Montreal, August 15, 2004  /  No 145  
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Harry Valentine is a free-marketeer living in Eastern Ontario.
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by Harry Valentine
          Recent announcements emanating from Ottawa have suggested major changes in government involvement in Canadian agriculture. These announcements may also be trial balloons intended to gauge domestic reaction to proposed major revisions to Canada's supply management of the dairy, poultry and wheat sectors. Canada intends to present these revisions to the World Trade Organization in response to the high level of direct and indirect subsidies provided by European and American governments to their farmers. The adverse effects of recent changing weather patterns have impacted agricultural areas in Western Canada as well as the Western and South-Western USA. These changes have the potential not only to severely restrict future agricultural output in these regions over the long term; they can also restrict the American government's ability to provide an abundant supply of low-cost water to the politically-favoured farmers.
          The water-intensive farming practices that prevail in the usually drought-stricken regions of the South-Western USA are the result of a massive government-funded water diversion schemes instituted during the early/mid 20th century. Studies into the long-term (400-year) weather patterns in these regions have revealed that during the 20th century, rainfall exceeded the levels of the long-term weather pattern. Recent consecutive summer droughts throughout the western regions of both Canada and the USA indicate a possible return to more traditional long-term weather patterns of less summer rainfall. This may be despite the cooler, wetter summer weather experienced in parts of Canada during 2004. If North-Western Canada receives less rainfall in the future, Americans looking to Canada for alternate sources of water to sustain water-intensive agricultural production may have to abandon plans to divert Canadian water via the proposed Garrison Diversion. 
          A future long-term decrease in summer-time precipitation would require that major change occur in farming practices in the affected regions of both Canada and the US. A cessation of government involvement in agriculture, including the indirect subsidies as well as the economic regulation of that sector, would encourage more competition as well as the more efficient use of resources. Continued indirect government assistance such as providing farmers in drought-stricken regions with an abundance of water at low-cost, reduces incentives for farmers located in other regions having more rainfall from growing the same kinds of crops at lower cost. Government action in this regard merely sustains inefficient production and a waste of resources. Consumers and taxpayers ultimately pay for such waste through increased taxes and higher food prices. 
          Agricultural tribunals and marketing boards, which have traditionally acted to protect producers from both foreign and domestic competition, maintained higher than market rate food prices. They did this by forcibly restricting the number of domestic producers allowed to sell to the market, a violation of Canada's Charter of Rights and Freedoms which states that "all citizens are equal before and under the law." Artificially higher food prices along with unfavourable economic conditions in some regions have compelled a segment of the population known as the working poor, to increase their dependence on food banks to supplement their grocery supplies. A more competitive food production regime would result in lower food prices. 
Agri-food downsides 
          Government involvement in and control over numerous other aspects of the food production industry has also had a downside. It has encouraged the production and increased human consumption of food products derived from soybeans. The safety of soy has recently been questioned after the emergence of soy-related health problems. Government involvement in the dairy industry has discouraged consumption of raw, unpasteurised milk (from grass-fed cattle), despite recent research indicating its potential health benefit to young children. While government programs encourage the consumption of grain products (carbohydrates), programs such as the South Beach Diet and the Atkins Diet have promoted the benefits of carbohydrate-reduced diets. 
     “Almost consistently, government involvement in the food industry has achieved something other than what was originally intended, including the production of higher priced food of lower nutritional value.”
          Almost consistently, government involvement in the food industry has achieved something other than what was originally intended, including the production of higher priced food of lower nutritional value. For example, it encouraged the feeding of grain, soy and rendered animal carcasses to livestock. Despite this, grass-fed beef from Australia, Brazil and Argentina have replaced Canadian beef exports to the USA and Japan, following the mad-cow case in Alberta. Information pertaining to the health benefits of grass-fed beef has been circulating in the USA, advising that unlike soy or grain-fed beef, it contains higher levels of the essential omega-3 fatty acid needed to sustain human cardiovascular health (see "Why Grassfed Animal Products Are Better For You" or "Science Underscores the Grassfed Story").  
          The shortcomings of government involvement in the food industry makes an exit by government from the food industry highly desirable. One group of Western Canadian wheat farmers who wish to operate independently of the Canadian Wheat Board have shown repeatedly that they can locate customers outside of Canada all on their own (all the Wheat Board does is collect a hefty fee from members of this group). A previous article in this series indicated that over 80% of Western Canadian wheat is produced by less than 20% of the wheat farmers, which just happens to be the group which wants to market their produce independently of any governmental tribunals (see: MARKETING BOARDS SUBVERT DEMOCRACY, le QL, no 119). Farmers who hold membership in the Canadian Agri-Food Trade Alliance do operate outside of any quota system and are quite willing to compete in a regulatory-free, subsidy-free, tariff-free international food trade market. This group represents over 80% of Canada's for-export food production, but their membership involves less than 20% of the exporting farmers. 
          Government officials choose to disregard the interests and abilities of this small number of highly efficient and productive farmers, instead favouring the commercial interests of a large number of less efficient marginal producers. A small percentage of efficient producers invariably carry the bulk of the cost of maintaining the government regime of market regulation, supply-management and guaranteed quotas. This system not only extends protection to the smaller, less-efficient producers, it also provides secure jobs to a cadre of government bureaucrats, officials and appointees. This is not merely a case of regulated players "capturing" their regulators (as theorized by Dr George Stigler, 1981 Nobel laureate of Economics), but an example of how marginal producers along with their regulators can actually "capture" higher level government officials to act in their combined best interests.  
Of trial balloons 
          In view of this, Ottawa's announcement that agriculture will be deregulated and the food market opened to free trade, needs to be viewed as government officials flying a lead balloon. In an unrestricted free-trade food market, 20% of exporting Canadian farmers whose effort accounts for over 80% of the food production will remain in business. The remaining 80% would have the power to create an unpalatable scandal for the minority government, a debacle it may prefer to avoid. The government may leave no other choice to marginal producers located in Canada's drought stricken regions but to either sell their farms or remain in business by growing drought-resistant crops. Groups of owners of large farms in drought stricken areas may be able to afford the costs of transporting water in railway tanker cars and distributing water be road tanker trucks.  
          Quebec's unique summer weather patterns would enable agricultural production to prevail even when parts of Western Canada and the America South-West endure summer droughts. Projected future weather patterns have the potential to give Quebec farmers a competitive advantage in a competitive marketplace; however, this group would likely prefer to avoid such a marketplace despite having a competitive edge and having ready export markets. Future projected weather patterns could give parts of Quebec the potential to greatly increase future food production, allowing more outdoor summer crops to be grown further north, including food production destined for export. Quebec is home to some of the largest commercial food-growing hot houses in Canada, a trend that could expand in the future. Despite an evolving competitive advantage developing in Quebec's food production capabilities, the province's farmers remain among the most fervent supporters of the quota system, supply-side regulation and protected markets. However, Quebec farmers may eventually realize their ability to compete in an open, free market.