It’s been over 20 years since most of today’s rules on government agriculture support aimed at reducing trade distorting programs were agreed to in the North American Free Trade Agreement and the World Trade Organization’s Agreement on Agriculture.
Over time, countries have adapted and found ways to circumvent limits and continue providing support to domestic ag sectors, propping up structurally uncompetitive production, influencing world prices, and encouraging the depletion of natural capital (ie. freshwater supplies and healthy soil), according to a report released this week by the Canadian Agri-Food Policy Institute.
“What we have found is in the intervening period, to some extent, countries have been fairly clever and innovative in finding other ways to offer support to agriculture that somewhat compensates for the reduction in the most distorting types of farm subsidies,” says co-author Al Mussell.
The study, as he explains in the interview below, takes a high-level inventory of domestic support programs in agriculture in the U.S., EU and China, and how they impact the competitiveness of Canadian agriculture.
Many of the most obvious trade distorting programs have been eliminated since the mid-90s, but Mussell and his co-authors cite several trade policies that they say require further investigation and follow-up from the Canadian government.
The following list is an excerpt from the report summary, highlighting “priorities for further analytical and empirical work”:
- Canola and soybeans in China: The use of stock-holding to support domestic rapeseed/canola prices parallels China’s use of stock-holding and the current challenge by the U.S. to stock-holding (and related issues) on rice, wheat, and corn. Canada’s existing export trade with China in canola/canola products and in soybeans, and the prospect for expanded trade under a future trade agreement with China, makes understanding these effects fundamental to Canadian trade
- Support to beef, dairy and hog sectors in the EU: The evidence compiled from EU sources in this study provides ample support for the position that the decoupled whole-farm payments along with other payments are having a significant effect on production and prices for beef and dairy in the EU. Canada has a direct export interest in beef and pork, and the EU is a growing competitor. In dairy, Canada has been pressed to defend changes to elements of its dairy policy; understanding the nature and effects of EU support for dairy could open an offensive dimension for Canada in its broader strategy for dairy policy, especially as CETA comes into force. (Mussell notes in the interview below that the EU pork industry is growing, while Canada’s pork sector, which benefits from much lower costs, is shrinking. How is that happening?)
- U.S. crop insurance subsidies for feed grains: These subsidies fuel the livestock industry and need to be examined carefully. A critical element of Canada’s competitiveness in livestock production is its low-cost supply of feed grains. If the U.S. is increasing its production and lowering the prices of feed grains through crop insurance programming that is not appropriately accounted for under its WTO commitments, this could represent illegally subsidized competition for Canadian feed grain and livestock industries.
- The complex of marketing arrangements (in U.S. dairy): Along with support employed in the U.S. dairy industry, these arrangements need considerable analysis. It is striking that while the dairy industry has received lower direct support payments under programming in place since 2014, milk production in the U.S. is rising during a period of globally lower prices for dairy products. The U.S is expected to press Canada on its dairy policy during renegotiations of NAFTA or otherwise; an analysis of U.S. dairy policy could form an element of an offensive strategy for Canada with the U.S.
- Natural capital: The associated problems of unsustainable groundwater drawdown, soil salinity, pollution from run-off, and the conversion of sensitive soils to annual arable cropping warrant further investigation. Their direct effects as well as effects on price suppression in irrigated crops should be considered. The Canadian base of natural capital is an asset, and its rate of depletion of natural capital is relatively low. Other countries that compete with Canada through the depletion of natural capital do so on the basis of an implicit subsidy that erodes Canadian competitiveness. It is in Canada’s interest to understand the magnitude of foreign natural capital consumption that harms Canadian competitiveness.
The study also refers to discrepancies or “creative” approaches to how countries report their domestic support programs to the WTO, with examples of double counting and switching between commodity-specific and non-commodity–specific categories to remain below agreed-upon caps. In the case of China’s large crop insurance program, Mussell says the country simply doesn’t notify any support levels for crop insurance.
With NAFTA renegotiations beginning in the coming days, the Canada-EU trade deal taking effect next month, and exploratory discussions underway with China, Mussell says the report should inform Canada’s trade strategy.
“I hope this gets people talking. What is Canada’s agenda in agricultural trade? And where are we going versus some of our competitors and the support programming that is being offered to them?” he says. “If there’s a perception that others aren’t playing fair, we need to understand that.”
Read the “Understanding Agricultural Support” summary report here, and listen to co-author Al Mussell discuss their findings in this podcast (originally heard on RealAg Radio on Aug. 1, 2017):