. Right now, farmers are far too popular for most environmentalists to go public with their concerns. But that’s for now, and that can change very quickly.

I think we are beginning to see the changes now. We all know about Walkerton, where a farm operation — I think it has 80 head of cattle — contaminated the town’s water supply with E. coli.  Public hearings are under way at Walkerton, and my organization is one of several that are intervening in those hearings. The Sierra Club, Pollution Probe, and the Canadian Environmental Law Association are also participating. The environmental groups are now criticizing intensive farming, but they are not criticizing the family farm, because they fear a public backlash.

Eighty head of cattle is not exactly an intensive operation. E. coli 0157H7 — the culprit at Walkerton — is the only deadly form of E-coli. Until recently it was thought to be fairly rare. It turns out that E. coli 0157H7 is in 90% of cattle at one point of their life, and at any point 30% to 40% of cattle have E. coli 0157H7. The general public doesn’t know this yet — the information is relatively new. In fact, public health officers across the country don’t yet know it.

But soon the public will know it, and there is going to be a lot more concern about farm practices. When that happens, public attitudes will change. E. coli exists wherever manure exists. There is a lot of manure which has to be dealt with responsibly in the country. The status quo will not last for another reason as well. Farmers are stepping on a lot of rural toes. The right to farm laws, I believe, are a big mistake. You’re out numbered in the rural areas, you’re upsetting your own neighbours, you’re setting yourself up for a big back lash.

The status quo can change and it can change overnight. In Brandon, my host told me a story about someone he knows in Toronto who doesn’t like to hear farmers always complaining. He says that it reminds him of Quebecers. Now, that was the first I’d heard of that. Actually I was a little bit surprised, because I live in Toronto and I know that Torontonians have enormous respect for farmers. There is just an enormous wellspring of appreciation for farmers.

In fact, even at the National Post, (and newspapers are famous for cynical journalists), other journalists, surprised at my columns on farm issues, have said, “Why don’t you take it a little easier on the farmers?”  There is a lot of good will for farmers but the public is fickle, and public sympathy can change very rapidly.

Farm protests may be a good short-term strategy but I think they undermine you very seriously in the long run. You don’t want to present yourself as a charity case to your customer. Customers don’t like to mix business with charity. And you don’t want to strong-arm your customers either; to tell them they have to buy from you and at your price. You want to treat your customers as equals. You’ve got something to sell; they’ve got something to buy.

Farmers have one fundamental decision to make and one decision only. You have to decide who is your customer. If your customer is the government, then you are going to do everything you can to win over the government. You are going to lobby, you are going to threaten. You will ask for lower transportation costs, lower inputs, more subsidies, higher milk prices, more protection.  You will get good at that, but you will ignore your real customer.

Who is your real customer? Your real customer is the restaurant that sells your product. Monday, that customer, as represented by the Canadian Restaurant and Food Services Association, is in court suing you, as represented by the Canadian Dairy Commission for charging Canadian restaurants more for their cheese than you charge American companies. Canadian restaurants pay 30% more for Canadian cheese than Americans do.

Mr. Friesen says he wants all Canadian industries to be treated equally. Yet he supports a system that gouges the restaurant industry to benefit the dairy industry.  Mr. Friesen may be good at courting governments but he is ignoring your real customer.

Who else is your real customer? Your real customer is the family in the city that can’t afford to buy milk for its kids.  These are the families that are worth a small fraction of what you’re worth, and they’re the ones who are expected to pay the most for their milk.  You know who gets the best price the Americans. They’re the only beneficiaries of our milk marketing system. They buy Canadian milk for a fair market price, and possibly for less than a fair market price .

The next best price — an above market price — goes to the businesses, like the restaurants that are suing you.  And the highest price of all — as if you have it in for them — you reserve for the family with kids, for ordinary Canadians who on average are worth a small fraction of what you’re worth. One day, the real customer — who has a lot more votes than you do — will say, ‘Who needs you?’ And when that happens, the government will also ask the same question.

Things can change very fast. That’s exactly what happened to farmers in New Zealand. That’s who I think Canadians can learn from not Americans, and not Europeans, whose dairy sectors are as uncompetitive as Canada’s.  New Zealand is a farming country. It is small — 3.6 million people, about one-third of Ontario’s population.

Like farmers in Canada, New Zealand used to be heavily dependent on government. And that heavy dependence hurt the economy, it hurt the environment and it hurt the farmer. In the early 1980’s, New Zealand faced an incredible economic crisis that we can’t even relate to. Almost overnight, the government was forced to end all subsidies. In 1984, farmers received 40% of their gross income from government subsidy. In 1985 it was gone.

I’m not recommending this for Canada. We are not in the dire straits that New Zealand was, but I am recommending that we look at the effects of the subsidies on New Zealand and how removing the subsidies transformed New Zealand. With the subsidies, agriculture didn’t need to be sustainable. Exports were so highly subsidized that marginal lands were converted to agriculture use.  Trees were cut down, with farming occupying some of the steep slopes of the hills and valleys in the countryside. Today over half the country suffers from soil erosion and the erosion is extreme in about 10% of the country.

There is carbon depletion, nutrient depletion, and acidification.

There are many other problems, such as soil compaction and several thousand of the country’s 80,000 farms have contaminated sites.

Farmers are rational individuals who respond to economic signals. Fertilizer was subsidized but fencing was not, so farmers saved money on fencing by fertilizing new pasture areas instead of using the grass efficiently where it was already growing. The farmer’s products also deteriorated. As the volume of sheep increased, the quality decreased. Because of the volume of sheep and their demand on pasture and rangeland, they became so scrawny that they were unfit for western markets. New Zealanders had to sell them into the Middle East, where they are used to bony animals, like goats.

Sheep were basically being sold as goats. In one year, a large number of lambs even had to be rendered down and used as blood and bone fertilizer. That was the world under subsidies.  Now for New Zealand without subsidies. The environment bounced back, the erosion prone lands have been taken out of production, and some of the land has gone back to its natural state. About 2 million hectares have gone into commercial forestry. Farmers use fertilizer and other chemicals far more sparingly, and water quality has improved immensely.

It wasn’t just the environment that bounced back, farming bounced back. In the last 10 years the farm sector is up 24% in constant dollars with farming about 6% of GDP. That is about three and one half times Canada’s proportion. New Zealand’s agriculture sector as a whole is about 16% of GDP. Farming is now more important in the New Zealand economy than it was in the early 1980’s.  In fact, the economic growth and improved efficiency in the agriculture sector is out-pacing the rest of the growth in New Zealand. Before the subsidies came off, productivity increases in New Zealand averaged 1% a year. Once the subsidies came off, productivity increases were 6% a year.

New Zealand is now the country that is best prepared for the globalized world we live in. In the last decade, New Zealand has increased its share of world dairy production by 50%. And it has become an exporting powerhouse.

In butter, New Zealand accounts for 45% of world exports:

In cheese, 23%:

In skim milk powder, 18.2%:

And in whole milk powder, 27.3%:

Subsidies? Here’s how New Zealand stacks up against Canada and the United States. We are heavily subsidized, as is the U.S. New Zealand, the exporting powerhouse, receives almost no subsidies.  Now what does this mean at the individual farm level? Over the last 10 years, the average diary cow produced 35 kilograms or 25% more milk fat per year. Lamb carcass weights have increased 2 kilograms or 16%.  When the farm subsidies first came off everyone predicted disaster. Massive de-stocking. De-stocking of livestock did occur it is down 7%. Total numbers of sheep are down 27%, but lambs are up 3% and cattle are up 11%.

There are other changes. Land use became diversified and farmers started to maintain cost structures that reflected the real earning capability of their farms. New products were developed and farmers got closer to their customers. The French have a certain kind of cut that they like for their rack of lambs. In New Zealand they process it now and ship that value-added product.

The most dramatic valuer-added change in New Zealand has been that organically grown produce is up, and it is up dramatically.  Now this wasn’t bed of roses. There were a lot of disruptions.

When New Zealand brought in those free market reforms, one of the things that happened was the New Zealand dollar went up. That made it all that much more hard to export any of the country’s products. Interest rates climbed sharply and they stayed high for years. That led to land values plummeting — they had been artificially high. People predicted that 8,000 farms would fail; that’s 10% of New Zealand’s farms.

But actually farmers stuck it out because they saw the potential in the free market. In the end 800 farms failed, that’s 1%. Those land values, which tanked before, are now back to where they were in the early 80’s and that’s after inflation. Those farmers now are sitting on gold; but not fool’s gold. Do they want to go back to the old, subsidized world of government protection? Ask New Zealand’s farm organization its counterpart to Mr. Friesen’s organization and you’ll get a resounding NO. New Zealand farmers like being independent. They don’t want to go back.

And here’s another bottom line. There are 10% fewer farmers in New Zealand, but the rural economy is up. The overall rural population is up 9% over what it was. If you care about rural life; if you care about sustainable farming; if you care about getting off the government dole, being independent and efficient; New Zealand points the way.  You can wait for the rest of the world to change. For the U.S. and the E.U. to drop their subsidies. You can wait for the Canadian government to raise their subsidies. You can pray that the government won’t abandon you some day. Or you can take control in your own hands as farmers did in New Zealand.

If you bite the bullet here, I don’t know the end result, I don’t know if the farm population will drop by 10% or 20%. But I do know that the farm population has been dropping with all the subsidies that you are getting.  And I don’t know if land prices will bounce back in 5 years or 10 years. But I do know that when they do bounce back, they will be real land values. And here’s something else that I do know; we can do better to provide a real safety net for our farmers than the New Zealand government. Which by the way, the Labour government did not do in New Zealand in the 1980s. Because when New Zealand cut off the subsidies to the farmers overnight, it provided almost no support. There was a one-time grant to farmers who where leaving the farm sector and that was base on two-thirds of the previous year’s income. And apart from that there was some sort of grief counseling that the government offered with some welfare support, but virtually nothing.

We can do a lot better. What I would propose doing, is to leave the subsidies intact for the farmers nearing retirement. I think that it is a blessing that there are so few young farmers in the system. It means that the transition can be easy. For existing farmers, the younger ones I would phase out subsidies perhaps say over 10 years. But for new farmers, people who haven’t yet entered the farm business, not a penny. No one should need encouragement to farm, or to do anything else. And one other thing I’d do is I’d protect existing asset values, as a government insurance policy to protect against land values dropping, so that people can feel secure that they won’t lose their main asset. In the case of quotas, I’d have the government buy them back. At their current value, not at the value that they had when you obtained them.

If you wait until globalization hits you between the eyes, if you wait until our markets are forced open to accommodate international trading rules, you could find that your quotas have become worth a lot less, maybe even worthless.  Under globalization, some parts of the farm economy will shrink but others will grow. I’d like to tell you about the most blessed farming region in Canada. It’s called the Greater Toronto Area. The GTA produces 50% more farm output than Nova Scotia, 67% more than P.E.I., and 80% more than New Brunswick. The GTA, as you know, is an industrial powerhouse, but it is also an agricultural powerhouse. And that’s because it services a large urban population, which has given it the most diversified agricultural economy in Canada.

Farmers in the Toronto area are close to their customers, and those customers don’t want just commodities. They want organic produce, they want herbs for the health food stores, and they want exotic grains for the restaurants. The specialty-farming sector in Toronto is fast growing; in fact it now matches the traditional farm production of poultry, pigs and diary.

There is a bright future for farming but it doesn’t include government. You will wilt on the vine with government, but throw government off your back, get close to your customers, scrap the quota system, scrap supply management, get back to your roots, and you will thrive.

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