Farm subsidy drain is tilted east, Toronto report suggests

Barry Wilson
Western Producer
June 27, 2002

When the debate over the need for farm supports is raging, prairie provinces quickly develop the reputation of being most aggressively in favour of aid, the most deeply in need and the most heavily subsidized.

But a Toronto research institute opposed to farm subsidies says that is a myth.

As of 2001, Ontario had the most subsidized farm sector, according to a report from the Toronto-based Urban Renaissance Institute. Saskatchewan and Manitoba are in the middle of the pack while Newfoundland has bumped into second place.

Larry Solomon, executive director of the institute, said in a June 21 interview that subsidies to support agriculture in 2001 were worth $3.53 for every market dollar earned by farmers.

The subsidy calculation included the consumer costs of supply management-regulated commodities such as milk and eggs.

By that calculation, subsidies and regulated revenues provided Ontario farmers $6 for every $1 of market revenue last year.

“This is an enormous transfer of wealth to the farm sector,” said Solomon. He argued it is a sign of farm economy inefficiency.

“No province operated a profitable farm economy over the past decade,” said the institute report.

The Urban Renaissance Institute says it is an independent research centre that advocates policies supporting the growth of cities and surrounding rural areas.

It insists that high subsidies help big farmers, not smaller ones.

Its Web site asks if viewers support elimination of farm subsidies that help big farmers but hurt small farmers. Of the 96 who had responded by June 21, 55 percent said yes.

Solomon said the answer is to stop subsidies for new farmers and to phase them out for existing farmers by using subsidy savings to “buy out” the benefits of subsidies.

“I think it we could phase out subsidies, it would result in a stronger small farm sector around cities and that would be good both for farmers and for the cities.”

Solomon said consumers would benefit since they pay higher food prices or higher taxes to support the present regime of regulation and subsidy.

“The subsidy system does not help consumers or family farmers. It hurts smaller farmers and helps mainly bigger farmers and it is perverse,” he said.

“The only consumers it helps are foreign consumers who get to buy our cheap food.”

Posted in Agriculture (Rural) | Leave a comment

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.

Posted in Agriculture (Rural) | Leave a comment

Food fight

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“:

Posted in Agriculture (Rural) | Leave a comment

Opinions struck a cord

National Post
June 24, 2002

Lawrence Solomon‘s opinions struck a perfect cord with my own views about farming subsidies (Record Harvest of Profits All Came From Subsidies, June 13). This is an excellent piece, and I hope the electorate wakes up to these socio-economic facts. It is high time we accept reality: Subsidies will not end in this world, and a smart Canada would save its billions to develop other, more productive industry and infrastructure, while it sucks those same billions from the other loser countries who would destroy their own productive industry in the process.

I suggest that Saskatchewan would make a better tourist attraction with big game roving the range than a swaying wheat field. At least a park contributes to the tourist economy. Grasslands National Park is a case in point (and it probably should be bigger, too).

Lionel Berry, Oshawa, Ont.


Lawrence Solomon does a breathtaking job of writing off Canada’s farmers and Canada’s agriculture as burdens around the neck of every taxpayer. And he identifies Prairie farmers as the worst of all, seems to suggest they should be abolished, the land turned back to the buffalo and the gophers. But is he missing something?

Every grain grower and everyone living in rural communities knows deep in his heart the burning challenge facing the Prairies, and perhaps even Canada itself, is: How do we build this great Prairie treasure house? How do we get back to creating jobs and wealth? How do we rebuild our rural communities?

Yes, grain prices are now at disaster levels and huge foreign crop subsidies threaten to keep them there. We educate the kids and they leave because the good jobs are elsewhere. Too many farm communities are failing. And it’s getting worse. Statistics Canada found Saskatchewan lost over 6,000 farms in the five years between 1996-2001. This deepening crisis is beyond the control of individual farmers and rural communities. And it may be the most controversial political issue in Ottawa.

The reason the Prairies are failing to live up to their potential is no mystery. A century ago, a few U.S. preachers decided they had discovered a blinding truth – capitalism was the problem! Abolish capitalism, they cried, and turn the economy over to honest politicians. The idea was called the social gospel. Most Americans thought it was a dumb idea. So those preachers crossed the border into Canada’s Prairies. And we swallowed their social gospel message and set out to put the politicians in control.

But this plan had a fatal weakness. Ottawa proceeded to create a wheat monopoly which denied growers the freedom to manage their farms and to sell their own crops. Grain growing/selling became an exercise in politics, not business. Ottawa had seized control of the prairie economy, and it has maintained that stranglehold to this day. If Ottawa had opened the door to the entrepreneurial spirit in the West, the Prairies would have turned massively to processing its enormous grain crops, increasing dramatically the value of the raw crops grown.

But Ottawa’s policies forbade that. The Crow Rates subsidized raw grain shipments out of the Prairies, but not processed products. This forced Prairie flour mills to shut down, robbing the West of jobs and wealth creation, preventing a full-scale move into food processing and value-added.

Meanwhile, Ottawa’s grain monopoly seizes every grower’s wheat and barley as it comes out of the combine, denies him the freedom to sell it to waiting markets. Now, the West doesn’t process its grain into flour and breakfast cereal and bread and cakes any longer. Ottawa transfers the jobs and the wealth to central Canada. It robs growers of the freedom to manage their own operations and their own industry. The time is long overdue to end that and, as a start, to return grain to a business operation.

When will Ottawa finally move to end its grain monopoly, and free up Western growers to sell their own grain and manage their own farms? And to process their wheat and barley right at home, creating jobs in their own communities? And keep the kids at home. Because only this kind of freedom will allow the West to return to wealth creation.

The time is overdue for Ottawa to clear the way for farmers to go all out in building their own farms and their communities. They must be free to build sizable cattle and hog enterprises and set the stage for new meatpacking and grain-processing plants. Or will Ottawa continue to shamelessly impose its smothering political grain monopoly over the West? If it intends to do this, then Mr. Solomon is right – close down Prairie agriculture.

Don Baron, Regina

To read Larry Solomon‘s article, “Record Harvest of Profits All Came From Subsidies,” please click here.

Posted in Agriculture (Rural) | Leave a comment

Climate change theory ca. 1887

Lawrence Solomon
National Post
June 24, 2002

In the last half of the 19th century, conventional wisdom in North America held that the climate in the Prairies – the vast lands that comprise much of the continent – was changing. In the United States and Canada, tens of governments, thousands of businesses and hundreds of thousands of individuals spent fortunes in line with this wisdom – the only time in human history that great sums were spent in anticipation of climate change.

The conventional wisdom was wrong. The fortunes were lost. Even worse, it took us down a path that led to North America’s greatest environmental disaster of the 20th century, and to staggering social costs that still bedevil us today.

Before the climate change theories came into vogue more than a century ago, settlements had stopped at the Prairie’s edge. Everyone knew that the arid lands – dubbed the Great American Desert – could not be farmed. But for several years, above-average rainfall blessed large parts of the Prairies, fostering wishful theories that allowed people to think that the climate had changed, and with it the rules of agriculture. The most popular climate change theory held that “rain follows the plow,” as if areas received rain because they were farmed, and not the other way around. Under this belief, which many scientists soundly endorsed, plowing exposed the soil’s moisture to the sky. “It is the great increase in the absorptive power of the soil, wrought by cultivation, that has caused, and continues to cause an increasing rainfall in the State,” explained University of Nebraska scientist Samuel Aughey. With the soil broken, rain is absorbed “like a huge sponge.” Evaporation from the soil then increases rainfall.

Others theorized that the new transcontinental trains were stirring the atmosphere and changing the flow of moisture, letting rains fall in the Prairies that otherwise would have travelled further east. The staid Army and Navy Journal attributed the rains to the railroad having altered the atmosphere’s electrical condition. In accepting yet another climate change theory, The Nation stated in 1887 that the entire Prairies “will within a few years enjoy a rainfall sufficient to admit of raising crops without any considerable degree of artificial irrigation.”

The wishful theories suited the politics of the day. Governments on both sides of the border were determined to encourage settlements on the Prairies, as were the railroads and developers eager to cash in on these government policies. It would take decades before the mad theories were put to rest, partly because scientists who dissented from the conventional wisdom were finally heard, mostly because the Prairies reverted to their historic, arid state. The U.S. Department of Agriculture’s 1896 Yearbook of Agriculture soberly concluded that “farmers have deluded themselves with the belief that with the breaking of soil . . . and bringing civilization, the climate was becoming more favorable to their operations.” The U.S. Geological Survey found that “fruitless and demoralizing movements of population” into the Prairies were occurring on the mistaken belief that “a radical change of climate” was taking place.

By then, much of the Prairies was overpopulated, creating vested interests to maintain farmers on land that could not safely sustain them. In his Report on the Arid Lands of North America, John Wesley Powell, perhaps the most prominent scientist of his day, recommended policies that would have slashed the farm population to one-sixteenth that planned, to avoid overpopulation.

He was ignored. Other theories that justified farming the desert arose, the theories spread like wildfire through government and farm lobby organizations, and settlers kept coming in droves. At the turn of the century, Stephen Leacock wrote in his history of Canada, two million people left Europe for the New World, the Prairies the destination for many of them.

The land could stand the strain for only so long. Residents of the northern Prairies would pay the consequences in a severe drought that hit between 1917 and 1921. Many farms failed then, but the worst was yet to come. The settlement of the Prairies soon produced the Dust Bowl, an unprecedented environmental disaster. With the native grasses plowed under for crop cultivation, and with intensive cultivation reducing the size of soil particles, the soil became dust when drought and high temperatures lowered the soil’s moisture. Winds then stripped areas of Saskatchewan and Alberta entirely of topsoil.

The first of the great dust storms swept across the northern plains in 1933. A May, 1934, dust storm that started in Montana carried some 350 million tons of soil toward the East Coast. Others were equally severe. The storms lasted until 1940.

The Prairie weather hadn’t changed, after all. But the Prairies have. Still overpopulated, and potent politically, if not economically, Prairie residents remain dependent on government payments for their sustenance, and delude themselves into thinking of droughts, rather than rain, as the exceptions. In 1690, the first European explorer in the Canadian Prairies, Henry Kelsey of the Hudson’s Bay Company, called the Prairies “barren ground.” So it was and so it will remain, as long as Prairie policies continue to be based on fictions.

Posted in Agriculture (Rural) | Leave a comment