Safety Nets and Equity

Some words in agriculture -- fairness, quality, sustainability and competitiveness, for example -- are hard to define. In the case of farm safety net program design, the difficult word is equity.

Internationally, significant progress has been made since 1990 in quantifying relative agricultural support levels, and in reducing inequities which exist among countries. During the Uruguay Round of trade negotiations, the Aggregate Measure of Support (AMS) was developed, with countries being committed to certain reductions in AMS levels during the tenure of the resulting agreement.

The Organization for Economic Cooperation and Development (OECD) uses the Producer Subsidy Equivalent (PSE) to compare relative subsidy support levels. While major differences still exist, progress has been made in reducing PSE levels in many countries since 1990 (Western Europe being a notable exception).

AMS and PSE are imperfect measures of relative government support, but they have been useful. More important is the general recognition both domestically and internationally -- that the goal is to reduce the imbalance which exists among countries in the relative amount of government support provided for agriculture.

But strangely, when it comes to the allocation of Government of Canada resources for support of agriculture, and especially safety net programs, the policy direction has been different.

Data provided by Agriculture and Agri-Food Canada show the magnitude of across-province discrepancies. During 1997/98, for example, the Government of Canada is estimated to have spent $8.69 in support of Ontario agriculture for every $100 of agricultural Gross Domestic Product (GDP, an estimate of agricultural output) produced within the province, versus an average of $14.40 for all of Canada. The equivalent support level is $20.91 for Saskatchewan and $17.74 for Manitoba. Relative federal support for agriculture in Alberta and Quebec falls below the Canadian average, though not so dramatically as in Ontario.

The situation with safety net funding is just as distorted. The average federal spending on safety net support for Ontario for 1995/96 through 1998/99 is estimated at about $103 million, or 16 per cent of total federal safety net spending. This compares to Ontario’s 22 per cent of total market receipts for sales of non-supply-managed commodities. The corresponding figures for other major agricultural provinces are: Saskatchewan, 33 per cent of safety net allocation versus about 23 per cent of non-supply-management market receipts; Manitoba, 12 per cent of federal safety net spending and 11 per cent of receipts; Alberta, 21 per cent of federal safety net spending and 25 per cent of receipts; and Quebec, 11 per cent of federal safety net spending and 11 per cent of receipts.

If Ontario received federal safety net support equivalent to provincial output, the Ontario allocation of federal safety net funds would be about $140 million, versus the $102 million projected for 1998/99.
Status quo supporters argue that federal safety net spending allocation should reflect “risk,” and that government support should go to those producers and regions representing the highest risk. But what does this mean? And where does it lead? Should government funds be used differentially to support or reward those who farm in riskier environments (soils, climates) or who farm in riskier ways?

How far should governments go in offsetting differences in comparative natural advantages?

Those from other provinces sometimes suggest that because of its generally warmer climate, Ontario agriculture merits less safety net support than elsewhere. But this ignores other offsetting disadvantages: the capital cost of tile drainage which is needed for crop production in most of Ontario, but not in many other cropping areas of Canada; higher land costs in Ontario versus most other provinces; higher per-acre operating costs for higher value crops grown in Ontario; and generally low margins relative to capital and operating costs in Ontario. Indeed, land cost itself tends to be the great leveler; land costs are usually highest where the potential productivity is highest – and vice versa. Why should government money also be needed as an additional offset?

The question as to what constitutes “equity” in safety net was considered at length during the National Grains and Oilseed Safety Net Committee of 1990. The committee concluded that with respect to safety net programs, “Producers of different commodities and in different regions can be said to be equitably treated if, over the long term, government contributions are comparable.”

This principle was accepted by all Canadian ministers of agriculture, in the subsequent 1991 national agreement on the Gross Revenue Insurance Plan. It states “equity is considered to be, over a period of time, a comparable level of government contributions in relation to the value of a crop adjusted for the level of acreage insured.”

While government spending on agricultural safety net programs has dropped since the early 1990s, these programs remain important; it is important that the money be used effectively and equitably. Canadian farm safety net programs are needed to temper wide fluctuations in farm income, and rural community viability caused by fluctuations in weather patterns and commodity prices which fall outside a normal range for that commodity and farm location, and which are beyond the control of the individual producer. They are also needed to help Canadian agriculture survive in the face of continuing large subsidy support for producers in the United States and Western Europe.

Canadian farm safety net programs should not be used to give continuing taxpayer-funded differential financial advantage to producers of similar commodities in some provinces or regions of Canada, relative to others.

It’s a question of fairness and equity.