Saskatchewan, Canada, June 2, 2004:
The chicken and egg argument would seem a good one for farmers
to engage in. It is such a very agricultural analogy. In fact
there is a growing and useful argument of the chicken and
egg type over the issue of farm poverty.
The two sides break down like this. One says subsidies cause
overproduction, which results in low prices. This idea has
been the guiding principle behind Canadian and American farm
policy at the international level. Our governments have told
us over and over that if we can negotiate proper trade agreements
that reduce subsidies, those heavily subsidized countries
will stop over-producing. Prices will rise and we will all
live happily ever after.
A contrary notion has been advanced lately. It says that
low prices bring on subsidies. In this argument, subsidies
are the effect, not the cause.
There is some interesting evidence for this theory. If subsidies
cause overproduction, countries with large subsidies should
in fact be increasing production. Not so. Between 1994 and
2000, wheat production increased the least in heavily subsidized
countries. In the U.S., it actually fell by 3.8 percent. In
unsubsidized Argentina, wheat production grew 46 percent in
the same time period. Australia and Canada, with low subsidies,
came in at 34 and 16 percent growth respectively. The European
Union only saw production rise 9.5 percent.
It all may seem a bit like chasing one's tail, but the important
thing about the argument is this: if low prices cause subsidies
(as surely we've seen in Canada this year, with loads of new
money trying to save the cattle industry from BSE) then fighting
the good fight at the WTO and elsewhere may be a useless endeavor.
It may, in fact, be keeping us from dealing with the real
The get-rid-of-subsidies side says if you succeed, production
will fall because it will not be economic. Over the long term,
that may be true. Over the short term, it is dramatically
false. When prices fall, farmers will try their best to produce
more. They need more bushels to cover the same costs, and
more bushels to give them a return for their labor. This may
not be true in each individual case, but, overall, it is a
Farms got bigger, in most cases not simply because it was
really profitable to do so, but because farmers had to expand
in order to have something left over to live on.
It would be easy to declare that over-production was the
cause of low prices. It would be easy because it would be
partly true. Supply and demand works at a certain level. But
the truth is more that low prices are caused by a lack of
market power. Farmers don't like to hear that because they
see it as a threat to their independence. If they have no
power as individuals, they might have to work together.
Oddly enough, farmers usually understand this on the political
level. They form farm organizations, and work together to
lobby governments. They don't understand it at the economic
level, though. Unions, which some farmers love to hate, understand
the economic thing very well. They know that if each worker
bargains separately with the employer, the employer has all
the power. So they form a union and bargain with a single
voice. The playing field levels out a bit.
Farmers' lack of power isn't a conspiracy. It is just the
natural order of things. Two companies control the meat packing
business in Canada. It got that way because they merged and
bought each other out. They generally have done very well.
The world's largest meat processor, Tyson Foods, reported
its second-quarter profit surged 65 percent on higher prices
for chicken, beef and pork. For farmers to have any clout
with Tyson's, they would have to bargain from a position of
power. It can’t be done as individuals.
Which takes me back to the original problem - how to deal
with low prices. We need to ask who benefits from low prices.
Tyson appears to. So do Kellogg's and Coca-Cola. Both their
net earnings rose 35 percent this quarter. Processors and
exporters benefit nicely. Perhaps this is really whom governments
are trying to protect with the bogus notion that removing
subsidies will bring lower production and better prices.
Don't get me wrong. I think it may well be a good thing to
lower subsidies. Reducing subsidies on cotton in the U.S.,
for example, would help out some of the poorest countries
in the world that also produce cotton. That would be good.
But lower subsidies won't save us from over-production, or
give us more market power. We will have to find a way to take
© Paul Beingessner, email@example.com
. The author is a columnist, transportation consultant and
third-generation farmer in Truax, Saskatchewan.