Margin, Access and Policy

Now that we have a new Agriculture Minister in Ottawa, consider several things. All have to do with the direction of Canadian agricultural policy.

Our Anti-dumping and Countervail Duty action has proven one thing; as the Statement of Reasons issued by the Canadian Border Services Agency December 30, 2005 says, 100% of imports of grain corn from the U.S. have been dumped into Canada at prices below the cost of production.

The WTO decision against the U.S. in the Brazilian upland cotton case proved another; that domestic U.S. subsidies depress world prices for all the commodities covered by the U.S. Farm Bill and therefore cause "serious prejudice" to producers in other nations producing those same crops.

When prices from the marketplace are artificially depressed below cost of production, someone has to make up the difference because those costs are paid. It is not a question of whether those bills will be paid, it is merely a question of by whom?

There are only three payers: producers, buyers, or taxpayers/consumers.

We hear endlessly from Canadian politicians and bureaucrats (as representatives of taxpayers/consumers) that they will not compete against the U.S. Treasury. All this means is that they will not pay those bills due from the artificial shortfall in the marketplace. They enjoy artificially cheap food and want to keep it that way. Even though U.S. subsidies depress world prices below cost of production, and U.S. imports are being dumped into Canada, and even though politicians and bureaucrats determine and are responsible for the business environment in which Canadian farmers operate, they do not have the political will to pay those shortfall bills. By refusing to help, politicians and bureaucrats are merely passing the buck; but, those bills will be paid nonetheless.

That leaves the other two players; producers and buyers?

In the linkage between field and fork, there are only two players who care about the level of price: the producer and the taxpayer/consumer. All other players care only about the margin between what they pay for raw materials and what they receive when they sell their processed product. Buyers, processors, and middlemen care not about the actual level of price, only about the margin between buying and selling. In reality, whether corn is $2.50 or $3.50 or $4.50 is irrelevant to processors/handlers provided they make their 25 or 50 or 75 cent (or higher) margin. Only the producer and the taxpayer/consumer care about the actual level of price. Buyers and middlemen merely pass increased costs upward to the taxpayer/consumer, or push them downward back onto the producer. Market power determines the direction of push and degree of success. Those bills will be paid, but not by the buyers, processors, and middlemen.

That leaves only the Canadian grain producer to pay the shortfall on the products they produce when prices are artificially depressed below cost of production by U.S. subsidies. By initiating our anti-dumping and countervail duty action, Canadian corn producers have clearly said we will no longer make up the difference. We will no longer erode our equity to pay those bills due from the artificial shortfall from the marketplace.

What has that got to do with market access?

The primary thrust at WTO negotiations is to open up international markets to increased trade in agricultural goods. But in an environment where the price for grains and oilseeds is artificially depressed below cost of production and goods are dumped, who benefits from increased trade of these artificially low-priced goods? Certainly not producers in either the exporting country forced to produce at less than the cost of production nor in the importing country forced to compete against dumped imports of grains and oilseeds. Only those companies operating on the margin between producer and taxpayer/consumer benefit by an increased volume of grain and oilseed shipments, and they aren't injured by the artificially low price.

Canadian agricultural policy aimed at expanded market access is misguided and arguably inappropriate in an environment where U.S. subsidies distort and depress world prices below cost of production. Such a policy benefits other links in the chain from field to fork, but not the grain and oilseed producer. And remember, those other links in the chain have also said they refuse to foot the bill for the artificial shortfall from the marketplace. Expanded market access is a very appropriate policy objective provided the price at which grains and oilseeds move is not artificially distorted. There is no benefit to producers from expanded shipments of goods artificially priced below cost of production; that benefits only buyers, handlers, processors and taxpayer/consumers.

Expanding market access without first removing the artificial distortion of price is putting the cart before the horse. Eliminate the distortion first, then expand market access in a fair and competitive environment. In a fair and distortion-free trading environment, those that can compete will; those that cannot won't. Success should go to those with a comparative advantage in production and processing and marketing, not a comparative advantage in access to subsidies. Until that distortion is eliminated, the artificial shortfall from the marketplace will continue to be paid. The question is by whom, the producer or the taxpayer/consumer? By initiating our anti-dumping and countervail action, we have clearly made a statement; it will no longer be paid by us.