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Summary of presentation given by Ghyslain Loyer at the momagri Senate conference on 19th October 2006 1
| 30 october 2006 |
"In search of a strategy for world agriculture:
how to combine liberalism and development?"
« It is important for our nation to grow produce in order to feed our people.
Can you imagine a country that is unable to produce enough food to feed its population?
Such a nation would be under international pressure. Such a nation would be in danger.
So, when we talk about agriculture, …we are actually talking about a matter of national security » (Georges W. Bush)
1. What is the price we would pay for unregulated liberalisation? To answer this question, I should like to share with you certain observations that we believe to be the price we would pay for unregulated liberalisation
Three recent examples actually demonstrate that unregulated liberalisation of agricultural trade can cause perverse effects for producers and consumers alike:
>1. It turns out that the United Kingdom suffered the most, following deregulation of the agricultural market and abolition of the Dairy Board during the 1990s, was the United Kingdom, as shown in the graph below.
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> 2. During the BSE crisis, which we experienced in Canada in May 2003, the Canadian border was closed after a single case of infected cattle was discovered. Although in the wake of this discovery, prices paid to producers literally collapsed (by an average of -64%), it should be pointed out that the consumer did not benefit from this. It was the abattoirs and retailers who made unprecedented profits after this period. | | | > 3. Finally, and this is a strange coincidence, it turns out that, since the US – Canada free trade agreement was signed by Canada and the US at the end of the 1980s, and since the North American free trade agreement and application of the regulations of the Uruguay Round Agreement of 1994, net income for farmers in Canada has stagnated and even decreased, even though there has been a threefold increase in exports, as shown in the graph below. | | These observations, which contradict the supposedly systematic benefits of trade liberalisation, are backed by various theoretical studies conducted by Professors Ray and de la Torre, researchers at APAC2 , which have shown that market liberalisation, by dismantling the controlling mechanisms of supplies and price support, is responsible for the collapse of prices in the cereal and oil-producing plant sectors in the US.
2. Is it idealistic to dream about regulating supplies?
It is not idealistic to dream about regulating supplies, as demonstrated by what has happened in Canada. 30 years ago, supply management was implemented in five areas of production: eggs for consumption, incubation eggs, milk, turkey and chicken, in order to:
> Balance supply and demand by stabilising production.
> Rebalance market forces.
> Counter market volatility and stabilise the incomes of agricultural producers.
> Obtain equitable prices reflecting production costs.
> Ensure that consumers have access to sufficient, high-quality and competitively priced supplies.
> Put an end to huge injections of government funding to support producers.
It emerged that:
A. Supply management maximises the efficiency of the industry and enables Canada’s producers to obtain a more equitable retail price, without making consumers pay more for the end products, as shown in the following chart.
| | B. Supply management also benefits those who convert the product by prioritising equitable buying conditions, price stability and anticipations, regular and foreseeable supplies of quality products and appreciable profits (21% yield on invested capital).
C. Supply management is an advantageous model for society and for governments.
Indeed:
> There are no subsidies to pay in order to sustain income. The opportunity cost of such a measure has thus been estimated at 3 billion dollars per year.
> The healthy state of the agricultural sector contributes directly to that of the economy.
> Regulating supply favours rural development, the sustainability of the environment and a sustainable agricultural model with a human dimension.
> Finally, it ensures cohabitation of small and large companies at all stages of the marketing process.
3. What are the current stakes for agriculture in Canada?
A. Agricultural producers are in a critical economic situation…
> They are experiencing an unprecedented net income crisis.
> They are suffering heavy levels of debt, making the sector precarious.
> They are lacking forms of relief: the average age of those working in the agricultural sector has been rising for the past 15 years (47 in 1991 to 50 in 2001).
B. … for which WTO organisations are partially responsible
> The WTO does not take certain macroeconomic tools such as exchange rates into account in its analysis. However, the accelerating increase in the exchange rate of the Canadian dollar against the US dollar (+40% in three years) is directly detrimental to the export competitiveness of Canadian producers, particularly for pork producers, who export around 50% of their products to the US.
> WTO negotiations are looking to dismantle all trade barriers. However, the disappearance of supply regulating mechanisms for cereals in the US during the 1990s led to unprecedented subsidies within the sector, in order to make up for the shortfall in income. According to the Canada Border Services Agency, the Farm Bill has meant that cereal prices are $65 per tonne lower than they should be ($25 per tonne for dumping and $40 per tonne for subsidies).
Similarly to the barrier that broke in Louisiana in 2005, lower rates would break our rate barriers, allowing products from abroad to enter the country in an uncontrolled fashion. Even when paying tariffs of over 200%, many products, such as chicken from Brazil, butter from New Zealand and eggs from the US will gain access to our country. So you can see how precarious is the situation of farmers in Canada.
It is therefore vital to equip ourselves with fair and just rules so that those countries that are aiming for sovereignty over their staple goods are able to achieve it.
With regard to international regulations of agricultural markets, we believe that we should go forward in stages, by first of all organising the market on a domestic basis, as has been done in Canada through supply management, then by increasing the number of regional agreements and finally by forging international ones.
| 1Ghyslain Loyer is Vice President of the Office canadien des producteurs d’œufs d’incubation (Canadian office of hatching egg producers) and President of Quebec’s Syndicat des producteurs d’œufs d’incubation (association of hatching egg producers).
2 Agricultural Policy Analysis Center | |
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Advocating for
agricultural market
regulation and global
food governance | |
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