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93-9E
AGRICULTURE:
THE POLICY AGENDA
Prepared by:
Sonya Dakers, Frédéric Forge, Science and Technology Division
Revised 14 September 2000
TABLE
OF CONTENTS
ISSUE
DEFINITION
BACKGROUND
AND ANALYSIS
A. Overview
B. The Role of Government Intervention in Agricultural
Policy
1. Evolving Departmental Structure
2. Farm Income Stabilization
3. Support for Specific Industry
Sectors
a. The Canadian
Wheat Board (CWB)
b. National Supply
Management Agencies
PARLIAMENTARY ACTION
CHRONOLOGY
SELECTED REFERENCES
AGRICULTURE: THE POLICY
AGENDA*
ISSUE DEFINITION
In 1989, on the eve of the
decade ushering in a new century, the Canadian government launched a major
review of the agriculture sector to identify which policy instruments
would best respond to the market, health and environmental challenges
facing the agri-food industry during a period of rapid change.
The review provided an opportunity
for a working partnership of farmers, processors, suppliers, consumers,
and government to create a strategic plan to take a viable agriculture
sector into the twenty-first century. The federal government established
11 task forces composed of members of these groups, which, over a period
of 18 months, met to consult and develop policy options. By 1991, they
had presented their reports to federal and provincial ministers and the
process of translating recommendations into action began.
As a result, the 1990s were
characterized by reduction of trade barriers and the introduction of cost
recovery, user pay, and a greater role for the private sector. The government
that came to power in the fall of 1993 continued these practices and the
emphasis on improving Canada’s international competitive position.
The emerging Liberal vision is of a market-oriented, environmentally sustainable
agriculture that is less dependent on government support and more responsive
to the changing food and non-food needs of domestic and international
customers.
The purpose of this Current
Issue Review is to monitor federal agricultural policy as it evolves,
bearing in mind its principal objective of ensuring that the agriculture
sector will remain viable as it responds to the new liberalized global
trading environment.
BACKGROUND
AND ANALYSIS
A. Overview
The agri-food industry is
an important source of wealth to this country, representing 8% of Gross
Domestic Product and 15% of total Canadian employment. Environmental and
climatic variations across Canada contribute to an agriculture that is
essentially regional. Eastern agriculture – which is diversified
into livestock, dairy, grain and special crops – concentrates on
serving the domestic market. In the west, grain monoculture developed
for the export market predominates, especially in the Prairies. More than
one-third of agricultural receipts are derived from such exports, which
have expanded as a result of new technological developments for increasing
food efficiency. Overall, agricultural productivity almost doubled between
1961 and 1984; for example, grain yields increased from 1.5 tonnes per
hectare to 2.2 tonnes per hectare, and one farm worker is now capable
of providing food for more than 100 people.
Canada, as a small player
in the international marketplace, is much more vulnerable to the international
environment than are larger and less dependent nations or blocs such as
the United States or the European Community. Although families continue
to operate 98% of all farms, suggesting the marked resilience of the family
farm as it adjusts to changeable economic, weather and market conditions,
the high debt, drought and trade wars of the 1980s brought about significant
structural change in the agricultural sector. On the one hand, farm numbers
continued a 50-year decline, although at a much slower rate than in the
1950s and 1960s; they went from a peak of 730,000 in 1941 to the level
of 280,000 recorded in the 1991 Census. On the other hand, farm size grew;
farms with sales of over $50,000 just about doubled between 1971 and 1986,
and by 1991 represented 42% of all farms, accounting for 86% of sales.
These factors have contributed
to instability in the sector and a corresponding reduced efficiency. Governments
at both federal and provincial levels have felt the need to respond to
the difficulties that farmers experience from time to time. Between 1984
and 1992, governments contributed $22.4 billion to assist farm income,
yet a comparable level of agricultural debt during this period did not
decline. For their part, countries around the world, particularly the
highly industrialized countries, have been raising subsidy levels in order
to keep their own agriculture competitive. The 24 member countries of
the OECD (Organisation for Economic Co-operation and Development) spent
$321 billion in 1991 in support of agriculture. Now, all these countries,
including Canada, find they must re-evaluate their assistance policies
in light of global trade liberalization.
Many consumers here begrudge
farmers this government support; even so, they expect a broad selection
of high-quality food to be available year-round. Canadian consumers are
indeed fortunate in having among the highest quality, widest selection
and most reasonably priced food in the world. Relative to income, we have
the second-lowest food costs after the U.S. (This average, of course,
masks disparities in the purchasing power of individuals.) The former
Minister of Agriculture stated in June 1993 that a society measures its
standard of living by the price of its food. In other words, when one
spends only about 10% of disposable income on food, 90% is left to spend
on better education, good health care or recreation and so on. Moreover,
without a healthy food sector, Canada would be very vulnerable to the
food policies and politics of other countries.
Our good fortune is not
necessarily widely recognized. A recent U.S. nationwide survey revealed
that 49% of the respondents did not know that white bread contained wheat.
Very few people realize how few cents of the price of a loaf of bread
go to farmers, who have supplied the grain. During the 1980s, increases
in retail prices almost tripled increases in farm prices. For instance,
the spread between the farmer and store prices for milk was 37 cents a
litre in 1980 but 91 cents in 1990. City dwellers do not seem to understand
that consumers have a stake in ensuring that the food producers who contribute
to our advantages receive a living wage. Whereas 60% of farms in Saskatchewan
– a primarily agricultural province – produce enough to live
on, 40% require off-farm income to survive.
The ability of our farmers
to continue to produce the type of food we take for granted is also threatened
by urban sprawl; the best agricultural land in Canada is being paved over
to expand our cities. Despite efforts on the part of provinces to protect
agricultural land from development and rural life from invidious stereotypes,
agriculture continues to lose both land and farmers. According to Statistics
Canada, of the generation born between 1961 and 1971, fewer than 7,000
are choosing to go into farming.
Producing reasonably priced
food creates financial stress for farmers, forcing them to plant more
on marginal land in order to survive economically. This, in turn, has
an adverse effect on conservation of land, as discussed in Current Issue
Review 87-8, Agricultural Soil Conservation: Federal Policy. In
spite of the enormous pressures to feed an expanding global population,
future production will have to come from a diminishing supply of farmland.
Nevertheless, the agri-food
industry has gradually emerged from the doldrums of the 1980s. For example,
the value of Canadian agri-food exports increased from $13 billion in
1993 to $22 billion in 1997. The objective of $20 billion in exports by
the year 2000, set by the industry in 1993, was achieved as early as 1996.
The agri-food industry’s export role is thus obvious, and the Canadian
Agri-Food Marketing Council (CAMC) has set a new objective: to increase
Canada’s share of world agri-food trade from 3% to 4% (i.e., from
$22 billion to $40 billion) by 2005.
From this perspective,
government measures for sustaining agricultural production – such
as farm income stabilization and funding for research and other initiatives
– are an investment whose benefits must be shared by the entire industry,
including producers, processors and consumers. The following sections
of this paper will examine some fields in which the government has taken
action to implement its agricultural policy.
B. The Role of Government Intervention in Agricultural
Policy
1. Evolving Departmental Structure
Since the mid-1980s, the
role of Agriculture and Agri-Food Canada (AAFC) – the Department
responsible for promoting the growth of Canada’s agri-food industry
and the main lever of government intervention in this industry –
has changed from improving and maintaining productivity to increasing
the sector’s competitiveness. Policy objectives in the mid-1980s
were to: ensure supply; allow producers, processors and distributors to
earn more income from their activities; make the marketing system more
effective; and increase the economic viability of the industry. The current
policy objective is to ensure the industry’s viability in a context
of freer trade.
This policy shift became
clear in July 1993 with:
-
the creation
of AAFC’s Market and Industry Services Branch, the purpose of
which is to strengthen the industry’s competitiveness and help
it obtain a larger share of domestic and international markets; and
-
the Department’s
name change from Agriculture Canada to Agriculture and Agri-Food Canada,
a reflection of the government’s desire to emphasize the production
of food products of all kinds, not only primary products.
In addition to the reorganization
of the Department over the past 15 years, the following changes have been
made in order to increase effectiveness and reduce overlap:
-
the Canadian
Food Inspection Agency (CFIA) was set up in 1997. This comprehensive
agency combines the food inspection activities previously carried
out by AAFC, Health Canada, and Fisheries and Oceans Canada.
Since 1998, AAFC has had
a performance framework to help it achieve departmental objectives and
better analyze the results. As part of this framework, four main activity
groups were defined:
-
expanding
markets;
-
innovating
for a sustainable future;
-
building
a strong foundation for the industry and rural communities; and
-
providing
departmental policies and services.
Budget envelopes are now
allocated to the various AAFC directorates according to their administrative
relation to these four activity groups. The first three activity groups
define AAFC’s objectives for making the industry competitive and
market-responsive, less dependent on government assistance, and able to
compete internationally. Budget cuts at AAFC, from $2.86 billion
in 1992-93 to $1.6 billion in 1998-99, have reduced government assistance,
and AAFC now emphasizes the growth and financial security of the industry.
As a result, AAFC has drawn
up market development programs and negotiated trade agreements such as
the 1992 GATT negotiations, in order to improve trade. Research has also
been reorganized, in particular by reassigning resources to shared-cost
research projects carried out by the industry. Research focuses on developing
sustainable agricultural practices and value-added food and non-food products.
The next two sections will
examine the farm income stabilization system and support for specific
industry sectors.
2. Farm Income Stabilization
Budget cuts at AAFC have
reduced government assistance to the industry as follows:
-
western
grain transportation assistance of $560 million was eliminated in
1995, thus terminating export subsidies for grains and oilseeds;
-
eastern
feed freight assistance was also eliminated, with compensation; and
-
dairy assistance
is being gradually eliminated, a process which started on 1 February 1998;
it will disappear by 2003.
As a result, farm income
support measures are moving increasingly from price support to income
stabilization: mainly to achieve a trade-neutral, production-neutral safety
net for all farms, and protection such as crop insurance against production
risks. Supply-managed products, however, are subject to a special policy.
In December 1994, after
a year of consultation with industry associations, the federal and provincial
governments defined a new farm income stabilization system. Unlike price
support measures, this system was designed so that it would not influence
management practices or production decisions and would be compatible with
the rules governing international trade. It operates on the basis of federal-provincial
agreements and has three components:
-
an income
stabilization program for all farms. The Net Income Stabilization
Account (NISA) is an option that makes it possible to stabilize income
over time. Individual producers can deposit money each year into a
personal account, and receive contributions from the federal government
and the appropriate provincial government in return. Deposits earn
a 3% interest bonus, over and above competitive rates. Earnings accumulate
in the account; individual producers can withdraw money during low-income
years. The provinces define eligible farm products: usually any products
except those that are supply-managed, such as dairy products, poultry,
and eggs;
In December 1997, AAFC announced
a review of the farm income stabilization system. The framework agreement
for this system was discussed at the July 1998 federal-provincial-territorial
Ministers’ conference. The Ministers:
-
decided
to extend the current financial assistance agreements for one year,
until March 2000;
-
discussed
objectives and principles that should form the basis for a new framework
agreement;
-
decided
that a five-year framework agreement should be developed;
-
agreed that
the system should allow stabilization of income within a framework
that generally promoted better risk management; and
-
asked officials
to follow an intensive work plan in order to settle disputes before
their March 1999 meeting.
In addition to the farm
income stabilization system, the Canada Grain Act – which
applies only to the four western provinces – requires grain dealers
to obtain a licence and to give securities to be used to reimburse producers
if the dealers fail to pay or go bankrupt. In December 1997, Bill C-26
was tabled in the House of Commons. It proposed amending the Canada
Grain Act to allow licensing and the giving of securities to be separated
in the case of special crops. The inability to separate the two functions
had long been perceived as the main block to setting up an insurance system
for special crops in western Canada. The bill also proposed that the Canadian
Grain Commission be allowed to administer a voluntary insurance system
for this sector. After being passed by both the House of Commons and the
Senate, Bill C-26 received Royal Assent on 18 June 1998.
With the collapse of world
commodity prices, net farm income dropped significantly in 1997. This
was confirmed by Statistics Canada data on farm income for the first three
quarters of 1998 and AAFC projections indicating decreases in net farm
income of 69.2% in Manitoba and 72.2% in Saskatchewan. In response to
this crisis, in December 1998 the Minister of Agriculture and Agri-Food
announced a comprehensive federal program to provide $900 million in financial
assistance to producers over two years. Of this Agricultural Income Disaster
Assistance Program (AIDA Program), 40% was jointly funded by the provinces,
and brought total assistance to $1.5 billion. The AIDA Program’s
comprehensive approach covered all commodities. Payments were calculated
using the gross operating margin (sales less variable expenditures) and
a reference margin (the previous three years). The AIDA Program was linked
to other income security programs, and AAFC’s 1999-2000 Estimates
noted the possibility of making the AIDA Program an element of long-term
income protection.
In March 2000, federal
and provincial ministers agreed to a basic safety net programming plan
(NISA, Crop Insurance) and an income disaster component (based on the
AIDA program). The agreement would provide $665 million for basic safety
net programs and access to $435 million in income disaster assistance
in each of the next three years. Provincial allocations under the tentative
agreement will be based on the size of the industry in each province.
The federal Minister of Agriculture and Agri-Food will be seeking funding
to ensure no province receives less than its current share.
3. Support for Specific Industry
Sectors
There are support agencies
for specific types of products: the Canadian Wheat Board for grains in
western Canada, and supply management boards for dairy products, poultry
and eggs. These agencies, which were set up according to policies that
pre-date those now in place, have been retained mainly because Canada
considers that they do not distort international markets.
a. The Canadian
Wheat Board (CWB)
The former multiplicity
of buyers and sellers on the world’s grain markets has been largely
replaced by a handful of national agencies, and Canada relies on the Canadian
Wheat Board (CWB) as a single-desk seller to market its grain. While the
volume of the world grain trade has expanded over the past 50 years during
the Board’s period of operation, the number of players has been decreasing.
By the early 1980s, the people who control 75% of the selling and buying
in the world could be accommodated in one small room.
The Board’s validity
as a policy instrument has always been a subject of controversy. Born
as an emergency expedient to meet an unparalleled combination of economic
and environmental disasters in western Canada, the Board was at best an
unwanted child in the eyes of its political fathers. First in 1917 for
the war period, and then again in 1935, the government established the
Board to ensure the orderly sale of grain under difficult conditions.
In its original form, it was a compromise tool for increasing returns
and stabilizing income, and was based on voluntary participation. In 1943,
when agriculture and the supply of food to Canada’s allies once again
became an important national goal, farmers’ participation in the
Wheat Board became compulsory.
In 1949, the Board also
became the sole marketing agency for oats and barley. Oats were removed
from Board jurisdiction on 1 August 1989 and barley bound for the U.S.
was removed on 1 August 1993. The latter order-in-council decision was
dismissed by the Federal Court on 10 September within ten days of its
date of application, on the grounds that such a change could be made only
through legislation passed by Parliament, not by Cabinet order. The challenge
came from Prairie Pools Inc., who argued that the Wheat Board’s orderly
marketing powers were too historic and fundamentally important to be arbitrarily
altered by Cabinet decree. Producers called for a plebiscite on the issue,
because there had been indications that a solid majority of growers opposed
the barley move. On 20 November 1993, the new Liberal government announced
it was dropping a court appeal of the 10 September decision initiated
by the out-going Conservative government.
The Board’s chief mandate
is to market wheat grown in western Canada in the best interests of western
Canada’s grain producers. The designated area includes the three
Prairie provinces and small parts of British Columbia. The Board is the
sole marketing agency for export wheat and barley as well as the main
supplier of these grains for human consumption in Canada. Canadian feed
grains for domestic consumption can be marketed either through the Board
or directly to grain companies. The Board falls under the definition of
a Crown corporation as defined in the Financial Administration Act.
It is a large grain marketing agency, with sales between $3 and $6 billion.
The Board is administered
by a Chief Commissioner, an Assistant Chief Commissioner, and three other
Commissioners. All costs of Board operations are paid for by western grain
producers. An Advisory Committee, elected from this producer group, advises
the Board on policy. In October 1990, a Review Panel released its report
on the challenges and opportunities facing the Board in the 1990s and
beyond. As well as looking at marketing, transporting and handling grain,
the Review Panel recommended that the Board relinquish its five-person
team of politically appointed Commissioners in favour of a corporate structure
made up of a President and Vice-President chosen by a part-time Board
of Directors. Farmers would hold a majority on the Board of Directors,
which would also include industry and government people. A corporate structure
would purportedly make the CWB more accountable to its shareholders, i.e.,
the farmers of Canada, while the chief executive officer would be free
to operate the day-to-day running of the Board. Although some of the Panel’s
recommendations have been implemented, those relating to corporate structure
have not.
Through the operations of
the Board and its pool accounts, Prairie grain farmers are paid a value
for their grain that reflects overall market conditions, rather than the
day-to-day fluctuations of international trade. The CWB administers the
government-guaranteed initial prices paid to producers and operates a
system of annual averaging (pooling) of producers’ prices. The Board
keeps separate accounts, or pools, by crop year for each grain it markets.
As soon as the Board receives payment in full for all grain delivered
to it by producers during any pool period, it determines the surplus in
each pool after all marketing costs are deducted; this surplus is distributed
as a final payment on the basis of producer deliveries to that pool. If
a deficit occurs, the Canadian Wheat Board Act states that losses
shall be paid out of moneys provided by Parliament. The Governor in Council
designates a member of the Cabinet to act as Minister for the purposes
of the Act.
The Board uses the primary
elevator companies located in grain-producing areas across western Canada
to: accept delivery of grain from producers; make an initial payment;
and store, handle and ship Board grain as required. The Board generally
does not own or operate physical marketing facilities but uses various
grain-handling and marketing companies as agents to buy, handle and sometimes
sell grain on its behalf. The Board sells to state trading agencies or
to international grain companies. For their part, customers from 70 countries
are provided with a large variety of sales and delivery options. The CWB’s
overall marketing strategy can best be characterized by its objective,
which is to ensure that the kinds and quantities of grain needed to meet
sales commitments are delivered where and when required.
The controversy over whether
the Board should continue to market barley to the U.S. is only one of
the questions being asked about the role of the Board as a single-desk
marketing agency. Since the Canada-U.S. Free Trade Agreement (FTA) came
into force in 1989, the U.S. government has alleged that certain Canadian
exports are violating the agreement; these include hogs, softwood lumber,
cattle and durum wheat. The binational trade adjudicating panel absolved
the Board in February 1993 from dumping durum across the U.S. border,
but recommended an annual confidential audit of Board selling practices.
Despite this finding, the North Dakota Wheat Commission continued to use
its bargaining power within the context of NAFTA (the North American Free
Trade Agreement), signed in January 1994, to lobby for trade sanctions
against Canadian durum imports. Late in 1993, it accused the CWB of using
"liberal freight subsidies and predatory pricing practices"
to gain unfair trading advantages. According to Canadian industry officials,
their U.S. sales have increased because the United States is exporting
large volumes under its Export Enhancement Program, thus depriving domestic
processors of the durum they need to make pasta, and creating a premium
market for top-quality Canadian durum. In mid-January 1994, President
Clinton ordered the International Trade Commission to conduct a study
of Canada’s durum trade practices, to be finished within six months.
Canada exported 708,000 tonnes of its total 2.25 million tonnes of
durum to the U.S. during the 1992-1993 crop year.
The results of the first
independent audit of the CWB for the period 1 January 1989 to 31 July
1992 were released on 10 March 1994. Of the 105 contracts for durum wheat
sales completed, only three were found not to be in compliance with Article
701.3 of the FTA. Article 701.3 requires that the CWB will not sell durum
wheat to the U.S. below the acquisition price of the goods, plus any storage,
handling or other costs it has incurred with respect to these goods.
On 22 April 1994, the U.S.
notified the GATT (General Agreement on Tariffs and Trade) Secretariat
of its intention to renegotiate tariffs on wheat and barley under Article
28. The U.S. must wait 90 days after signaling its intent to impose new
tariffs on durum wheat, after which Canada is free to cut off exports
of U.S. exports of equal value. Possible targets are U.S. wine, pasta
and breakfast cereals. The Canadian dairy and poultry industries have
expressed concerns that the supply management system may be threatened
by efforts to placate the wheat states.
Under the terms of a bilateral
agreement with Canada, reached 1 August 1994, the U.S. said it would not
pursue renegotiation under Article 28, thus avoiding a potential food
trade war. The agreement, valid to 12 September 1995, imposed punitive
tariffs on wheat exports to the U.S. above 1.5 million tonnes; a
record-setting amount of 2.5 million tonnes was shipped south in
1993-94. The deal did not affect the 400,000 tonnes of barley, semolina
and wheat, mostly from Quebec and Ontario, not handled by the Canadian
Wheat Board. A Canada-U.S. joint "blue ribbon" commission, established
in September 1994, had a year to study the dispute and half a year to
make preliminary recommendations.
On 22 June 1995, the
Canada-U.S. Joint Commission on Grains released its interim report, in
which it recommended the elimination of discretionary pricing policies
in both countries. This would mean ending the U.S. Export Enhancement
Program and having the CWB operate "more at risk of profit or loss
in the marketplace," with greater transparency in its pricing methods.
The CWB’s price-pooling practices were said to be undercutting prices,
even though its mandate is to operate in a business-like manner and to
sell wheat for no less than market value. The Commission recommended allowing
producers to decide for themselves whether to participate in Canadian
wheat and barley pools.
The final report of 11 September
1995 elaborated on the operation of the two grain marketing systems and
recommended the establishment of a Consultative Committee to address short-term
cross-border issues.
Critics of the CWB claim
there is a need for more transparency in Board dealings and for farmers
to have fair pricing options. In March 1992, the Board adjusted its pooling
system to allow farmers to truck their grain directly to U.S. export markets,
rather than through the elevator system; however, it vehemently opposed
giving up its monopoly role in the marketing of barley to U.S. customers.
Supporters of the Board see U.S. pressure since the Free Trade Agreement
as responsible for moves to reduce the marketing powers of the Board.
In their view, the government guarantees on initial prices and central-desk
selling are the two pillars that allow the Board to net higher returns
to Prairie farmers.
Memories of the battle to
create the Board out of the chaos and weakness of the free market of the
1920s and 1930s are now dim. Progressive farmers are no longer necessarily
those who see strength in cooperative action; the young generation of
commercial farmers show evidence of preferring to substitute individual
management skills for collective approaches. It is clear that the Board’s
formerly unchallenged position is becoming a subject of controversy in
the freer trading environment of the 1990s. Individual farmers have been
defying the Board’s role and marketing their grain to the U.S. themselves.
In response, on 17 May 1996, Cabinet approved an order requiring wheat
and barley exporters to show an export permit from the Canadian Wheat
Board at the U.S. border.
In an attempt to end the
acrimony over how wheat and barley are sold, in 1995 Minister Goodale
appointed a nine-member Western Grain Marketing Panel to look at all aspects
of Canadian grain marketing, including the CWB monopoly. On 9 July 1996,
he released the findings of the year-long study. The Panel suggested allowing
a quarter of western Canada’s annual $5-billion wheat crop to be
sold at market prices, along with 100% of the $250-million feed-barley
crop. The Board would remain the sole buyer of both categories of wheat,
paying either the current spot price or the average pooled price as the
grower chose. Proposed amendments to the Canadian Wheat Board Act
would, as suggested in an earlier study, make the Board operate more like
a private company with an elected Board of Directors. The findings do
not seem to have resolved differences in the farm community over the role
of the CWB. The Minister intends to consult farmers on the recommendations
before implementing any change to the CWB’s mandate.
In December 1996, the government
tabled amendments to the Canadian Wheat Board Act. Under Bill C-72,
the CWB would have become a mixed-economy agency headed by a full-time
President (CEO) and a Board of part-time Directors. Any changes to the
CWB’s monopoly on the marketing of wheat and barley would have been
subject to an order and a vote among producers.
Before receiving second
reading, in February 1997 Bill C-72 was referred to the Standing Committee
of the House of Commons on Agriculture and Agri-Food. The Committee heard
approximately 100 witnesses and made major amendments to the bill, particularly
with respect to CWB matters. On 16 April 1997, the Committee reported
the bill with amendments to the House and recommended that ten Directors
be elected by producers. Other amendments would have increased the Board’s
powers, altered the status of the CWB, and changed the function of the
contingency fund. Bill C-72 died on the Order Paper when Parliament
was dissolved and a general election called in April 1997.
In September 1997, Bill
C-4, An Act to amend the Canadian Wheat Board Act and to make consequential
amendments to other Acts, was given first reading in the House of Commons.
In October 1997, before being given second reading, it was referred to
the Standing Committee of the House of Commons on Agriculture and Agri-Food.
Bill C-4 was based on Bill C-72 as amended by the Committee in April
1997, with some additional technical amendments (see the Parliamentary
Research Branch’s Legislative Summary LS-292E). The most important
amendments dealt with the appointment of the Chairperson of the Board
by the Board itself, and the possibility of extending CWB jurisdiction
to other types of grain under certain conditions. The Committee made several
other amendments to the bill, one of which was that only producer associations
could write to the Minister requesting that CWB jurisdiction be extended
to their type of grain. The Committee reported the bill with these amendments
to the House on 7 November 1997.
From 24 March to 2 April
1998, the Standing Senate Committee on Agriculture and Forestry held public
hearings in Brandon, Regina, Saskatoon, Calgary, Edmonton and Winnipeg.
It heard from 92 producers, 34 producer organizations, and three provincial
Ministers of Agriculture. In Ottawa, it also heard from the Minister responsible
for the CWB and representatives of the CWB and AAFC. In its Report, tabled
in the Senate on 14 May 1998, the Committee made the following recommendations:
-
the CWB
Board should be consulted about the appointment of its Chairperson;
-
the Auditor
General of Canada should be authorized to audit the CWB; and
-
the clauses
on including and excluding grains from CWB jurisdiction should be
eliminated.
The Senate Committee also
recommended that:
-
electoral
districts be defined for electing producers to the Board, so that
five Directors would come from Saskatchewan, three from Alberta, and
two from Manitoba;
-
each permit
book holder have a vote;
-
the contingency
fund have a $30-million ceiling; and
-
separate
accounts be created for each of the three activities covered by the
contingency fund: guaranteeing adjustments to initial payments; providing
for potential losses from early pool cashouts; and providing for potential
losses from cash trading.
Bill C-4 received Royal
Assent on 11 June 1998. The new CWB structure has been in place since
the fall of 1998. A President and CEO now oversees day-to-day activities,
while a Board of Directors is responsible for CWB strategy. Of the 25
Directors, ten are elected producers; five, including the President and
CEO, are government appointees.
b.
National Supply Management Agencies
Another means of responding
to difficulties in balancing supply and demand has been the establishment
of supply management systems. These first become evident with the scientific
industrialization of the poultry industry. Rapid technological advances
in the 1950s and 1960s caused a dramatic reduction in cost of production,
an increase in output, a fall in real prices, and extensive structural
and organizational changes in a more competitive economic climate. Sustained
low prices and cyclical price fluctuations throughout the 1960s favoured
economies of scale, forcing small chicken and egg producers out of the
market. Prices tended to be set by U.S. companies, whose vertically integrated
poultry production system of ownership by feed companies and processors
made them more competitive. Contractual arrangements south of the border
paid fees to farmers for services provided and reflected disparities in
the bargaining power of producers and integrators.
In response, individual
provinces established provincial marketing boards to stabilize price,
production or both. However, by the 1970s it became evident that only
a national system of supply management could coordinate production with
demand and prevent uncontrolled flows of product from the U.S. or other
provinces. The Farm Products Marketing Agencies Act, establishing
supply management, came into effect in 1972. The Act created the National
Farm Products Marketing Council to advise the federal Minister of Agriculture
on the operation of marketing agencies so as to promote an efficient agricultural
industry. Over the next several years, national agencies were created
for eggs, turkey and chicken. They functioned as federations of the provincial
marketing boards, which represented a majority of producers. Their role
was to establish national quotas based on market need, allocate these
to the provinces, and set administration levies and penalties for over-
and under-production. The provincial boards for their part allocated quotas
to individual producers, and enforced these within the province by imposing
a penalty if production exceeded quota by more than 1%. These boards exercised
control over who might participate in production by establishing the maximum
size of individual production units as well as rules applying to quota
retention and transfer.
The system of quota allocation
has allowed Canadian processors to purchase a small portion of Canadian
requirements from foreign producers. Since the signing of the Canada-U.S.
Free Trade Agreement in October 1987, the permitted level for chicken
imports has stood at 7.5% of domestic consumption and for turkey at 3.7%.
Despite the fact that this is about a one percentage point increase over
past practice, Canadian food processors have complained that product is
not available when and where it is needed and at a competitive price.
It is claimed that in the U.S. where the chicks, feed and technical inputs
are under their control, processors can schedule the volume and timing
of birds coming to the plant. Growers are paid a pre-determined fee for
the management and use of their facilities but, unlike Canadian growers,
have no bargaining power in price determination by means of negotiations
with the processing sector.
The supply-management system
was supposed to allow industry-wide input into the quota-setting process
for each time period and in each province. Its supporters consider supply
management has protected small farming operations from the type of vertical
integration that has come about in the U.S. industry and has ensured a
reasonable return on labour, management and investment to Canadian farmers.
Supporters of supply management see it as injecting stability into the
marketplace. Its critics, however, see it as an inflexible monopolistic
regulatory system, incapable of responding to regional, consumer or technology
changes affecting market demand or production costs, and often reflecting
prices above the cost of the most efficient producer.
Under the Canada-U.S. Free
Trade Agreement, tariffs will disappear over a ten-year period. The phase-out
period for tariffs under NAFTA is five years.
Protection for supply management
had come through direct reference to GATT (General Agreement on Tariffs
and Trade) Article XI and its provisions permitting import restrictions
to uphold supply management. As the seven-year-old Uruguay Round –
with its agricultural emphasis on converting all external controls to
tariffs – drew to a close, Canada became increasingly isolated in
its support of a clarified and strengthened Article XI, as the European
Community, Norway, Israel, Switzerland, Japan and Korea abandoned their
backing. Canada’s stand on supply management was not helped by the
fact that its goal for market-driven commodities such as grain and meat
was totally different; for those commodities, it wanted to see a reduction
in all export subsidies. Under the new GATT/WTO (World Trade Organization)
regime agreed to in December 1993 and signed 15 April 1994, border import
quotas were to be replaced in 1995 by border tariffs of up to 300%, to
be reduced by only 15% over six years. The government takes the view that
GATT/WTO rules prevail over any FTA or NAFTA rules, whereas the U.S. considers
that the new GATT/WTO regime violates NAFTA (which bars new tariffs and
promises to get rid of all existing tariffs by 1998).
In light of the GATT agreement,
Canadian and U.S. negotiators have been trying to find common ground on
such issues as processed food products, including yogurt and ice cream.
The U.S. wants to eliminate the proposed tariffs over six years while
Canada is proposing lowering tariffs by 36% over six years and eliminating
them only over another four. One U.S. source has said that the U.S. would
probably agree to a ten-year phase-out of ice cream and yogurt tariffs
if the proposed tariffs on all supply-managed farm products, including
eggs, chicken, cheese and other dairy products, were to follow the same
schedule. Canadian negotiators have offered to exchange 5% of market access
to dairy products for 3% of the U.S. market.
On 17 July 1995, the U.S.
requested a review by a binational panel on the imposition of tariff equivalents
under chapter 20 of NAFTA. Canadian producers are concerned that the loss
of protective tariffs could mean an end to supply management, with U.S.
dairy giants undermining Canadian prices and taking domestic market share.
On 26 February 1996, Canada tabled its defence of supply management tariffs
imposed in the previous year to comply with the new world trade rules.
An interim ruling on the dispute, released in July, upheld the right of
Canada’s 32,000 supply management producers to maintain high border
tariffs indefinitely, regardless of NAFTA provisions.
The relationship of supply
management to the Uruguay GATT Round is explored in Current Issue Review
89-7E, GATT, the Eleventh Hour for Article XI. Suffice it to say
that the future of marketing boards has become uncertain, even though
in Canada’s view, they do not disrupt or distort international trade
in any way. Pressure has been growing on marketing boards to become less
protectionist and more market-responsive. Much of the pressure is coming
from poultry processors, who report that raw product under supply management
is 25% more expensive for them than for their U.S. counterparts. Once
tariffs under the FTA are gone, they fear they will not be able to compete
with less-costly U.S. products, which also benefit from other cost and
tax advantages.
Supply management was one
of the first areas to come under scrutiny in the Agri-Food Policy Review
announced in December 1989. Industry-government task forces issued reports
on dairy and on poultry, which were reviewed at the Meeting of Agricultural
Ministers of July 1991. A steering committee was established to draw up
an action plan to implement the recommendations of the two task forces.
Eleven guidelines defined "a second generation" supply management
that would be more flexible in structure and operation and more sensitive
to competition and the marketplace. Since that time, the Annual Reports
of the various supply management agencies reflect their attempts to introduce
such marketing systems. Agriculture and Agri-Food Canada designated an
Assistant Deputy Minister to be solely responsible for National Marketing
Systems. The government appointed a five-member Task Force to report on
changes needed to make marketing boards conform to the new GATT/WTO agreement.
The Task Force was headed by Lyle Vanclief, Parliamentary Secretary to
the Minister of Agriculture.
On 23 March 1994, the Task
Force released its agenda for action. Five commodity committees comprising
all interested parties were to review national plans, allocation formulas,
compliance mechanisms and so on, for the dairy, chicken, broiler hatching
eggs, turkey and egg industries, as they were to work under the new GATT/WTO
trade sales.
Currently, supply management
is being questioned, both by government and by some producers, even in
supply-managed sectors. At issue is finding a balance between the wish
to grow through expanded exports and the maintenance of some production
stability in order to ensure higher prices for producers. Canada’s
dual-pricing approach – which has one price for domestic sales and
another, lower price for exports – is far from having unanimous support
among Canada’s trading partners. The government nevertheless maintains
that the current supply management system does not distort international
markets. It is also seeking ways to help the industry develop a long-term
strategy for exporting value-added products.
The United States
and New Zealand, arguing that the current dual-pricing system for dairy
products constitutes an export subsidy, lodged a complaint with the WTO
Dispute Settlement Body. In March 1999, a WTO panel ruled that Canada
was violating its obligations under the 1994 agriculture agreement by
providing export subsidies to its dairy industry. The government appealed
the decision, arguing that dual pricing did not affect supply management
itself.
PARLIAMENTARY ACTION
The subject of GATT and
supply management was allotted discussion under Standing Order 81 on 12 February
1992, in response to the move by the Secretary General of GATT, Mr. Dunkel,
in favour of tariffication. Parliament passed a motion supporting Article
XI and supply management.
A more general debate was
held under the same Standing Order on 9 February 1993; it included references
to GATT and to the role of the Canadian Wheat Board in marketing barley
to the United States.
Following hearings in the
fall of 1992, the Standing Committee on Finance issued the report of its
sub-committee on regulations and competitiveness in January 1993. The
sub-committee had been asked in the budget announcement of February 1992
to assist in reviewing the federal regulatory process and its impact on
competitiveness. Recommendations were made in relation to the departments
of Agriculture, Consumer and Corporate Affairs, and Transportation.
Following hearings in the
fall of 1994, the House of Commons Standing Committee on Agriculture and
Agri-Food released a report on its priorities for the future of agriculture.
It stressed the need for keeping research and regulation to ensure an
innovative and safe food system.
The Standing Committee has
always been very active in monitoring the annual departmental Estimates.
In 1996-1997, the Estimates were used as a pilot document in the Treasury
Board’s Improved Reporting to Parliament project, one of whose
principal goals was to significantly enhance Parliament’s ability
to understand and influence departmental expenditure plans. The Committee
found the new format less "user-friendly," but acknowledged
that it included additional useful information on proposed AAFC activities.
The Committee expressed concern about introducing program changes without
adequately documenting the financial implications. "User fees"
were cited as an example of inadequate documenting of the potential cumulative
impact on Canadian farmers, particularly as implementation of these fees
might affect farmers’ ability to compete internationally.
During the 36th Parliament
(1997-98), Parliament considered the following bills:
-
Bill C-4,
An Act to amend the Canadian Wheat Board Act and to make consequential
amendments to other Acts; and
-
Bill C-26,
An Act to amend the Canada Grains Act and the Agriculture and Agri-Food
Administrative Monetary Penalties Act and to repeal the Grain Futures
Act.
Bills C-4 and C-26 received
Royal Assent on 11 and 18 June 1998 respectively.
In the
fall of 1998, the Standing Committee of the House of Commons on Agriculture
and Agri-Food considered the farm income crisis in Canada. In its report,
it recommended "that a third line of defence be added to the present
farm income safety net, based on a National Income-Based Disaster Program."
It also held exploratory hearings on the Multilateral Trade Negotiations
(MTNs) on agriculture that were held late in 1999. These hearings gave
various sectoral groups an opportunity for the first time to discuss their
expectations of the MTNs on agriculture.
CHRONOLOGY
September
1986 - GATT Uruguay Round was launched at Punta del Este.
December
1988 - GATT Mid-Term Review proposed reductions in agricultural subsidies.
January
1989 - The Canada-U.S. Free Trade Agreement came into force.
April
1989 - GATT Mid-Term Review proposals were agreed to.
August
1989 - Oats were removed from CWB jurisdiction.
December
1989 - Canada’s agricultural review Growing Together was launched.
May
1991 - The Dairy Policy Task Force issued its final report, a follow-up
to a preliminary report released in June 1990.
May
1991 - The Poultry Task Force issued its final report, a follow-up to
its first report of May 1990.
December
1991 - Mr. Dunkel’s recommendations regarding GAIT tariffication
were released.
December
1992 - An omnibus regulation was issued on changes to Agriculture Canada’s
regulatory system.
July
1993 - Agriculture Canada’s name was changed to Agriculture and Agri-Food
Canada.
August
1993 - Barley was removed from CWB jurisdiction.
September
1993 - Barley was reinstated under CWB jurisdiction.
December
1993 - GATT Uruguay Round concluded with an agreement to replace import
quotas by a system of tariffs.
January
1994 - The North American Free Trade Agreement came into force.
April
1994 - The GATT Agreement implementing December tariff proposals and creating
the World Trade Organization, GATT’s replacement, was signed.
December
1994 - An Act to implement the Agreement Establishing the World Trade
Organization (Bill C-57) received Royal Assent.
December
1994 - Amendments to the Canada Grain Act (Bill C-51) to deregulate
grain handling received Royal Assent.
February
1995 - Agriculture and Agri-Food Canada released its three-year outlook
document entitled Agenda: Jobs and Growth.
March
1996 - Agriculture and Agri-Food Canada released an update of Agenda:
Jobs and Growth entitled Building for Success.
April
1997 - The Canadian Food Inspection Agency was set up.
June
1998 - Bill C-4, An Act to amend the Canadian Wheat Board Act and to make
consequential amendments to other Acts, received Royal Assent.
-
Bill C-26, An Act to amend the Canada Grains Act and the Agriculture and
Agri-Food Administrative Monetary Penalties Act and to repeal the Grain
Futures Act, received Royal Assent.
SELECTED REFERENCES
Agriculture Canada.
-
Challenge
For Growth, an Agri-Food Strategy for Canada.
Minister of Agriculture, 9 July 1981.
-
Growing
Together: A Vision for
Canada’s Agri-Food Industry. Minister of Supply and Services,
Ottawa, 1989.
-
Task
Force on Competitiveness in the Agri-Food Industry.
Ottawa, 1990.
-
Growing
Together: Building Partnerships, Agri-Food Review.
Various issues, 1990-1992.
-
Agriplus.
Volume 1. Various issues, 1992.
Agriculture and Agri-Food
Canada. Future Directions for Canadian Agriculture and Agri-Food.
Ottawa, September 1994.
Agriculture Canada and Consumer
and Corporate Affairs Canada. A Food Strategy for Canada. Ottawa,
c. 1977.
Canada, House of Commons
Standing Committee on Agriculture. The Agri-Food Industry: The Competitiveness
Challenge. Issue No. 47, 8 November 1990.
Canadian International Grains
Institute. Grains and Oilseeds: Handling, Marketing and Processing.
Vol. 1. CIGI, Winnipeg, 1993.
Economic Council of Canada.
Design for Decision-Making, An Application to Human Resources Policies.
Information Canada, September 1971.
Forbes, J.D. Institutions
and Influence Groups in Canadian Farm and Food Policy. Chapter 6
(The Crow). The Institute of Public Administration of Canada, Toronto,
1985.
Forbes, J.D., R.D. Hughes
and T.K. Warley. Economic Intervention and Regulation in Canadian Agriculture.
A study prepared for the Economic Council of Canada and the Institute
for Research on Public Policy. Minister of Supply and Services, Ottawa,
1982.
Morriss, William E. Chosen
Instrument, A History of the Canadian Wheat Board: The Mclvor Years.
Reidmore Books, Edmonton, c. 1987.
Price Waterhouse. Review
of Supply Management Operations in Chicken, Eggs, and Turkey. October
1987.
Statistics Canada. The
Daily: 1991 Census of Agriculture. 4 June 1992.
* The original version of this Current Issue
Review was published in February 1994; the paper has been regularly updated
since that time.
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