Agriculture is a highly competitive global industry that many times receives special attention from governments around the world to ensure farmers survive. This support, of course, takes many forms: subsidies and protectionism, or a commitment to research and export market development.
For the past three years North American farmers have been dealing with scarce profits in the cropping and livestock sectors due to many factors outside of their control — and we’re not talking about the weather.
It has become very clear to me that the Canadian and United States governments have very different strategies on how to deal with the profitability concerns in agriculture. The U.S. farmer has been receiving large Market Facilitation Program (MFP) payments, while Canadian producers have received larger loan programs and expanded debt to service.
You may not like subsidies or handouts, but Canada must recognize what is happening in competing countries, and especially in the United States.
Through the MFP program, in 2018 and 2019, U.S. farmers received US$10 billion and US$16 billion respectively to deal with trade disruption. There was additional programming for agriculture at this time outside of the MFP direct payments. President Donald Trump has boasted in campaign-style stump speeches about his financial support for “true patriot” farmers as they have stuck with him through the trade war with China. Fast forward six months and the new disruptive force is COVID-19, which has ravaged futures markets.
Don’t get me wrong — the MFP programs have long-term negative implications, and leads to farmers expecting future payments, encouraging the possibility of creating incentive to hold commodities longer than normal, which distorts market forces.
In Canada, Agriculture and Agri-Food Canada (AAFC) has been fumbling business risk management program improvements. AAFC doesn’t think the carbon tax on grain drying expenses is that big of a deal. Cash advance program repayments have been extended twice now, and Farm Credit Canada has $5 billion more in loans available for farmers to increase their debt loads.
Up until this point, AAFC and the majority of farm groups have felt that direct compensation to farmers experiencing financial hurt is not the path Canada should take. The outlier has been soybeans where both Soy Canada and the Grain Farmers of Ontario have asked for assistance due to the market distortion caused by the U.S. MFP program and trade war. This request fell on deaf ears.
Now in 2020, a third round of MFP is being discussed as a part of the U.S. trillion dollar stimulus which would include $50 billion in funding for the Commodity Credit Corporation (CCC).
The Canadian government is still ignoring the realities of the American farmer being provided cash to soften the financial blow, while trying to sell cash flow assistance that’s really just debt that must be repaid.
Many Canadian farm gate prices are based on U.S. prices, so Canada is not existing in a perfect utopian market that is not impacted by these MFP payments. As we heard in the NAFTA renegotiations, the supply chain of agriculture is very integrated which does not stop in production, but carries forward to market prices as well. Currently, U.S. cattle producers are the major proponents of a COVID-19 MFP-type program. A direct payment to U.S. feedyards and nothing for Canadian feedyards will provide a major advantage to the U.S. producer in such an integrated supply chain.
This divergence in approach of the two countries not only has impacts on primary producers but also the health of the general farm economy. For example, look at the February AEM Flash report that shows the epic differences in trend for new machinery sales. In the U.S. 4WD tractor sales year to date were flat while in Canada there were down 52.2% compared to the end of February a year ago.
As the Prime Minister outlines his assistance plan for farmers which included an extra $5 billion in more loans, I was left with the following thoughts. First, for the government this is great public relations, as all that consumers heard was “farmers are getting money.” Second, this carrot of reforming business risk management programs by AAFC has gotten old for myself and many others. Third, it is very unclear on which farm groups were asking for increased loans from the government (if any). Is this the government listening to what the industry needs or just seeing this as an easy way to do something? And finally, Farm Credit Canada is an integral stakeholder and does a great job in supporting agriculture, but customers of other Schedule One banks have been totally ignored in this matter.
Based on how the U.S. and Canada are going about support of their farmers in different ways, I am deeply concerned if this divergence goes on much longer. In the long term, Canada is working towards being uncompetitive, while the U.S. is pushing the boundaries of WTO, but giving its producers a chance at longer term success.