The Race To The Bottom, Ag Export Pricing Is No Panacea

IMG_2272    I saw on my twitter feed, wheels down in Brussels.  Those of the words from Prime Minister Stephen Harper as his plane landed in Brussels Belgium tonight.  He’s there to sign a free-trade deal with the European Union.  In exchange for some type of enhanced trade for Canada, the federal government has sold out some of our Canadian dairy interests by allowing more cheese to be imported into Canada.  Of course, our federal government says the proposed EU free-trade deal will be very good for all Canadians.

With 80% of our trade going to the United States any new trade deal with European Union is welcome.  It is very unfortunate and politically poisonous for the Conservative party in rural Québec.  However, it doesn’t seem like they care, the political metrics of getting a majority government in Canada has shifted over the years.  Giving up a little bit of domestic cheese production (30000 tonnes a year) is the price that will be paid.

Boosters within Canadian agriculture will talk about the possible expanded exports of pork and beef as well as many other agricultural commodities.  I don’t doubt that even at the same time when our American friends are dumping beef into Canadian retail outlets.  If I had blinders on, my agricultural economic background would tell me that this is a very good thing, the free-trade part.  Needless to say, it hardly ever works out that way and the free-trade part of any trade agreement is always much more about the optics of the agreement and the politics behind it.  In my opinion giving up that much domestic cheese is a powerful clue to the future of Canada supply management system.

Clearly though, I don’t think this proposed free-trade deal with the EU is about cheese or supply management.  In many ways, I think it’s about Canadian farmers not getting our agricultural economics right.  The race toward export prices for almost anything we grow in Canada is not good agricultural economics.  You can disparage the problems that we have in the Canadian supply management system, but at least that system attempts to charge a fairer price for a farmer’s livelihood.  Simply throwing our agricultural commodities onto the mercies of any export market is a prescription for problems.  In fact, these problems generally go right back to the farm gate in lower farm incomes.

Of course there is nothing better than using your comparative advantage to produce something you do well and export somewhere where it is demanded.  In Canada, we have done that for decades into the United States.  We are lucky as a country to have the most powerful and richest economy in the world at our doorstep.  However, having some type of market structure, which is able to garner higher prices for domestic consumption, is preferable.  Our Canadian supply manage commodities have done it for years.  We have even done it in grains through past history with single desk wheat boards in Ontario, Québec and Western Canada. Portions of our domestic production was priced higher and the surplus above Canadian demand was shipped other places at much lower prices.

Opening up new export markets simply means a rush to the lowest price for agricultural commodities.  Yes, it is true that many Canadian farmers can produce and be successful at export prices.  However, we can do better than that and keep more of the money at the farm gate.  What it takes is for farmers to recognize that and to get governments on board.  Regrettably, I don’t think everybody understands or is open to that type of market structure.  The cheap food policy is just so strong.

So in many ways we have the race to the bottom.  At the present time we have our federal government signing a free trade agreement with the EU, hoping to boost trade in other areas.  At the same time we have beef coming into Canada at fire sale prices, dumping in my opinion.  So we are putting a policy together hoping to ship our beef even farther to the European Union.  I’ll give you one guess at what price that will be at!

My point is good agricultural economics does not always mean a race to the lowest common denominator, which is often export pricing.  Over time, I’ve come to believe a nuanced agricultural marketing structure, which discriminates domestically with higher prices is much better for farmers.  Unfortunately, that’s being lost in today’s agricultural world.  The race to some total mythical export panacea is winning the day.  I just say no.  It doesn’t have to be this way.