What Does the Future Hold for Quebec Agriculture?
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Fraser MarketA solutionslert to public policy problems February 2009 What does the future hold for Quebec agriculture? At first glance, Quebec’s agricultural scores of farm subsidies in favor of sanctioned by the federal and pro- sector appears to be stable.1 How- an open and competitive market. vincial governments. ever, this apparent stability belies a Canadians finance the country’s number of ill-conceived public poli- So far from a market economy: sub- farmers in two ways: first, through cies that threaten to destabilize agri- sidies, quotas, protectionism, and their taxes, which fund direct pay- cultural economics in the province. administered prices ments to agricultural producers, This report examines these policy and second, by buying farm prod- issues and recommends reforms As in the rest of Canada, Quebec’s ucts at grocery stores, where they necessary to ensure the viability of agricultural industry is character- pay more for some of their food Quebec’s agriculture. Most impor- ized by strong government inter- than they would in the absence of tantly, the province needs to replace vention in the form of subsidies and supply management. According to the supply management system and a highly regulated market Marcel Boyer (2007), the supply management system costs a family of four in Quebec at least CA$300 Main Conclusions per year. He also notes that in • Quebec agriculture is stifled by a number of ill-conceived Jean-François public policies that do not serve the interests of farmers, Minardi is a senior consumers, or taxpayers policy analyst at • Quebec’s agricultural sector needs a more competitive the Fraser Institute. environment in which consumers pay less for better quality He holds a Master’s products and farmers have incentives to be more creative, degree in political productive, and innovative science from Université de Montréal and a Master’s degree • One viable alternative to the regime of subsidies and supply- in economic expertise and inter- management is to dismantle Quebec’s current system and national project management eliminate government subsidies to farmers. from Université Paris XII. Canada, the price of milk has crops of natural disasters and guarantees an income of CA$163.77 increased by 53% over the last 12 uncontrollable hazards, including per pig, for a compensation of years, twice as much as inflation, floods, droughts, windstorms, and CA$44.57 per animal slaughtered. while production costs fell 3.8%. insect devastation. The Canadian For 7.5 million pigs, that is CA$335 This additional cost is regressive, and Quebec governments pick up million, to which must be added the imposing an especially heavy bur- 60% of costs and farmers pay the cost of a similar subsidy system for den on low-income households, remainder. In 2005-06, this pro- piglets at another CA$182 million which spend a greater share of their gram insured over 13,500, or 44%, (Dubuc 2008). Overall, this aid and budget on food. of Québec farming operations for a other forms of support cost CA$477 value of CA$892 million. Farmers million in 2007, and it is expected paid CA$49 million in dues and that when the calculations are in for Subsidies received CA$56 million in compen- 2008, the CA$550 million ear- The first type of government assis- sation. (CAAAQ 2008: 54) The marked for that year will be tance to producers is subsidies. The Farm Income Stabilization Insur- exceeded. The two-year total for Pronovost Report notes that Quebec ance Program (FISI) is, according to this one industry is more than farmers received CA$725 million in the Pronovost Report, by far the CA$1.1 billion. direct payments from the federal Quebec government’s biggest finan- cial aid program. The provincial and provincial governments in Supply management 2004; CA$722 million in 2005; and, government provides 67% of its CA$838 million in 2006 (all financing while 33% comes from The other mainstay of Quebec’s amounts mentioned are in nominal farmers. The provincial government agricultural sector is the supply dollars; Statistics Canada, 2007). covers all administrative expenses management system. It sets quotas These are not the only subsidies on behalf of La Financière agricole, on production in order to maintain farmers receive, however. They also which were CA$57.8 million in artificially high commodity prices. collect CA$67 million in federal and 2006-07. The report draws attention When it was first introduced, the CA$136 million in provincial tax to the fact that FISI eligibility does rationale behind this policy was to assistance by way of capital gains not extend to supply-managed sec- stabilize the incomes of farmers exemptions, tax exemptions on cap- tors (dairy, poultry, and eggs) who had been facing large fluctua- ital, and partial reimbursement of described in more detail below, tions in production levels and fuel taxes, among others. Overall, which already benefit from special prices. The supply management sys- the report determines that govern- protection against foreign competi- tem is a mechanism of supply regu- ment support (federal, provincial, tion (CAAAQ 2008: 55). The pur- lation that aims to ensure stable and municipal) for agriculture has pose of FISI is to guarantee farmers prices for producers of dairy, poul- increased 248% over the past 25 a positive and stable net income. try, and eggs, who for the most part years (CAAAQ 2008: 53). Compensation is paid when market are located in Quebec and Ontario. prices are lower than established Specifically, over 80% of Canada’s La Financière agricole du Québec is production costs (CAAAQ 2008: 57). dairy farms are located in the two the only provincial government provinces, while 60% of all poultry agency responsible for managing According to Alain Dubuc, this production takes place in Ontario the bulk of lending, insurance, and compensation system can lead to and Quebec (Vieira, 2008, Aug. 5.) subsidy programs for Quebec’s absurd situations as is the case with A significant portion (80% by reve- farmers. The main income support pork production in Quebec. There nue) of Quebec’s agricultural sector programs for farmers in the prov- is currently a crisis of overproduc- specializes in dairy products; the ince are the joint federal-provincial tion in North America, but the largest number of farms are dairy Crop Insurance Program and the compensation system encourages farms—they alone represent 31% of provincial Farm Income Stabiliza- Quebec pork producers to increase all farms (AGÉCO 2007: 7). tion Insurance Program (FISI). The their production. Thus, in 2008, the Crop Insurance Program is market price for a 85.4 kg pig is According to the Pronovost Report, intended to mitigate the impact on CA$119.20. The program over 40% of Quebec’s agriculture is What does the future hold for Quebec agriculture? 2 www.fraserinstitute.org regulated by supply management the demand is predicted by the producers to determine their prices (CAAAQ 2008: 48). However, Canadian Dairy Commission and output, and charge consumers almost all sectors of Quebec agricul- which makes a recommenda- higher prices than would prevail ture (for example, the production of tion to the Canadian Milk Sup- under competition. However, as maple syrup, pork, apples, poultry, ply Management Committee will be shown below, it seems potatoes, etc) are subject to regula- (CMSMC) on the Market Shar- doubtful that this arrangement tions that are similar to the supply ing Quota (MSQ)—the national made in favour of a minority over management system in the form of production target for industrial the interests of the majority will be Plans conjoints or Joint Plans for milk and dairy products. The able to carry on for a long time. marketing agricultural products. CMSMC then allocates milk Basically, a joint plan is a legally production among the prov- Supply management versus established tool that allows Que- inces, and each provincial board bec’s producers who decide to take allocates its share of national trade liberalization part in these agreements to organize milk production among quota The first obstacle to a long-term the marketing of their products. holders. The boards buy all the prolongation of the status quo in Once in force, it enables them to milk produced in the province Quebec agriculture is the incompat- establish policies and collectively at a guaranteed price; milk reve- ibility of the protectionism of the negotiate the conditions governing nues are then pooled and paid supply management system with the the marketing of their products, back to producers. Among the trade liberalization process. including price. provinces, Quebec receives the largest share of MSQ (46.5%), The World Trade Organization Supply management is, in essence, a followed by Ontario (31.2%), (WTO) launched the Doha round system that is intended to limit sup- whereas the shares of all other of global trade negotiations in 2001. ply of commodities in order to provinces are relatively small. The talks, which were focused on maintain artificially higher prices. (OECD 2008: 9) cutting tariffs and farm subsidies This would not be possible without and on liberalizing trade in services quotas, and protectionist high tar- Retail prices of fluid milk are also broke down last July. According to iffs that restrict imports. Because regulated in Quebec and Nova Sco- Paul Blustein, “The guts of the deal the supply is “managed,” support tia, raising consumer prices in those involved a tradeoff in which the prices are set a priori at levels high provinces well above the national United States and other rich coun- enough to achieve a regulated rate average (OECD 2008: 9). According tries agree to cap subsidies and of return. High tariffs are imposed to Sylvain Charlebois (2008), in protections for their farmers in on imports to ensure that the regu- 2007, a four-liter container of milk exchange for greater assurances of lated prices of domestic goods are (2% fat) in Quebec was about 12% access for their industrial products not undercut by inexpensive foreign more expensive than in Toronto, 37% in developing countries” (Blustein produce.