Published in the Financial Post on July 27, 2015
Lawrence L. Herman, founding partner at Herman & Associates, practices international trade law and is a Senior Fellow of the C.D. Howe Institute in Toronto.
Americans provide billions in protectionism to dairy that will have to be given up for trade deal.
We rail against Canada’s supply management system. Rightly so. It’s a Soviet-style regime that is out of step with Canada’s international trade interests and objectives.
Every credible Canadian think-tank has said that supply management is a regressive system that distorts the market by guaranteeing dairy, poultry and egg producers a positive return on production, inhibiting competitiveness and, in the long-run, preventing Canada from becoming an exporting agriculture powerhouse.
Not to forget that it forces Canadian consumers to pay higher prices for supply-managed products – milk, yogurt, cheese, chicken, turkey and eggs – than they would if there were an open market.
Supply management is now under serious attack in the Trans-Pacific Partnership (TPP) trade talks by the Americans and others, with unrelenting pressure on Canada to make serious concessions to open up the system, if not do away with it entirely.
The U.S. is adept at pointing fingers at others, and while I’m opposed to supply management, it’s the Americans that are the super-stars when it comes to agriculture protectionism.
In Canada’s case, leaving aside supply management and not counting some provincial agriculture programs, Canada’s annual subsidies report to the WTO lists only three federal agriculture programs involving direct payments to producers: two for the hog industry and one for grape growers under the Orchards and Vineyards Transition Program.
There are another seven federal financing programs administered by Agriculture Canada, including the Advance Payment Program, crop insurance programs, loan guarantees under the Canadian Agricultural Loans Act and, importantly, guarantees on price volatility under the Price Pooling Program. These are all WTO sanctioned and hardly smack of a system fueled by subsidies.
Now let’s look at the mind-boggling array of U.S. agriculture subsidies. In its most recent WTO notification in 2014 (covering programs up to the end of 2012), the U.S. lists dozens and dozens of subsidies embracing virtually all segments of agriculture production.
As pointed out in The Economist, “American farm subsidies are egregiously expensive, harvesting $20 billion a year from taxpayers’ pockets. Most of the money goes to big, rich farmers producing staple commodities such as corn and soyabeans in states such as Iowa.”
According to the U.S. WTO notification, in 2012 direct payments to farmers under income support programs amounted to US$3.837 billion.
Other direct subsidies include the counter-cyclical payments program, marketing assistance loans, and loan deficiency payments to eligible farmer. While these appear of have decreased from 2011 levels, in 2012 payments totalled $80 million.
Then there price supports for the U.S. dairy industry under the Dairy Products Price Support Program and the national dairy market loss payments program, which doled out $403 million in 2012. The array of disaster assistance and risk management programs for farmers paid out $1.750 billion in 2012.
The centre-piece of all of these is the yield and revenue insurance programs under the U.S. Feed, Conservation and Energy Act of 2008, which pays producers when yields and revenue fall below guaranteed levels. In 2012, the U.S. treasury paid out $7.461 billion under this program.
These are only a selection of the larger U.S. subsidy programs that involve direct payments to farmers. There are many others that make up the annual $20 billion in payments noted by The Economist. The latest U.S. Farm Bill, as an example, provides expanded government crop insurance benefits of some $7 billion over 10 years.
By guaranteeing farmers an income stream and providing crop insurance, these subsidies allow U.S. producers to sell at artificially low prices on the domestic market, effectively denying foreign producers access and competitive opportunities as much as if tariffs were in place.
It is important to underscore that these U.S. programs are within permissible WTO limits and there is no suggestion that somehow these are offside international trade rules. But then, Canada’s supply management system is also permitted under the WTO Agreement, having been sanctioned when the Uruguay Round was completed in 1994.
Had the multilateral Doha Round moved forward, both U.S. subsidies and Canada’s supply management system would have been under threat from other trading partners, demanding concessions as part of a global deal.
Now we see Canada being targeted in the TPP talks and being pinned to the wall to open up the supply management regime to dairy, egg and poultry imports.
This doesn’t mean the TPP negotiations shouldn’t attack these kinds of protectionist measures. The point is that while the Americans are always ready to point an accusing finger at the rest of the world, and Canada specifically, it’s a bit rich given their own government’s egregious use of subsidies with the billions of dollars that U.S. taxpayers regularly dish out to support the farming sector.
If Canada is to compromise on supply management, any balanced TPP deal will require the U.S. to make serious concessions in return, opening up the U.S. agrifood market to foreign competition and cutting down their outrageous use of state subsidies to protect American farmers.
