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The following OECD assessment and recommendations summarise chapter 5 of the Economic survey of Canada published on 11 June 2008.
Budgetary support to farmers should be cut back to avoid dependency
It is perhaps surprising that a country like Canada with its vast agricultural potential has not seen fit to be a recent leader in pushing for liberalisation, especially when so many of its farmers would benefit so handsomely from a freer global trading regime in this sector. Admittedly, in the 1980s and 1990s government support to agriculture was cut back sharply, and Canada looked set to join Australia and New Zealand in having open agricultural markets. Over the past six years it has been almost alone among OECD countries in backtracking in the protection provided to its farmers. Canadian farmers now receive more generous support than those in the United States and Mexico, but less than their counterparts in most OECD countries. This has had heavy recurrent budgetary costs (CAD 3.8 billion or 16 600 per farm per year in 2006, for example), thankfully in a period of surpluses. But surely the burden of proof of net benefits has to be set higher for such spending. It needs to be more strictly controlled, particularly in view of the risk of moral hazard behaviour by farmers growing used to living off government handouts. Given high agricultural prices, the time is ripe for setting all farmers free to test out their capabilities in the world marketplace, not just grain producers as the government is trying to do.
Agricultural supply management should be phased out
Nowhere in Canadian agriculture are the distortions greater than in the supply managed sectors and above all in dairy farming. Not only are dairy farmers’ outputs protected by prohibitive tariffs that result in retail prices for butter and cheese that are around two and a half times those in the none too free US market, but their median annual gross income levels have surged to over CAD 250 000, and milk quota values on their balance sheets have soared to over CAD 26 billion in 2006 (around 2% of GDP). This represents several million dollars per farm and CAD 26 000 per cow. Such rents are a blight on the economic landscape and totally unjustifiable in a world of skyrocketing global dairy prices. While support cannot be cut off overnight, it is crucial that a long term plan be established whereby they would be phased out. The first step would be to eliminate restrictions on inter provincial trade in supply management quota. The federal government could then offer some sort of transitional payments that would avoid too great a hit to the finances of current farmers.
Present ethanol support needs to be re considered
Farming has also been a part of the nation wide effort to improve environmental performance, including addressing the challenge of climate change through bio energy production. The goal has been to improve the efficiency of its production so as to lower GHG emissions, boost farmer incomes and enhance air quality. As in other parts of the OECD, the federal and some provincial governments have introduced consumption mandates and subsidies to expand its use. At present it is obvious that conditions in Canada do not allow its canola farmers to compete with Brazilian sugar farmers on a cost alone basis, but the hope has been that producing ethanol from cellulose would promise better returns, and substantial budgetary support for research and development has been granted. However, even this source has now been questioned as to its benefits in terms of emissions saving, much less for its cost efficiency and its regressive impact on global food prices. It would seem prudent to re-examine the premises upon which support has been granted and the mandates imposed and allow the government’s reliance on emissions trading to run its course, possibly supplemented by prizes offered for technological breakthroughs.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Canada 2008 is available from:
For further information please contact the Canada Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Alexandra Bibbee, Yvan Guillemette, Shuji Kobayakawa and Annabelle Mourougane under the supervision of Peter Jarrett. Research assistance was provided by Françoise Correia.