September 2000 Fraser Forum: September Questions & Answers and September Graph

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Joel Emes

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

A: Agricultural support cost Canadians $7.4 billion (Canadian dollars) in 1999. Table 1 presents an international comparison of total agricultural transfers, total agricultural transfers per person, and total agricultural transfers as a percentage of Gross Domestic Product (GDP). The Organisation 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 comes from the 1997, 1998, and 1999 reports entitled Agricultural Policies in OECD Countries, Monitoring and Evaluation. In Canada in 1999, transfers from taxpayers were $4.051 billion and transfers from consumers were $3.361 billion (Canadian dollars). Total 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, Canada, New Zealand, and the United States grant low levels of support relative to the OECD average (see the last column of table 1).

Q: How has agricultural support in Canada and other OECD countries changed since the OECD reform initiative began?

A: While there has been a decrease in agricultural support in Canada and other OECD countries since the principles for agricultural policy reform were adopted in 1987, the reform process has had some setbacks in recent years. Setbacks highlighted by the OECD include: the dollar value of agricultural support increased in 1998 and in 1999, "support to producers has mounted steadily over the last three years," and "progress in reforming policies and liberalizing trade in agriculture stalled, or even reversed, when market pressures emerged." This month’s graph shows that while agricultural support as a percent of GDP is considerably lower in 1999 than it was in 1986-88, it has been essentially level in most jurisdictions in recent years. In Canada, total agricultural transfers have fallen from $9.4 billion in 1986 to $7.4 billion in 1999. Over the 10 years following 1987, Canada increased the market orientation of producers by reducing transfers and shifting away from commodity-linked market price support to budget-financed, direct income payment measures. One example of the recent, positive 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. Some of the setbacks in Canada in 1999 include an increase in all administered prices for milk and dairy products and an increase in payments based on area planted or animal numbers. Table 1 shows agricultural support as a percentage of GDP in 1986-88 and in 1999; most countries and the OECD 24-country average show a decline in support. Another way to measure agricultural support is with the Consumer and Producer Nominal Assistance Coefficients (NAC).¹ Table 2 shows that Canada’s producer NAC fell by 17.9 percent from 1986 to 1999, and its consumer NAC fell by 5.5 percent. Table 2 also shows that the producer NAC for the European Union was higher in 1999 than in 1986 (although its consumer NAC is lower) and that the producer NAC for the OECD 24 is about where it was in 1986.

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

A: Table 3 details what each segment of the agricultural sector receives (as measured by the producer and consumer support estimates, the PSE and CSE) . Dairy stands out as the least reformed and the most supported sector in Canada, accounting for 42.4 percent of the dollar value of support to producers and 69.7 percent of the dollar value of support from consumers.

September Graph

Note

¹The producer support estimate (PSE) is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers. The producer nominal assistance coefficient (NAC) is the ratio of the PSE to the value of total gross farm receipts valued at world market prices, excluding budgetary support. The consumer support estimate (CSE) is an indicator of the annual monetary value of gross transfers to (from if the CSE is negative) consumers of agricultural commodities. The consumer NAC is the ratio of the CSE to the total value of consumption expenditure on commodities domestically produced valued at world market prices, excluding budgetary support to consumers.

Joel Emes (joele@fraserinstitute.ca) is Senior Research Economist at The Fraser Institute. He has an M.A. in Economics from Simon Fraser University.

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