Agriculture backgrounder
The Impact of Structural Adjustment on the Farm Sector
The current farm crisis in the West is an important backdrop for any discussion on the effects of structural adjustment programs on agriculture in Canada. This paper highlights some of the difficulties and challenges imposed on farmers as a result of structural adjustment programs, among others, and the possible remedies and solutions to the crisis, both short-term and long-term. It will proceed to pose a number of questions on some related issues to engage participants in the exploration of issues and the articulation of appropriate solutions.
The last two years have been marked by extremely low net farm incomes. Farmers argue that this is a result of a combination of factors, some of which are:
a) low agricultural commodity prices which are said to be caused by excess production of grains and oilseeds worldwide. A major contributing factor cited in this regard is the continued use of subsidies in the European Union and the United States which are several times the level of support being provided to Canadian farmers. Other major contributive factors to crashing commodity prices are the various severe financial crises which have rocked Asia, Russian and Brazil; these were triggered by the unbridled, rapid flow of speculative capital (See the Addendum which is drawn from a paper John Dillon wrote for the World Summit for Social Development Plus Five process, entitled Global Financial Crises and Social Development in Canada).
b) federal policy changes in Canada that have negatively affected net farm revenues. In particular, farmers point to the huge decrease in freight subsidies that took effect in August of 1995 and the loss of railway productivity sharing. They also point to the inadequacy, if not the antiquated nature, of current of crop insurance and other farm stabilization programs.
c) ever spiraling production costs combined with progressively narrowing production choices. The excessive rise in transportation and marketing costs due to the abolition of the Crow Rate, combined with the propensity of powerful seed, pesticide and herbicide companies to raise prices at unmanageable levels and disconcerting speed, have greatly increased the cost of production. The captive nature of agriculture today due to the corporations= ability to impose the use of seed and product as a dividend of patent rights has greatly reduced the farmers= ability to make real choices while increasing their vulnerability to the vagaries of profit maximizing strategies and fluctuating world markets.
d) gaps in the level of support being provided by existing farm safety net programs such as crop insurance and the Net Income Stabilization Account (NISA). The Agricultural Income Disaster Assistance (AIDA) Program was intended to fill these gaps but has fallen far short of adequacy, leaving the vast majority of producers without any support from AIDA.
As a remedy for the current crisis, many agricultural sector leaders and feel that the next round of the World Trade Organization (WTO) must put Canadian producers on a level playing field internationally by eliminating trade distorting subsidies. However, as any solutions to be found through the WTO will not happen in the short term, they are pressuring the federal government to provide support in the meantime. Others aren=t so sure that the WTO is the route to follow, as this body has already considerably curtailed Canada=s ability to set policy and implement agricultural development strategies. Some people are at a loss to explain why it is that the Canadian Cabinet seems to be so much more eager to exceed the international subsidization benchmarks then are their counterparts in the United States and Europe.
Is this a helpful portrayal of the bigger picture. What important pieces are missing? What about the remedy? And what are the alternatives? What should be done now, and who should do it? To facilitate (or stimulate) a discussion we pose a number of questions (in no particular order of importance), and expect others will emerge.
1. The family farm (and agricultural sector as a whole) is being choked off, and rural communities continue to disappear. What do we as a society want our rural communities to look like? Does Canadian society wish to maintain its food production capabilities? What can be done to halt the current trends?
2. The agricultural industry in Canada has embraced changes in technology - new crops, fertilizers, pesticides, herbicides, machinery, etc. Farmers have by and large followed the advice of those pushing these technological changes, and have become increasingly efficient by the corporate measurement standards. And yet their reward appears to be a fast slide to insolvency. What are the implications for family farm vitality, social health and the environment of these man-made production and marketing policies and strategies? How do farming families regain control of the agenda? Is it too late? Is the present outcry in regards to genetically modified foods a wake-up call to the individual farmer and large corporations alike?
3. When the Crow rate was being eliminated, part of the rationale was to encourage processing closer to the origins of the agricultural produce. Has this happened and, if so, for whom? Given that farmers have lost significantly as a result of this change, who has benefited? What are the effects of GAATT and WTO directives (the abolition of the Crow fits this patern) on the Canadian farm sector and what stance and approaches are Department of Foreign Affairs and International and the Department of Agri-Food and Agriculture taking at the international negotiation tables? Are the positions they are taking in the best interests of Canadian farmers and are they conducive to enhancing Canada=s food producing capacity?
4. The costs of production keep spiraling upwards. Transportation and marketing costs have multiplied with the removal of the Crow Rate and other structural adjustment policies. Costs to municipalities in road maintenance have shot upwards. Are large corporations alone to have the resources to capitalize on what might be called the Crow abolition dividend? Should transportation and marketing costs be considered as costs of production? What can and should be done about spiraling production costs which seem to outstrip increases in farm-gate prices in both good and bad times?
5. The removal of subsidies as a remedy emerges from the analysis that subsidization has been a major factor in creating an oversupply of agricultural commodities globally. How accurate is this? Is there really a world glut of agricultural commodities, or could it be that the available commodities are unevenly distributed as poor countries and populations don=t have the means to partake of the feast B is there a link between low commodity prices and famine? What does this say about the role for governments worldwide in addressing this apparent paradox, in ensuring the existence of vital agricultural sectors and equitable food security for the masses? And what should that role be? Internationally? In Canada?
6. Agriculture in Canada has always been export oriented, leaving the sector vulnerable to changes on the global scene. How can this vulnerability be addressed? Since the 1970s the financial markets have become less regulated and more volatile. Unproductive and speculative capital now dwarfs investment in the production of actual goods and services. What has this meant for agricultural commodity prices? Is the answer farmers= participation in the commodities futures markets to maximize return on poorly priced products? What are the alternatives? What (if any) initiatives should be taken to re-orient the sector to meet the needs of the domestic market?
7. Canada’s agro-food sector has been caricaturized by accelerating ownership concentration in recent years, more often than not controlled by foreign interests, with Canadian farmers having less and less control over the factors which ultimately determine the economic viability of their farm operations. What price do farmers and society pay for the power and control that transnational corporations exercise on the current structure of the industry? What will be the impact of the accelerating verticalisation we are now witnessing? What can and what should be done locally, provincially, nationally and internationally?
Addendum
The Link between Financial Crises and Low Commodity Prices
Lessons from the Asian Crisis
The crisis that began in Asia in 1997, and then spread to Russia and Brazil a year later, unmasked the vulnerability of a global economy dependent on unregulated private finance. The underlying causes of the crisis included speculative over-investment in assets like Thai real estate (where some US$20 billion worth of new properties sat unsold in 1997) and Asian stocks and bonds. In addition, a disproportionate percentage of investments were short-term loans which either came due, or were called in, at the moment of panic. During the 18 months prior to the crisis more hot money had flowed into South East Asia than had entered over the previous ten years. (ECEJ 1998)
The spark that set off a stampede of capital out of Asia was a small increase in US interest rates. Thailand was the first country to suffer massive capital flight causing the Thai government to devalue the baht in June of 1997. Soon other investors, behaving like a stampeding herd, withdrew massive amounts of funds from other Asian countries. The turnaround in net flows of private capital to five Asian countries (South Korea, Thailand, Indonesia, Malaysia and the Philippines) was a staggering US$105 billion in just one year.
The IMF and Northern governments hastily arranged bailout loans totaling US$120 billion for the governments of Thailand, Indonesia and South Korea. These loans were not extended all at once but instead offered as a series of smaller credits which could only be accessed if a country adhered to the harsh conditions attached to the previous loans. The real beneficiaries were the private investors who took their money and ran, leaving the local populations saddled with new debts and more IMF-dictated austerity.
The Asian crisis had many repercussions for Canada. As Asian markets contracted due to the Structural Adjustment Programs demanded by the IMF, many Canadian workers, especially in British Columbia, lost their jobs. Although only about 6% of total Canadian exports go to Asian markets, there were other indirect effects. The Asian crisis accelerated a decline in world commodity prices. By December of 1998 raw material prices were 35% below what they had been two years earlier. This decline encouraged the money traders to speculate against the Canadian dollar (because Canada is still perceived as a commodity exporting country). It also hurt Canadian exports to other regions since price deflation weakens consumer confidence and demand for goods and services.
The turmoil that started in Asia spread to Russia and then to Brazil. The escalating crisis exposed the folly of the IMF=s policy of encouraging the deregulation of financial markets. These crises also exposed the counterproductive nature of the IMF=s Structural Adjustment Programs (SAPs). The austerity and high interest rate policies prescribed by the IMF for Asian countries made the crisis worse by stifling economic activity and driving many firms into bankruptcy at enormous human cost. (ECEJ 1998)
