Researcher calls for rethink on farm subsidies
By Paul Mayne
October 11, 2012
The federal government needs to stop putting money into the past and start thinking about the future when it comes to the billions it pours into the agricultural sector every year, according to one Richard Ivey School of Business professor.
Canadian agriculture policies should shift away from farm income subsidies and focus on investing in the food industry and raising productivity, said David Sparling, an Operations Management professor and Agri-Food Innovation and Regulation Chair.
New research from Sparling and postdoctoral fellow Nicoleta Uzea shows the financial situation for Canadian farmers has improved considerably, yet the subsidies continue.
Sparling cites AgriInvest, for example, a program which allows farmers to deposit 1.5 per cent of sales into an account (up to a maximum of $22,500 per year) and receive dollar-for-dollar matching from the government. This has since dropped to 1 per cent.
“It’s basically 100 per cent return,” Sparling said. “It’s a very perverse program because what happens is, as prices are rising, sales are rising, farm income is rising and then, or course, the government payments into this program are rising.”
In 2010-11 the government put in almost an additional $100M and will do at least that amount again this year, he added.
“I never loved it. The larger farmers tend to do very well, and that’s a few thousand farmers. There are about 10,000 now who produce half of what Canada actually produces. And then there’s the other whole group who never ever make money, because they’re part-time.”
Between 2005-10 sales were up by 41 per cent, net income rose 126 per cent and the average net worth of a Canadian farm rose by $486,000, an increase of 47 per cent. Net worth increases ranged from $190,000 for farms selling less than $100,000 per year to more than $1.9 million for farms selling over $2.5 million per year.
In spite of this improved financial situation for agriculture, there seems to be little willingness at the farm organization level to support a shift from income support to investing for the future, said Sparling, who was a poultry farmer for 20 years prior to his academic career.
He noted there are different subsidies program.
Agrilnvest, which basically gives everyone the same thing; a crop insurance program with the government picking up 60 per cent of the cost of the insurance; AgriStability, which is income insurance, and once covering as much as 85 per cent, but since lowered; and AgriRecovery, if there’s a major disaster that occurs.
“So they have crop insurance, income insurance and disaster insurance, and one of the things I was arguing was what’s this other one doing and why do you need anything else? You don’t need to subsidize everything,” Sparling said.
Agricultural policy and programs today look largely as they did for the last decade-plus, he added, focused on supplementing farm income through Business Risk Management programs. Altogether, direct support payments to farmers totaled almost $2.5 billion in 2011, compared to just over $275 million for research and market development.
“Unfortunately, income support will not make Canada more productive, nor will it open new and profitable markets around the world,” Sparling said. “It is impossible to support the view that the future of the industry is best assured by continuing to spend the major portion of program payments on farm income support, particularly when farm incomes and net worth continue to rise.”
As federal, provincial and territorial governments sit down to develop the next five-year agricultural policy framework, Sparling admitted they are at a pivotal juncture for Canadian agriculture. The global agriculture and food system has changed dramatically; farmers are doing better and the future of the industry looks promising.
That has to be taken into account, Sparling said.
In his policy brief, A Different Future for Agriculture – Six Years that Changed Agriculture 2005 – 2010, he calls for a shift away from farm-income programs to focused investment which seeks to modernize the food industry and raise productivity along the entire food chain, from farms to food processors, rather than simply giving more money to farmers as their incomes rise.
“Overall, we’re totally out of balance as to where we put our money. Governments need to invest, not just spend. To me, investing is looking at where the future opportunities are rather than just giving money broadly,” Sparling said. “(Agriculture and Agri-Food Canada) has a certain amount of money that’s supposed to cover the entire supply chain. But 90 per cent of that goes to farmers.
“That’s probably not the best investment as a country. We need to up the whole game for the industry.”
Along with innovative ideas coming out of the food-processing industry, the global industry is changing as well, with high-value opportunities in China, Thailand and India. But we’re not capitalizing on that, Sparling stressed.
“There is a romantic and historical view of farming, and farmers are unbelievably good at marketing and they really push that hard,” he said. “To me, we need to think of this as a business and not a romantic view of the past, because this is a business and the really good farmers out there are great.
“I think there are people who can make very successful businesses with small farms, but what they have to do is do things differently. They have to understand they are in a different business and have to find their niche, whether it be building on the local food movement, selling direct to consumers (farmers’ market) or on-site retail stores. There are opportunities there.”
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