Oil, dairy sup­ply man­age­ment para­dox points to need for a new pol­icy di­rec­tion

The Victoria Standard - - Commentary - JAN SLOMP

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.

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.

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

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