Agriculture and Food Policy

Agriculture and Food Policy

Federal agricultural policy is intended to serve national economic and political goals as well as the interests of those directly involved in and affected by Canadian agriculture - primarily producers, food processors, distributors, retailers and consumers. The Task Force Report on Agriculture, official publications such as Canadian Agriculture in the Seventies (1969), A Food Strategy for Canada (1977) and the 4-volume Orientation of Canadian Agriculture (1977) identify the national goals as economic development, rising and stable incomes, full employment and harmonious international and federal-provincial relations. Specific agricultural goals include stable and fair producer returns, adequate supplies of high-quality, nutritious food at stable and reasonable prices, and rural development and resource conservation. In addition to these traditional goals, new objectives entered Canadian agricultural policy in the 1990s. Agriculture Canada's 1989 Growing Together document and their 1994 Vision on Future Directions for Canadian Agriculture and Agri-Food stressed the agriculture sector's need to be more self-reliant and market-oriented, less dependent on government financial support, and more internationally competitive. At the same time, long-standing goals of a safe and high-quality food supply and financial security for producers were reaffirmed.

Policy Goals

From Confederation until the late 1950s federal agricultural policy was designed to secure Canada's control over the West, and to produce food for Canada, its trading partners and war allies. In the years following Confederation, agricultural expansion was encouraged by immigration and settlement of the West and the Department Of Agriculture began its existing program of scientific research and development and experimental farms. Governments encouraged the production and export of grain. The freight rates at which grain grown on the prairies moved to export markets were fixed as early as 1897 in the Crow's Nest Pass Agreement. But the lack of competition in the marketing of grain and the monopolistic trading practices of the private grain and elevator companies troubled farmers. Their calls for regulation of the grain-handling system - including government inspection and standards, public ownership and operation of elevators, and a government marketing agency - were gradually heeded, leading to the contemporary system of grain handling and marketing.

During the First World War, in order to prevent speculation on wheat prices, the government established the Board of Grain Supervisors to market the 1917 and 1918 crops. It was succeeded by the Canadian Wheat Board, which handled the 1919 crop. When the Board was subsequently terminated, producers established their own co-operative pools to handle and sell prairie grain (see Co-operative Movement). The collapse of these pools in 1930 led to the permanent creation of the Canadian Wheat Board in 1935. It was given monopoly authority over the marketing of prairie wheat in 1943, and between 1949 and 1973, over oats and barley.

The Great Depression forced governments to consider problems of agriculture itself, particularly low and unstable incomes. Severe drought and crop failures, in conjunction with depressed farm prices, led to the federal Prairie Farm Rehabilitation Act (PFRA, 1935) and the Prairie Farm Assistance Act (PFAA, 1939). Under the PFRA, federal and provincial governments co-operated in programs to rehabilitate agricultural land, develop farm water supplies, provide community pastures, and resettle individuals from drought-stricken lands to more arable sites. The first 3 aspects of the PFRA continue today. The PFAA provided minimal payments to marginal farmers experiencing below normal crop yields.

During the Second World War, agriculture again became important for its contribution to national objectives. The needs of the agricultural community and producers' concerns were of secondary importance; the emphasis was on pursuing Canada's war effort by filling the food requirements of Canada's wartime allies and curbing domestic inflation of consumer prices. Even so, a number of programs inaugurated during this period remain in effect today, including the Feed Grain Freight Assistance program (1941), the Farm Improvement Loans Act (1944), and the concept of government subsidies to support commodity prices and producer incomes.

The Feed Grain Freight Assistance program stimulated livestock production by subsidizing the transportation and storage of feed grains from the prairie provinces to eastern Canada and BC. Subsidies and price supports were used to encourage the production of essential commodities and to offset the price ceilings that held down product prices in spite of rising costs. The government's recognition of agriculture's contribution to the war effort led it to provide some guarantee of income protection in the postwar period. The Agricultural Prices Support Board (1944) was authorized to prescribe prices, to purchase and sell products, and to pay producers the difference between the prescribed and selling prices. And finally, the Farm Improvement Loans Act (1944) made intermediate and short-term loans available to farmers.

Agricultural policy in the 1950s and 1960s was oriented to increasing the productivity and efficiency of agriculture, and thereby ostensibly raising and stabilizing commodity prices. The Farm Credit Act (1959) made credit available and encouraged the mechanization and growth in size of farms. The Agricultural Stabilization Board (1958), the successor to the Agricultural Prices Support Board, gave farmers a measure of protection from the fluctuating competitive marketing system by guaranteeing a base price for selected farm commodities. Federal expenditures to support and stabilize prices of dairy products expanded significantly in the 1970s, accounting for 80% of federal price and income maintenance payments, and became permanent with the creation of the Canadian Dairy Commission in 1966 (see National Farmers Union). A joint provincial-federal crop insurance program begun in 1959 reduced the financial impact of natural disasters. Federal-provincial co-operation in the Agriculture Rehabilitation and Development Act (1961), later renamed the Agricultural and Rural Development Act (1960), and the Fund for Rural Economic Development (1966) was targeted at enhancing the viability of rural communities through improved resource use and retraining to facilitate the exit of marginal farmers to other jobs. And the Prairie Grain Advance Payments Act (1957) authorized the Canadian Wheat Board to make advance payments to producers on a portion of their farm-stored grain.

Federal programs prior to the 1970s interfered as little as possible with the competitive market system of pricing. Farmers received market prices; the stabilization programs shored up farm incomes when prices fell below average, but did so at levels that minimally distorted the operation of the market system. While the Canadian Wheat Board instituted order in grain marketing and equity in pricing, grain prices themselves were established by changing world market factors. Provincial governments had allowed producers to pool their products and sell them through provincial marketing boards or co-operatives which could negotiate higher prices. When the federal legislation to permit national marketing boards was declared unconstitutional (the Natural Products Marketing Reference, 1937), the federal government passed the Agricultural Products Marketing Act (1949). Provincial boards could be delegated federal authority to regulate the outward movement of commodities into export and interprovincial trade but could not restrict the inflow of commodities from other provinces or countries, and were thus unable to control completely the supply, and therefore, the price of the regulated commodity.

The unusually turbulent markets and a serious cost-price squeeze for many farmers in the 1970s led provincial governments to initiate and the federal government to extend income maintenance programs. Québec, BC and Ontario passed comprehensive stabilization legislation and several other provinces undertook to protect hog and cattle producers from unstable markets and depressed prices. The federal government amended the Agricultural Stabilization Act in 1975 and passed the Western Grain Stabilization Act in 1976. The former guaranteed government support of the prices of industrial milk and cream, corn, soybeans, slaughter cattle, hogs, sheep and oats and barley raised outside the Canadian Wheat Board region, at 90% of the previous 5-year average. The latter stabilized the net profit from the sale of oats, barley, wheat, canola, flaxseed and rye. Along with the crop insurance program, these income protection measures consumed almost 50% of federal agricultural spending and meant that most commodities were protected.

The most innovative policy in the 1970s allowed producers to fix and determine the price of commodities (see commodity trading). The Farm Products Marketing Agencies Act (1972) authorized 4 national marketing agencies - the Canadian Egg Marketing Agency (1972), the Canadian Turkey Marketing Agency (1973), the Canadian Chicken Marketing Agency (1979) and the Canadian Broiler Hatching Egg Marketing Agency (1986). The virtual exclusion of imports of supply-managed products, allowed under the international trading rules of the General Agreement On Tariffs And Trade (GATT), reserved the Canadian domestic consumer market for Canadian egg and poultry producers. Supply management had been implemented earlier in the dairy industry.

Between 1970 and 1972, a market-sharing quota system was created that attempted to balance industrial milk and cream supplies with domestic demand; in conjunction with import controls (in place since 1951) and federal subsidies, it has significantly raised and stabilized dairy farmers' incomes. This policy changed considerably in 1973 and after 1976 placed a ceiling price on feed grain for eastern Canadian buyers. The feed grain freight assistance program ended 1 July 1995 and the Canadian Livestock Feed Bureau wound up.

By the 1980s, there was widespread commitment at both levels of government to increase farmers' bargaining power by direct intervention in the marketplace through production controls and administered pricing. Although federal expenditures on agriculture were twice those of the provinces, several provinces were no longer willing to leave agricultural policy primarily to the federal government. In Québec, following the 1976 provincial election of the Parti Québécois, the pursuit of self-sufficiency in foodstuffs witnessed a growing regulatory and expenditure presence on the part of the Québec government. The Québec agrifood sector was supported by 4 pillars - income stabilization, provision of credit, Crop Insurance and regulated marketing - founded on both provincial and national legislation. However, whereas in the mid-1960s and early 1970s, the Government of Canada accounted for two-thirds of total net expenditures on Québec agriculture, by the mid-1990s, it was the Québec government that did so.

The 1980s witnessed significant changes in programs for Canada's grains and oilseeds sector. Following a protracted and highly divisive debate in the prairie farm community, the Canadian government eliminated the Crow's Nest freight rates in 1983. Although the Western Grain Transportation Act provided for continuing government subsidies to the railways to defray their costs of transporting prairie grain to export markets, the farmers' right to receive freight rate assistance "in perpetuity" ended, and they were obliged to assume an increasing proportion of these freight costs.

Other changes in government programs were occasioned by the very difficult financial circumstances in the prairie community for most of the 1980s. The "grain trade war" in the mid- and late-1980s between the US and the European Community caused Canadian grain prices to plummet. The prairie farming community, strapped by large debt and unprecedentedly high interest rates, sank into a depression whose scale paralleled that of the 1930s. Payments from the Western Grain Stabilization Act were low and continued to decline. The Government of Canada rallied to assist prairie grain farmers with the billion-dollar Special Canada Grains program in 1986-87 and it absorbed $400 million of the Farm Credit Corporation's debt. The Agricultural Credit Corporation of Saskatchewan also went heavily into debt in an effort not to force farmers off the land.

Two developments meant these appreciable government payments to farmers could not be sustained indefinitely. The first was the worsening fiscal situation of provincial and national governments whose high deficits were an increasing political issue. In an effort to reduce its own financial responsibility for securing and stabilizing farmers' incomes, Ottawa reformed safety net programs in the grains and oilseeds sector to require producers and provinces to assume more of the costs. Two new programs were introduced in 1991 to support grain farmers' incomes.

The first, the Gross Revenue Insurance Plan, insured individual farmers' gross revenues from particular commodities in the short run. GRIP offered protection from natural hazards or from market risks beyond the control of producers. Unlike the earlier Western Grain Stabilization Act, provincial governments contributed funds to the plan that matched those of the Government of Canada. As with the WGSA, producers also contributed premiums. The second program, entitled the Net Income Stabilization Account, enabled a farmer to build up a fund to draw upon when his/her income fell below a specified figure. NISA marked a shift away from programs designed to stabilize farmers' returns for individual agricultural commodities to stabilizing the farmer's income from the whole farm enterprise. NISA was financially supported by contributions from the federal and provincial governments and the farmer.

The second catalyst to agricultural policy change was evidence that industrial nations' protection of their domestic producers was creating serious tensions in international trading relations. Given the importance of export markets for Canada's grain, beef and pork sectors, the Canadian government was disturbed by growing protectionism in US trade policy throughout the 1980s. Successful efforts by American domestic interests in 1984 to limit Canadian penetration of the US pork and hog markets, combined with trade disputes over a number of other food and fish products, were an important catalyst to the Canadian government seeking clearer trading rules and a bilateral dispute resolution mechanism under the Free Trade Agreement (FTA) with the US. Implemented in January 1989, the FTA was broadened to include Mexico in the North American Free Trade Agreement (NAFTA) in 1993. These regional agreements have increased Canadian-US interdependence in agrifood trade. In 1984, 30% of Canadian agrifood exports went to the US; by 1993, the figure was 55% owing to increased exports of live animals, beef and beverages. US imports into Canada rose from 55% of total Canadian agrifood imports in 1984 to 61% in 1993. The Canadian success in penetrating US markets continues to be resisted by domestic American interests; Canada was forced to accept a volume on its wheat exports to the US in 1994-95.

The importance of world markets for Canada's grains and oilseeds sector led it to join the Cairns' Group of agriculture exporting nations, which, with US leadership, launched the Uruguay Round of negotiations on GATT in 1986. The objective was to liberalize agricultural trade and open domestic agricultural markets to foreign competition. These multilateral negotiations were extremely difficult for Canada. On the one hand, Canada sought to open foreign markets to Canadian grains and oilseeds by new rules prohibiting export subsidies. The European Community and the US had successfully subsidized their grain exports to undercut Canada in grain-importing nations. On the other hand, Canadian negotiators were anxious to retain protection for domestic poultry, egg, and dairy producers by maintaining the right to restrict the volume of imports when supplies were managed domestically.

The GATT Agreement that was reached in December 1993 and went into effect in 1996 requires all countries to reduce their export subsidies, allow more imports, and cut their aggregate support for domestic producers. Canada failed in its endeavour to maintain volume controls on supply-managed products and was forced to accept more imported dairy and poultry products. However, high tariffs on dairy and poultry imports in the medium term give the sectors time to adjust to the future reality of lower tariffs and more competition from imported products.

For Canada's grain and oilseeds sectors, the modest reduction in permissible export subsidies offered the prospect of better access to foreign markets even while it imperilled their own freight subsidies under the Western Grain Transportation Act. The 1995 federal Liberal budget announced an end to export grain subsidies, a decision dictated as much by budgetary restraint as by the new GATT requirements.

By the mid-1990s, budgetary constraints and new international trading rules had caused a significant reform of agricultural policies and altered the role of federal and provincial governments in Canada's agrifood sector. In the grains and oilseeds sector, the 1995 federal Liberal budget announced not only the termination of export freight assistance but also a 30% reduction in federal support for safety nets. A cut of the same magnitude was made in dairy price supports and their phasing out by the year 2000 announced. Earlier, cattle and hog producers, fearing a backlash in the important US market, had opted for termination of their stabilization programs.

The Government of Canada's share of total agrifood spending in 1994-95 was 55%, down from 64.5% in 1988-89. Provincial spending, especially in provinces like Québec and Saskatchewan, had risen to make up the shortfall. Expenditure cuts to agricultural research, cost recovery initiatives in food inspection, elimination of duplication and overlap in federal and provincial programs and regulations cumulatively undermined the federal government's leadership role and Agriculture and Agri-food Canada's capacity to devise national programs. By 1996, in place of one national farm "safety net" for the grains and oilseeds sector, the decision was taken to allow provincial variations in crop insurance, whole farm stabilization (NISA or GRIP or something else) and provincial companion program coverage.

As the 21st century begins, issues of export trade promotion, market development and international competitiveness are at the fore in Canadian agricultural policy. The traditional producer-centred focus has shifted to one which emphasizes a partnership between governments and all segments of the agrifood industry, with each assuming its share of financial responsibility for research, food inspection, and trade and market development. Processing activities that add value to bulk commodities, diversification into nontraditional commodities, and nonfood uses of commodities are highlighted as the means to secure viable rural communities, a sustainable resource base and farm financial security.

Policy Formation and Implementation

Federal and provincial governments share jurisdiction for agriculture, with federal legislation paramount in the event of a conflict. Authority over marketing is divided: the federal government regulates export and interprovincial marketing, while the provincial governments legislate marketing within their borders. At the provincial level, agrifood policy is almost entirely the work of the department of agriculture. In many provinces, provincial agriculture departments have been renamed to reflect their additional mandate for rural development and for agriculture, food, and the fishery. At the national level, Agriculture and Agri-Food Canada continues to be the central ministry for agrifood issues.

On matters of agricultural trade, which are of increasing importance for Canadian agriculture, Agriculture and Agri-food Canada works closely with the minister responsible for international trade, who has ultimate responsibility for trade policy. A number of agencies and boards delegated responsibilities for specific commodities report to the minister of Agriculture and Agri-Food: the National Farm Products Council (appointed by the minister and responsible for supervising the national chicken, turkey, egg, and broiler hatching egg marketing agencies); the Canadian Dairy Commission; the Farm Credit Corporation; the Canadian Wheat Board; the Canadian Grain Commission; and the Prairie Farm Rehabilitation Administration. The minister responsible for national transportation supervises the rail and water grain transportation system.

With both levels of government exercising jurisdiction over agriculture, provincial and federal agriculture ministers have endeavoured to co-operate with one another in formulating and implementing agricultural policy. This co-operative relationship was sorely tested by federal fiscal retrenchment initiatives in the 1990s, as provinces like Saskatchewan that historically relied upon a strong federal fiscal role complained of Ottawa's failure to assume its proper responsibilities. Competitive federalism characterizes the federal government's relationship with both Québec and Alberta.

Québec agriculture ministers, supported by Québec's farm union, the Union des producteurs agricoles, both seek to reduce the Government of Canada's role in Québec agriculture. Rather than national programs applying in Québec, they have been highly successful in their quest to reduce the federal role to one of transferring funds to Québec City to finance provincially designed and implemented agrifood programs. Québec stands apart from the federal government in its degree of continuing state assistance for its agriculture sector. At the other end of the continuum is Alberta, resisting federal initiatives that run contrary to its objective of a small government presence in agriculture.

Farm groups have traditionally been a part of the agricultural policy community; no agrifood policy is made without their being consulted. This consultative practice intensified during the late 1980s and 1990s as the Government of Canada and provincial governments sought producers' advice and consent to agricultural policy reforms. Producers' policy role in certain sectors, notably in the supply-managed dairy and poultry sectors, goes beyond consultation to include the exercise of significant delegated powers. Relationships between agricultural ministries and farm unions are even closer at the provincial level than at the national level, especially in provinces like Saskatchewan and Québec. However, the influence of producer organizations on government policy, especially national agrifood policy, waned over the past decade. This decline in influence is partly due to ideological divisions and organizational fragmentation in the farm community. It is also due to governments' desire to build closer links with other segments of the food chain - notably, processors, further processors, distributors, and traders - in an effort to maximize the sector's market competitiveness.

Critique of Policy

Criticisms of Canadian agricultural policy vary over time, and largely rest on governments' perceived neglect of important problems or their failure to achieve an appropriate balance among the competing economic, social and political goals that underlie agricultural policy. For some, including most agricultural economists, agricultural policy should be concerned only with economic goals and maximizing overall national welfare. For others, notably many in the agrifood industry itself, agricultural policy must balance an efficient agricultural sector with social objectives like maintaining the family farm and preserving rural communities. Nor, they would argue, can one ignore political purposes, including the contribution made to national unity by policies designed to ensure equitable treatment of producers and agrifood interests in every region.

A persistent complaint throughout the 1970s and 1980s was that governments were preoccupied with producers' concerns to the neglect of consumers' interests. The focus of much of this criticism has been the national marketing agencies in the poultry and dairy sectors. Charges levied at these monopolistic agencies are that they raise consumer food costs unduly, allow inefficient farmers to persist in the sector, and bar young farmers from entering the poultry and dairy industries by inflating quota values and thus raising the cost of farming operations. Interprovincial tensions have developed as provinces with growing populations seek to increase their share of the available market, while provinces with stagnant or declining populations resist decreases in their share.

The tendency to protect local consumer markets for local producers distresses the federal government, which advocates the geographical distribution of production on the basis of comparative advantage. Following extensive discussions with all segments of the supply-managed industries, and in the wake of the recommendations of the Federal-Provincial Task Force on Orderly Marketing, the federal minister of Agriculture and Agri-Food, in cooperation with his provincial counterparts, initiated several changes to allay these criticisms of poultry and dairy marketing agencies. Structural changes allow for greater representation and voting rights for nonproducer (consumer, further processor) interests on national marketing agencies. Operational changes are designed to make domestic marketing boards more flexible in responding to changing consumer preferences and market forces, as well as to allow production to shift to more cost-efficient provinces.

Other persistent criticisms include the failure of agricultural policy to ensure the survival of the family farm and the rural communities. The issue was particularly salient during the 1980s, when over half of the prairie farm community was seriously indebted and many, including young farmers, were forced to exit farming. The adequacy of measures taken to address the debt crisis, including farm debt review boards that mediated between the lending institution and the farmer, and the rural transition program that assisted farmers financially to retrain for a nonagricultural profession, was much debated. The success of more recent initiatives to create employment in rural areas remains to be seen. However, many in the farm community fear that governments' preoccupation with trade competitiveness and efficiency will necessitate even further consolidation and capitalization in the farm production sector, and further imperil the family farmer.

Among those issues that will continue to generate controversy in the agrifood policy community in the late 1990s are a host of environmental issues. These include sustainable resource use, agricultural land preservation, the use of Biotechnology, and "right to farm" legislation. Another unresolved source of contention is the appropriateness of single-desk seller agencies like the Canadian Wheat Board. Critics of the Wheat Board argue it is an inefficient anachronism and a restraint on producer initiative in the new era of liberalizing trade markets; advocates of the Board maintain that a monopoly export agency is more vital than ever.