December Q&A

The
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December
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Q: How large are agricultural subsidies in Canada? How do Canadian agricultural transfers compare internationally?

A: Agricultural support cost Canadians $6.0 billion (Canadian dollars) in 1997. Table 1 presents an international comparison of total agricultural transfers, total agricultural transfers per person, and total transfers as a percentage of GDP. This month’s graph shows the percentages of the agricultural subsidy paid for by taxpayers and by consumers. The Organization for Economic Co-operation and Development (OECD) compiles annual estimates of the total transfers associated with agricultural support policies; the data and some of the following text come from their 1997 and 1998 reports. In Canada in 1997, transfers from taxpayers were $3.373 billion and transfers from consumers were $2.663 billion (Canadian dollars). Agricultural transfers are defined as the sum of all transfers from taxpayers and consumers, net of budget revenues from tariffs on imports. Transfers from consumers are an implicit tax resulting from market price support. This implicit tax results in artificially high prices for agricultural goods. Australia, New Zealand, Canada, and the United States grant low levels of support relative to the OECD average (see the last column of table 1).

Table 1: Estimated Total Transfers Associated with Agricultural Support, 1997
	Total (Millions US$)	Per Person (US$/Person)	Percent of GDP
Australia	1,424	78	0.4
Canada	4,322	143	0.7
European Union	110,167	297	1.2
Iceland	136	499	1.9
Japan	66,694	533	1.6
New Zealand	235	64	0.4
Norway	3,031	691	2.0
Switzerland	5,652	796	2.2
Turkey	14,362	226	7.6
United States	72,356	270	0.9
OECD 24	280,200	312	1.3
Sources: OECD, Agricultural Policies in OECD Countries, Measurement of Support and Background Information, 1998, Main Report, 1998; OECD, “OECD Economic Outlook, no.63, July 1998.

Q: How has agricultural support in Canada changed over the last 10 years?

A: Total agricultural transfers have fallen from $9.6 billion in 1986 to $6.0 billion in 1997. Over the last decade, Canada has increased the market orientation of producers, particularly in recent years, by reducing transfers and shifting away from commodity-linked market price support to budget-financed, direct income payment measures. In 1997, policy developments continued to improve the market orientation of Canadian agriculture. One example of the recent changes to agricultural support is the elimination of the Crow rate subsidy under the Western Grain Transportation Act. Producers now bear the full freight costs for prairie grain and oilseed products, although freight rates are still subject to legislated maximum levels. Canada’s producer Nominal Assistance Coefficient (NAC) fell by 24.1 percent from 1986 to 1997 and its consumer NAC fell by 10.7 percent. The producer NAC expresses the transfers to agriculture in relation to border prices. The consumer NAC is an indicator of the gap between domestic consumer prices and world prices.

Table 2: Nominal Assistance Coefficients, 1986 and 1997
	Producer NAC			Consumer NAC
	1986-88	1997^e	Percent change	1986-88	1997^e	Percent change
Australia	1.11	1.09	-1.8	1.10	1.05	-4.5
Canada	1.62	1.23	-24.1	1.31	1.17	-10.7
European Union	1.95	1.66	-14.9	1.82	1.33	-26.9
Iceland	4.25	2.77	-34.8	2.92	1.58	-45.9
Japan	3.26	2.80	-14.1	2.34	1.87	-20.1
New Zealand	1.21	1.03	-14.9	1.09	1.06	-2.8
Norway	4.70	3.52	-25.1	2.67	2.03	-24.0
Switzerland	4.47	3.83	-14.3	3.37	2.41	-28.5
Turkey	1.33	1.59	19.5	1.22	1.52	24.6
United States	1.39	1.18	-15.1	1.16	1.09	-6.0
OECD	1.78	1.49	-16.3	1.61	1.32	-18.0
^e= estimate Sources: OECD, Agricultural Policies in OECD Countries, Measurement of Support and Background Information, 1998, Main Report, 1998; OECD, OECD Economic Outlook, no. 63, July 1998. Producer NAC = transfers to agriculture in relation to border prices. Consumer NAC = indicators of the gap between domestic consumer prices and world prices.

Q: Who supplies and who receives the agricultural subsidies in Canada?

A: Table 3 details what each segment of the agricultural sector receives. Dairy stands out as the least reformed and the most supported sector in Canada, accounting for more than 50 percent of Canada’s total support and 90 percent of all market price support.

Table 3: Estimated 1997 Agricultural Support (millions of dollars)
	Producer Subsidy Equivalent (PSE)	Percent of Total	Consumer Subsidy Equivalent (CSE)	Percent of Total
Crops
Wheat	346	8.0	0	0.0
Maize	68	1.6	-2	0.1
Other Grains	92	2.1	0	0.0
Oilseeds	300	6.9	0	0.0
Sugar (refined equivalent)	7	0.2	-27	1.2
Total Crops	813	18.8	-29	1.3
Livestock Products
Milk	2,286	52.7	-1,922	86.9
Beef and Veal	482	11.1	0	0.0
Pigmeat	321	7.4	0	0.0
Poultry	218	5.0	-95	4.3
Eggs	215	5.0	-165	7.5
Total Livestock Products	3,522	81.2	-2,182	98.7
Total Products	4,335		-2,211
PSE is an indicator of the value of agricultural transfers to producers. CSE is an indicator of the value of agricultural transfers to consumers; a negative value indicates an implicit tax. Source: OECD, Agricultural Policies in OECD Countries, Measurement of Support and Background Information, 1998, Main Report, 1998; OECD, OECD Economic Outlook, no. 63, July 1998.

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Last Modified: Wednesday, October 20, 1999.