Fluff, Puff, and $1.90

Two recent events bring into sharp focus the disconnect between the vision of the future of Ontario agriculture held by some provincial officials and advisors versus the reality that truly shapes that future. The Premier's second annual Agri-Food Summit was held February 8, 2006. The preliminary determination of the Canadian Border Services Agency in the Canadian Corn Producers' anti-dumping and countervail duty complaint against imports of dumped and subsidized imports of grain corn from the U.S. was issued December 15, 2005.

The Premier's first Summit held in December 2004 seemed to identify the problem sufficiently. "The first summit … identified the need for a long-term strategy to help the sector prosper in the face of increasing global competition, restrictions on access and massive price-distorting subsidies in the rest of the world."

This second Summit seems to have ignored that delineation of the problem when it "endorsed a vision of the agri-food sector that is innovative, sustainable and provides opportunity for profit by all participants …"The second Summit didn't clearly enunciate how such a vision is to be achieved given the problems clearly delineated in the first Summit. Regardless, much of the same tired old thinking was trotted out at the second Summit:

* "Improved marketing efforts to improve awareness of high-quality, healthy, and environmentally safe foods." This despite the fact virtually all consumer studies confirm consumers buy first on price. Quality and safety are givens.
* "New business practices including more value chains, bringing all players together." This despite the fact such chains already exist in the form of giant vertically integrated agri-food processing and distribution multi-nationals yielding inordinate market clout and feeding off artificially cheap feedstocks.
*

"More and better research to take advantage of the long-term consumer trend to healthier, environmentally sound food choices." Ignore, for the moment, the first point that consumers consistently purchase first on price; and that environmental soundness has yet to be confirmed as a major purchase driver.

Of more concern is that this point ignores the fact that since at least 1981 and the confirmation of the legal right to patent living organisms, virtually all key advances in agricultural and agri-food technology have come from private companies holding the patents, not public research. Private sector companies are now the driving force behind innovation, not public sector institutions. For example, Monsanto's head office research facilities near St. Louis, Missouri house more research growth chambers and PhDs than all the U.S. land-grant universities combined. This trend creates a problem given that Ontario and Canada are in reality a "branch plant economy". With major new research and development decisions made in head offices south of the border or overseas, even if new technologies were developed here using public sector funding, history shows such technology has a great deal of difficulty getting adopted and is more than likely simply sold. For example, Queen's University developed new ethanol processing technology using taxpayer dollars; but rather than be implemented here, the technology was acquired by industrial interests south of the border and has yet to provide benefit here.

Regardless of this fluff and puff, the real issue is this. All innovations and developments must compete on price. For innovative developments based on agricultural products, that means competitive raw commodity feedstocks. Since we operate in an integrated North American marketplace, if we aspire to have a competitive new industrial bio-economy based on agricultural feedstocks, the feedstock supplied here must be priced competitively with the feedstock accessible from the U.S. We cannot provide corn to a new biochemicals-from-corn industry in Ontario that is higher priced than imported U.S. corn. Won't work; not sustainable. Moreover, we cannot have a biochemicals industry here whose products are higher priced than the same products imported from and available elsewhere. The whole thing depends on competitive feedstocks.

It also depends on competitive local feedstocks. Assume we had no local production of the required raw commodity such as corn, but instead depended on imported grain corn. The products of the new innovation could not compete in U.S. markets because of two additional freight bills not incurred by U.S.-based competitors (grain corn in, finished product out). The whole thing depends on competitive locally produced feedstocks. By the way, this also holds true for livestock feeding and processing.

That's where the CBSA's December 15 preliminary determination of a $1.90/bushel (US$1.65/bushel) anti-dumping and countervail duty becomes important and is a factor conveniently ignored by the shapers of the official vision. Regardless of the eventual outcome of the CBSA/CITT proceedings (further decisions expected March 15 and April 18), the preliminary decision proved one thing beyond a doubt. U.S. Farm Bill subsidies do indeed ensure artificially cheap grain corn and ensure that imports are priced below their cost of production. That means that if we are to develop innovative, sustainable, new industries and processes in Ontario based on corn as the raw ingredient, we either provide domestically produced corn at that dumped and subsidized imported price, or we don't have an industry.

The same truth applies to all the grains and oilseeds covered by the U.S. Farm Bill subsidies which are all the grains and oilseeds produced in Ontario. We either meet the dumped and subsidized price of imports from the U.S., or further processing disappears from Ontario regardless of whether it is new or existing technology, innovation, and processing. The hard reality of the $1.90 decision is this: either government in Ontario meets the challenge of U.S. Farm Bill subsidies, or the vision of an Ontario agri-food sector that is "globally competitive, responsive to consumer needs and contributing to provincial prosperity, the environment and the health of all citizens" is mere fluff and puff.