Monday, August 10, 2020

Economists say Canada needs a new agriculture policy

Canadian farmers face so many challenges that a total revamp of agriculture policy is needed, say the three agriculture economists at Agri-Food Economic Systems at Guelph.


While they lay out a long list of challenges, they do not provide a comprehensive recipe for politicians to fashion a better set of policies.


One major challenge is the collapse of rules-based global trade 

agreements, mainly as a result of protectionism under United States President Donald Trump.


He and China have ignored the World Trade Organization rules to hike tariffs and use them to pressure others to knuckle under to U.S. demands.


The current imposition of a 10 per cent tariff on Canadian aluminum is only one of many examples.


A related challenge for Canadian farmers is Trump’s multi-billion subsidies to compensate for China’s tariffs and the COVID-19 pandemic.


That skews U.S. market prices, especially for grains, undermining Canadian prices and the ability to use the futures markets to hedge risks.


Doug Hedley warns that “a descent into provincialism in agri-food policy in Canada would be disastrous, but it cannot be ruled out without awareness and effort”.


The team points specifically to national business risk management programs such as AgriStability.


“Our great difficulty is to fully come to grips with the situation that lies ahead of us”, said Al Mussell, Agri-Food Economic Systems Research Lead. 

 

“Our challenge (in the past) has been one of managing the abundance of farm and food products at price levels and volatility that provide farm profitability and an efficient investment climate.  But that was in a more secure trade and geo-political environment.

  

“The challenge of abundance remains, but we must now also consider food security and the risk of sudden collapse of segments in fashioning agri-food policy”. 


They list the big challenges:


• _The loss of the vast majority of the food service market in Canada- only now beginning its recovery. Will it return to its past size/scope? 


• _Ongoing threat of sudden closures of processing facilities- notably in meat processing. In turn, this has (re)exposed important fissures at the provincial level that have long existed. 


• _Practical difficulties and uncertainties associated with accessing foreign workers, undermining horticultural enterprises on some farms. 


'The optics of worker illness, with some Covid fatalities, is broadly negative and an underlying threat to foreign worker programs. At the same time, the Canadian workforce is not well aligned with repeated laborious work- including farm work and food processing. This could prove to be among the principal strategic issues exposed by COVID-19 pandemic, and it is global in scope," they wrote.

 

• _In most field crops, the price outlook for the harvest of 2020 is bearish, emboldened by historic agricultural support levels in the U.S. and the prospect of bumper crops in key growing areas and burdensome stocks going into the fall harvest. 


• _Inequities perceived across farm commodities in terms of public support for losses- whether related to trade injury, or Covid-19. 


"This is perhaps best exemplified by support allocated to the dairy industry in consideration of CETA/CPTPP/CUSMA versus federal assistance provided to canola, and more recently federal assistance for beef and pork," they wrote.


•   U.S. grain futures commodity prices are extensively used as a price reference in Canada and subject to arbitrage- but with agricultural support conditions so different between the U.S. and Canada, arbitrage occurs across an increasingly unlevel playing field in which low prices carry different implications for U.S. producers than it does Canadian producers. 


"This ultimately leaves Canadian producers in an unsustainable position absent mitigating measures. Another example in Canada is hog pricing models- in some cases based on carcass value, and in other cases hog futures/cash prices in U.S. Midwest, potentially creating very different return streams for producers," they wrote.


• _Increased erosion in the integrity of rules-based trade, with immediate threats from measures by countries to block (or hoard) personal protective equipment, a prospective SARS-Cov 2 vaccine, in addition to food security inspired measures to constrain exports. Also renewed agri-food trade policy as an element of geo-politics- such as barley and beef in the China-Australia relationship. 


• _Increasing tension in the U.S.-China relationship, possibly pressuring greater bilateral U.S-China trade in agri-food, with other international agri-food suppliers (such as Canada) relegated to a second tier. 


• _With domestic unemployment running in excess of 12 percent in June (nationally), and similarly in other developed countries, slumping incomes will eventually impact food demand. Conversely, the financing of sweeping government aid packages across the economy enacted as emergency measures could be inflationary with the ultimate impacts and costs deferred to future macroeconomic measures. 


• _Some regions in Canada are especially hard hit, notably Alberta and Saskatchewan, under the slumping oil demand. 


The economists say “the breadth and depth of issues impacting the agri-food policy landscape in Canada has perhaps never been more challenging.”


One of their recommendations is that Canada seek global partners to deal with trade issues and that try to secure access to markets that are facing the risk of food shortages.


But they also warn that it may become more difficult or expensive to import fresh fruits and vegetables.

                           

Frankly, I don't think Agriculture Minister Marie-Claude Bibeau and her staff are up to these challenges. But, then again, I can't point to any team that is.