Oil, dairy supply management paradox

Dear Editor:

On December 2, the Alberta government announced it will impose production discipline on the province’s oil companies to bring the price of bitumen-based oil above its cost of production. This came in response to it being discounted by over $50 per barrel compared to higher-grade West Texas Intermediate oil. Falling prices would soon cause oil companies to divest or go broke, resulting in unemployment and less business activity. By intervening, the Alberta government is helping oil sector profitability and viability. Within 24 hours of the announcement, the price of bitumen-based oil doubled.

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Less than a week after Alberta pulled its economy out of a crisis by implementing supply management for the oil industry, the federal government announced another “compensation” package for dairy farmers.

Canadian dairy farmers have been deprived of 3.5% of our dairy market to European cheese under CETA, 3.5% more to Trans Pacific Partnership countries, and under the USMCA, dairy farmer will lose an additional 3.9% of Canada’s market. The USMCA also removes our dairy sector’s ability to counter the US dairy industry’s aggressive dumping of high-protein milk ingredients into Canada, and it gives the USA the power to monitor and approve changes to Canadian dairy policy. The $98 million “compensation” package will inevitably pit dairy farmers against each other, as funds are being provided to help automate and computerize farms, increasing production in a shrinking market. This is a recipe for farm consolidation, price depression, job loss, a downward spiral in local economies and further dispossession of the next generation of aspiring farmers.

It is hard to imagine how it is possible to compensate for the damage done by recent trade agreements. When the Alberta government steps in to arrange supply management for oil producers, why is it so difficult for the federal government to understand its importance in agriculture?

The eagerness to sign the deeply flawed USMCA must be viewed in light of the Barton report.

Shortly after the 2015 federal election, Finance Minister Morneau created the Advisory Council on Economic Growth and appointed Dominic Barton, Global Managing Director of McKinsey & Company, as its chair. The Council’s February 2017 report claimed Canadian agriculture had under-utilized potential and recommended it be “unleashed” by eliminating trade barriers, facilitating corporate investment and stimulating production for export. Such measures obviously work very well to increase returns to venture capital, stock markets and other financial derivatives favored by international investment firms – and which clearly benefit a select international elite.

Barton recommends the opposite of supply management. He calls for increasing output to export more regardless of price while facilitating imports of the same commodities. Not only is this a price-depressing mechanism that harms farmers, quality also slips, as trade agreements lower standards in order to open the door for more imports. Companies handling, trading and selling agricultural commodities benefit from Barton’s plans, as do the input sellers. The Canadian government has found money to reward farmers who invest in production while the market is depressed and after shrinking the available market yet again via the USMCA. Yet what entrepreneur expands when the market values their wares below cost of production?

It is easy to take self-interested advice and believe Barton’s promises. In contrast, it takes a visionary understanding of the real economy to come up with recommendations that truly benefit all layers in society and address the urgent needs to mitigate climate change and prevent depletion of resources.

Canadian governments need to put aside concocted indicators that equate economic health with positive results for stock markets and large financial institutions. Instead, look at the real life conditions of farmers and other small businesses that are crucial for rural Canada. Drive through the countryside in any province, and you will see the results of ill-advised Canadian governments: decades of unnecessary and socially destructive rural decline.

Turn away from Barton and look instead at policies implemented by US president Franklin D. Roosevelt to understand what truly spurs on a rural economy. After years of crippling low prices for farm produce, US Agriculture Secretary Henry A. Wallace implemented parity pricing for all farm commodities in 1932. This turned around a chronic downward spiral and fired up a grassroots-driven economic engine. Parity pricing paid farmers a living comparable to unionized industrial workers. Processors and traders were levied when they paid farmers prices below the calculated cost of production. The funds collected were used to pay farmers not to produce the commodity until prices reached or exceeded the cost of production. These measures gave farmers market power by giving correct signals to produce more or less according to supply and demand. Since 1969 Canadian supply management has worked like Wallace’s parity pricing intervention.

Starting in the mid-1980s with the Uruguay Round of GATT where WTO was formed, free trade agreements, have steadily increased agricultural output while net farm incomes have declined. Policies implemented for Canadian agriculture in general are disastrous and the compensation packages offered dairy farmers are insulting. It’s time to put the brakes on Canadian rural decline, make a U-turn on the USCMA and stop sacrificing the rural economy.

by Jan Slomp
Vancouver Island dairy farmer Jan Slomp is a former President of the National Farmers Union

© Copyright Yorkton This Week

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