Agriculture is a highly competitive global industry that often receives special attention from governments around the world to ensure the survival of farmers. This support, of course, takes many forms: subsidies and protectionism, or engagement in research and development of export markets.
Over the past three years, North American farmers have had to contend with limited profits in the growing and ranching industries due to many factors beyond their control – and we’re not talking about the weather.
It has become very clear to me that the governments of Canada and the United States have very different strategies on how to deal with profitability issues in agriculture. The American farmer received large payments from the Market Facilitation Program (MFP), while Canadian producers benefited from larger loan programs and increased debt service.
You may not like grants or giveaways, but Canada needs to recognize what is happening in competing countries, and particularly in the United States.
Through the MFP program, in 2018 and 2019, American farmers received $ 10 billion and $ 16 billion respectively to deal with the trade disruption. There was additional programming for agriculture at this time apart from direct PMF payments. President Donald Trump has boasted in campaign speeches of his financial support for “true patriot” farmers as they have remained with him throughout the trade war with China. Fast forward six months and the new disruptive force is COVID-19, which has ravaged the futures markets.
Make no mistake: MFP programs have negative long-term implications and cause farmers to expect future payments, encouraging the possibility of creating an incentive to keep produce longer than normal, which distorts the forces of the market.
In Canada, Agriculture and Agri-Food Canada (AAFC) has worked to improve its business risk management program. AAFC doesn’t think the carbon tax on grain drying expenses is a big deal. Payments from the cash advance program have been extended twice now, and Farm Credit Canada has an additional $ 5 billion in loans available to farmers to increase their debt load.
Until now, AAFC and the majority of farm groups believed that directly compensating farmers who suffer financial damage is not the path Canada should take. The outlier was soy for which Soy Canada and the Grain Farmers of Ontario asked for help due to the market distortion caused by the US MFP program and the trade war. This request has fallen on deaf ears.
Now, in 2020, a third round of MFPs is being discussed as part of the US $ 1 trillion stimulus package, which would include $ 50 billion in funding for the Commodity Credit Corporation (CCC).
The Canadian government is still ignoring the realities that the American farmer is receiving money to alleviate the financial blow, while trying to sell a cash flow aid that is really just debt that needs to be paid off.
Many Canadian producer prices are based on US prices, so Canada does not exist in a perfect utopian market that is unaffected by these MFP payments. As we heard during the NAFTA renegotiations, the agricultural supply chain is very integrated and does not stop at production, but also carries over to market prices. Currently, U.S. cattle ranchers are the main proponents of an MFP COVID-19-like program. A direct payment to US feedlots and nothing to Canadian feedlots will provide a major advantage to the US producer in such an integrated supply chain.
This divergence of approach between the two countries has impacts not only on primary producers but also on the health of the agricultural economy in general. For example, check out the February AEM Flash report which shows the epic differences in the sales trend of new machines. In the United States, sales of four-wheel-drive tractors since the start of the year have remained stable, while in Canada, they are down 52.2% from the end of February last year.
As prime minister outlines its plan to help farmers which included an additional $ 5 billion in additional loans, I was left with the following thoughts. First, for the government, this is great public relations because all consumers heard was “farmers make money”. Second, this carrot of reform of AAFC’s business risk management programs has aged for me and many others. Third, it is very difficult to know which farm groups were asking for increased government loans (if any). Is the government listening to what the industry needs or does it just see it as an easy way to do something? Finally, Farm Credit Canada is a full player and does an excellent job of supporting agriculture, but the clients of other Schedule 1 banks have been totally ignored in this matter.
Considering how the United States and Canada are supporting their farmers in different ways, I am deeply concerned that this divergence is going on for much longer. In the long term, Canada strives to be uncompetitive, while the United States pushes the boundaries of the WTO, but gives its producers a chance for longer term success.