• Executive Summary
• Preface
• Prologue: The Crisis
• Part 1: The government's explanation: EU subsidies
• Part 2: The real explanation for the income crisis
• Appendix 1: World wheat and coarse grain stocks/use ratios
• Appendix 2: Wheat, course grain, and total oil production: 1980-99
• Table F: Percentage change in trendline wheat production using selected start years.
• Footnotes

Executive Summary

The income crisis
Farm incomes have returned to Depression-era levels. Farmers' realized net income will be very low for 1999 and 2000 and negative for 2110, 2002 and 2003, with losses worse than those during the depression.⁽¹⁾ Saskatchewan presents the starkest picture of what grain, oilseed, and hog producers across Canada can expect over the coming years (see graph below).

While Saskatchewan provides the starkest illustration, the crisis is not confined to that province. In nearly identical fashion, net farm income has fallen to 1930s levels for grain and hog producers in Alberta, Ontario and across Canada.

In the 1930s, it took a worldwide economic collapse, a stock market crash, mass unemployment, and a prairie-wide drought to drive net farm incomes to negative values. Today, stock markets are booming, employment levels are fair, the weather is generally good, and crops are average or better. The current farm income crisis is unprecedented in times of economic prosperity and stability.

EU Subsidies

The unprecedented and dramatic net farm income collapse has Canadian federal and provincial ministers of agriculture scrambling to find an explanation. Most often, their explanation is that the crisis is caused by agricultural subsidies, primarily European. These politicians have pledged to work through trade negotiations to rid the world of subsidies and, thus, restore prosperity to Canadian farmers.

Those who blame the farm income crisis on European Union (EU) subsidies put forward the following analysis:

They point to significant increases in EU production as evidence for their analysis. But what if production is also increasing in countries that have very low subsidy levels? That is exactly what is happening.

Let's begin by looking at wheat production increases. Five Major producers - Canada, the EU, U.S., Argentina and Australia - accounted for 87% of world wheat exports in 1998/99. The table below lists trendline changes in wheat production for these five major exporters. It demonstrates that while production rose in the heavily subsidized EU countries, it rose at comparable rates in relatively unsubsidized countries such as Australia and Argentina and (at a lower rate) in Canada. In the next most highly subsidized country after the EU - the U.S. - production of wheat declined. If production is increasing in relatively unsubsidized countries at a similar rate to that of highly subsidized EU countries, any casual link between subsidies and increased production is broken

The absence of any relationship between subsidy levels and production rate increases is even more striking when one looks at course grains and oils. For course grains (barley, corn, sorghum, oats, millet, rye and mixed grains), EU production over the last 20 years (1980-99) is up just 0.4%. Australia, Canada, and argentina reported increases of 46%, 3%, and 9% respectively. In production of edible oils, EU production increased at ¼ the rate it increased in Canada and Australia and 1/7 the rate of Argentinean increases. There seems to be no major grain or oilseed sector where production increase rates in the EU have significantly exceeded those in non-subsidized countries

Clearly, the assertion that subsidies cause increased production must be augmented by the assertion that the absence of subsidies also causes increased production. Had EU subsidies been lower or non-existent over the past 20 years, there is little evidence that its current production would be lower, that world grain prices would be higher, or that the worldwide farm income crisis would be less severe.

The real cause of the income crisis

The purpose of the preceding analysis, developed in detail in this brief, is to refute the argument that European subsidies cause the current income crisis. Once accomplished, farmers hope that this will force elected leaders, trade officials, and other decision-makers to grapple with the real causes of the income crisis and with the real solutions.

The market is failing farmers, it is failing all around the world, and it has been since at least the late 1970s. The market is failing to return a fair and adequate share of the consumer dollar to farmers. And it is failing to allocate to farmers a reasonable return on labour, management, and equity from our agri-food system's huge revenue stream. Moreover, this market failure is entirely predictable. It is a direct result of dramatic market power imbalances between agri-food industry multinational corporations and the family farm that must do business with these firms.

Modern food production takes place in a chain which includes oil, fertilizer, seed, chemical, and machinery companies on the input side and grain companies, railways, packers, processors, retailers, and restaurants on the "downstream" side. Almost every link in the chain, nearly every sector, is dominated by between two and 10 multi-billion-dollar multinational corporations:

• Three companies retail and distribute the bulk of Canadian gasoline and diesel fuel;
• Three produce most of the nitrogen fertilizer;
• Nine companies make our pesticides;
• Four companies are gaining control of our seed market;
• Three produce most of our major farm machinery.

The situation is the same on the "downstream" side of the food production chain:

• Nine grain companies collect Canadian grain;
• Two railways haul it;
• Two companies dominate the beef packing sector and a handful dominate pork;
• Three large firms manufacture 87% of the pasta in Canada;
• Four corporations mill 80% of Canadian flour;
• Three companies manufacture the bulk of the soft drinks sold;
• Four companies produce most of the cereal;
• Five companies control food retailing in Canada;
• A handful of restaurant chains control an increasing portion of the restaurant business.

The single significant exception to the pattern of extreme concentration outlined above is the farm link. In Canada, that link is made up of over 270,000 relatively small family farms.

In addition to the small number of firms that dominate each link, their size stands out. Total 1998 Canadian gross farm revenues were $29 billion. Cargill's revenues were $75 billion that year. Philip Morris Inc. (Post, Kraft, Oscar Mayar, Kool-aid, Jello, Maxwell House, Marlboro, Miller) had revenues in 1998 of $109 billion. Nestlé (Stouffer's, Maggi, Libby's, Nescafé, Perrier, etc.) had revenues of $76 billion. While these revenues are large in relation to total revenues for all Canadian farmers, they are staggering compared to the revenue of any individual farm family.

If one looks objectively - without preconceptions about the marvels of the market - at the agri-food chain, one would immediately have doubts that extremely numerous and relatively tiny family farms could extract fair and adequate revenues and profits from a chain dominated by firms a thousand to a million times larger. These doubts are borne out when one compares farmers' profit levels to those of agribusiness corporations. While farm families struggle with large losses, the huge corporations that dominate the other links in the agri-food chain continue to earn large profits.

"Return on equity" is a common measure of profitability. It is calculated by dividing net income (profit) by average equity (assets minus debt). An accurate and startling picture of relative profitability emerges when one compares return on equity rates for farmers to those in the other links in the chain. While farmers earned just 0.3% return on equity in 1998, agribusiness corporations earned 5%, 20%, 50%, and even higher rates. This brief contains detailed data on the revenues, profits, and return on equity rates for most of the major agribusiness corporations operating in Canada.

While the farmers growing cereal grains - wheat, oats, corn - earn negative returns and are pushed closer to bankruptcy, the companies that make breakfast cereals reap huge profits. In 1998, cereal companies Kellogg's, Quaker Oats, and General Mills enjoyed return on equity rates of 56%, 156%, and 222% respectively. While a bushel of corn sold for less than $4, a bushel of corn flakes sold for $133. In 1998, the cereal companies were 186 to 740 times more profitable than the farms. Maybe farmers are making too little because others are taking too much.

Consumers pay trillions for food. The prices they pay increase each year. The corporations that make, transport, package, process, and sell that sell that food make billions in profits. The corporations that make tractors, fertilizers, and pesticides make billions. There is no shortage of money in the agri-food system; there is merely a maldistribution of money. The farm income crisis is caused by that maldistribution, not by EU subsidies.

If farmers earned just a 5% return on their equity, Canadian realized net farm income would be $9.3 billion in 1999 instead of the projected $2.8 billion. Even a 3% return would largely solve the problem. If farmers enjoyed returns on equity comparable to those enjoyed by other players, there would be no farm income crisis.

As evidence for this thesis that the farm income crisis is caused by an imbalance in market power and a subsequent maldistribution of profits, this brief presents:

• an explanation of pork packer profits during the recent hog price crisis;
• a brief analysis of fertilizer pricing practices;
• information on the farmers' declining share of the consumers' grocery store dollar; and
• comparisons of farm and corporate profitability for 1998 and over a five-year period.

The National Farmers Union is confident that those who read this brief will share our conclusion that the cause of the current farm income crisis is not foreign subsidies, but instead, market failure caused by enormous imbalances in market power. Once farmers, government officials, and other Canadian citizens understand this, we can then move forward toward solutions that safeguard family farms and rural communities.

We hope that you will read this brief in full.

Preface

The NFU is the only voluntary, direct-membership national farm organization in Canada. The NFU is non-partisan and works toward the development of economic and social policies that will maintain the family farm as the primary food-producing unit in Canada.

The NFU believes that agriculture should be economically, socially, and environmentally sustainable. The decimation of rural communities, growing environmental problems, declining farm numbers, and the present farm income crisis cast doubt on the sustainability of the current high-input, export-oriented, expansionist model.

The farm income crisis also begs a clear analysis and a sound explanation. Only when this is accomplished can Canadian policy-makers move toward the real, long-term solutions which Canadian farm families so desperately need.

This brief has three parts: it briefly illustrates the severity of the current income crisis; it demonstrates that the crisis is not caused by European Union subsidies; and it demonstrates that the crisis is caused by dramatic imbalances in relative market power between farmers and the agribusiness corporations with which they must transact. Also included are data on the profitability of nearly every one of the major agribusiness corporations operating in Canada. In addition, this brief calculates comparable measures of profitability for Canadian family farms (possibly the first time that such numbers have been calculated).

The NFU welcomes questions and comments on this brief. Please contact Darrin Qualman, NFU Executive Secretary, at telephone (306) 652-9465 or fax (306) 664-6226.

Prologue: The crisis

Net farm income has returned to Depression-era levels. Agriculture and Agri-Food Canada (AAFC) projects 1999 realized net income for Saskatchewan farmers at $96 million⁽¹⁾. This works out to just $1,783 per farm, a level not seen since 1938. Worse still, AAFC projects negative realized net farm incomes for 2001, 2002, and 2003, with losses worse than those during the depression (see Figure 1, below):

Figure 1: Saskatchewan Realized Net Farm Income (per farm and adjusted for inflation)

Source:

Agriculture Economic Statistics, Statistics Canada Cat. # 21-603E; Consumer Price Index, Statistics Canada Cat. # 62-010; Historical Overview of Agriculture, Statistics Canada Cat. # 93-358

While Saskatchewan provides the starkest illustration of the farm income crisis, the crisis is not confined to that province. In nearly identical fashion, realized net farm income has fallen to 1930s levels for grain and hog producers in Alberta, Ontario, and across Canada.⁽²⁾

In the 1930s, it took a worldwide economic collapse, a stock market crash, mass unemployment, and a prairie-wide drought to drive net farm income to negative values. Today, stock markets are booming, employment levels are fair, the weather is generally good, and crops are average or better. The current farm income crisis is unprecedented in times of economic prosperity and stability.

Part 1: The government's explanation: EU subsidies

The unprecedented and dramatic net farm income collapse has Canadian federal and provincial ministers of agriculture scrambling to find an explanation. Their explanation of choice is that the crisis is caused by domestic agricultural subsidies, primarily European.⁽³⁾

Provincial and federal governments were unanimous in making substantial reductions in European Union (EU) domestic subsidies their main priority at the December 1999 Seattle Ministerial meeting of the World Trade Organization (WTO). They remain focused on reductions in EU subsidies in upcoming negotiations.

Canada's August 19 Initial Negotiating Position on Agriculture states that "Global trade distortions have had, and continue to have, a major impact on Canadian farm incomes." The federal government states that "certain forms of domestic support can stimulate production." The document goes on to assure farmers that "Canada will seek the maximum possible reduction or elimination of production and trade-distorting support."

In its January 1999 discussion paper, The Upcoming Round of WTO Agricultural Negotiations: What's on the Table?, the Ontario Ministry of Agriculture, Food, and Rural Affairs states that "policies which support domestic prices, or subsidize production encourage overproduction."

The Saskatchewan government states that a major cause of the farm income crisis is: "The continued use of domestic production subsidies by the EU and US that isolate their producers from market conditions and result in overproduction and glutted world markets."

Those who blame the farm income crisis on EU subsidies explain the causation as follows:

1. Subsidies cause increased production, oversupply, and, hence, declining prices and incomes.
2. Subsidies distort production. Farmers make planting choices based on subsidy levels and not on supply and demand signals communicated through market prices. Hence, farmers produce too much of some commodities.
3. Subsidies allow farmers to produce and sell at lower prices and, hence, drive down prices.

This section of this brief takes a critical look at these three assertions and at the argument that subsidies, European or otherwise, cause oversupply, low prices, and the current farm income crisis.

Oversupply?

To begin, is there oversupply? Stocks/use ratios are a fundamental and oft-quoted measure of supply and demand. The ratios compare the stocks on hand (in elevators, storehouses, railcars, farm granaries, etc.) at the end of a given year to the amount used in that year. A low stocks/use ratio denotes low supply and should trigger price increases.

Let's begin with wheat. The world stocks/use ratio for wheat was 40.4% in 1968/69.⁽⁵⁾ The ratio fell to just 21.3% in 1972/73 and sparked a dramatic price rise which led to a period of farm prosperity that lasted until the early 1980s.

Given current low wheat prices, one would expect high wheat stocks/use ratios (high ratios = large supply relative to demand = low prices). To the contrary, ratios for the last four years have been at, or near, record lows. According to the USDA, the world wheat stocks/use ratio for 1995/96 was 19.0%-the lowest level in 40 years, possibly longer.⁽⁶⁾ The following year, it increased only slightly, to 19.1%. The USDA estimates that the ratio was 23.0% for 1998/99 and will be 21.9% for 1999/00, but even these are far below the levels of the mid-1980s when wheat stocks/use ratios hovered between 25% and 35%.

In order to continue to argue that current low wheat prices are caused by surplus, one would have to assert that stocks/use ratio percentages in the high-teens and low twenties (as they are now) denote surpluses. Taking this position however, one would then be forced to admit that there have not been more than one or two years in the last 40 when there has not been a surplus. One must then ask: If "non-surplus" years have been so rare over the past 40 years, how common will they be in the future?⁽⁷⁾ If farm prosperity requires even lower stocks/use ratios than we have today, and if those lower ratio years are extremely rare, how often can we expect prosperity in the future?

Seen another way, is it wise to construct a world food system such that farmers cannot expect prosperity unless world supplies fall below levels needed to sustain its population for 69 days? [19% stocks/use ratios translate into a 69-day supply of food on hand.]

The situation for coarse grains (oats, barley, corn, sorghum, rye, millet, and mixed grains) is identical to that for wheat. The world coarse grain stocks/use ratio in the 1980s averaged 21.4%. In 1995/96, it fell to 11.3%-a 40 year low.⁽⁸⁾ It has increased since then but the USDA projects that it will not exceed 17.6% in the near future. Despite these relatively tight stocks, barley, corn, and other coarse grain prices remain extremely low.

The assertion that there is an oversupply of grain is extremely questionable. The assertion that there exists oversupply of a magnitude sufficient to cause the worst farm income crisis since the 1930s is clearly false.

Do EU subsidies cause oversupply?

Despite the preceding evidence, some would continue to argue that there is oversupply. Let's grant that assertion for a moment and ask: If there is oversupply, is it caused by EU subsidies?

Canadian ministers of agriculture and others who blame the farm income crisis on EU subsidies put forward the following analysis:

They point to significant increases in EU production as evidence for their analysis. But what if production is also increasing in countries that have very low subsidy levels?

Let's begin by looking at wheat production increases. Five major producers-Canada, the EU, U.S., Argentina, and Australia-accounted for 87% of world wheat exports in 1998/99.⁽⁹⁾ The graphs on the following page show actual production levels and the trendline for production changes since 1980 for these four countries and one federation (please see Figures 2a-2e):⁽¹⁰⁾

While wheat production rose in heavily subsidized EU countries (Figure 2a), it rose at comparable rates in relatively unsubsidized countries such as Australia (2b) and Argentina (2c) and (at a lower rate) in Canada (2d). In the next most highly subsidized country after the EU-the U.S.-production of wheat declined (2e). In light of this, it is hard to assert that subsidies cause increased wheat production. If production is increasing in relatively unsubsidized countries at a rate similar to that of the highly subsidized EU countries, any causal link between subsidies and increased production is broken. The link is further severed when one notes that production decreased in the heavily subsidized U.S. market.

Year-to-year production varies widely due to changes in weather, seeded acreage, yield, etc. As a result, when assessing changes in production it is more instructive to look at the linear trendlines calculated over a number of years rather than to compare one specific year to another. The graphs on the previous page include 1980-99 trendlines. Table A, below, lists trendline changes in wheat production between 1980 and 1999:

While EU wheat production, calculated on a trendline, rose 42% since 1980, Australian production rose 44% and Argentinean production rose 26%. Canadian production was also up 11%. Highly subsidized U.S. production fell 7% since 1980.⁽¹¹⁾

Similarly, there is no correlation between subsidy levels and increases in coarse grain (barley, corn, sorghum, oats, millet, rye, and mixed grains) production for these same countries. Table B, below, lists trendline changes in coarse grain production between 1980 and 1999:

The most highly subsidized countries had the smallest increases in coarse grain production or, in the case of the U.S., a decrease in production.

A similarly ambiguous picture emerges when one looks at "total oils" (soybean, cottonseed, peanut, rapeseed, canola, sunflowerseed, coconut, palm, olive, and fish oils). Table C, below, lists trendline changes in total oil production since 1980:

Table C demonstrates that EU oil crop production increased at just 1/4 to 1/7 the rate of some relatively non-subsidized countries. Likewise, increases in highly subsidized U.S. production lagged far behind rates of increase in relatively non-subsidized countries. Like coarse grains, oil crop production increases and subsidy levels are inversely proportional.

There seems to be no major grain or oilseed sector where production in the EU has increased significantly faster than production in non-subsidized countries.

Clearly, assertion #1 (see Page 3), that "Subsidies cause increased production", must be augmented by the assertion that the absence of subsidies also causes increased production. Had EU subsidies been lower or non-existent over the past 20 years, there is little evidence that its current production would be lower. Thus, the assertion that subsidies are the cause of increased production becomes meaningless.

Do subsidies distort production?

The second of the three assertions (see page 3), that "Subsidies distort production", is similarly unsupported by evidence. The argument behind this assertion is that subsidies cause farmers to transfer acres into the production of subsidized crops-wheat, corn, and soybeans, for instance-and out of non-subsidized crops. If this were true, one would expect that some crops-those that farmers transferred acres away from-should be in relatively short supply and relatively highly priced. There seem to be few such crops.

Stated another way: What crops would farmers transfer their acres into if subsidies ended immediately? Peas? Flax? Canola? Judging by the prices of these commodities, they are already "overproduced."

Western Canadian farmers are relatively unsubsidized. Over the last decade, they have scrambled to find and grow relatively high-value crops. In the early 1990s, many turned to peas with some initial success. Within a few years, however, pea acreage increased to such an extent that prices fell from $6/bushel to $3. If subsidies ended, would more European or U.S. acres shift to field peas? What effect would this have on already depressed prices?

Canola prices are well below $6 per bushel.⁽¹²⁾ With the exception of one short period in 1986/87, prices are at a 25-year low. If subsidies ended, would more acres shift to canola? Would the acres shift to other oil crops which compete with canola for markets?

It is incorrect to assert that in the absence of subsidies, acreage would revert to those crops where more production is needed, because no such crops exist. In light of this, the argument that subsidies are production distorting largely disappears.

Do EU subsidies drive down prices in other ways?

Assertion #3 (see Page 3), that "Subsidies allow farmers to produce and sell at lower prices and, hence, drive down prices," is merely a thinly disguised version of assertion #1, that: "Subsidies cause increased production." In identical fashion to the first assertion, the third assumes that in the absence of subsidies, farmers could not afford to produce and sell-or would not do so. Assertion #3 implies that the absence of subsidies would result in farmers producing less or somehow extracting higher prices. The evidence from Canada, Australia, Argentina, and elsewhere, detailed above, demonstrates that this assertion is incorrect.

Can we curb EU subsidies?

Despite the evidence presented above, some would still assert that domestic subsidies cause overproduction, oversupply, depressed prices, and the current farm income crisis. These people would further assert that the solution to the current farm income crisis is to force the EU (and the U.S. and other countries) to dramatically reduce or eliminate their subsidies. Let's grant these assertions for a moment and ask: Is it likely that we can force the EU to drastically curtail or eliminate its agricultural subsidies?

The NFU is fortunate to work internationally.⁽¹³⁾ NFU officials have had the opportunity to meet, work, and talk with farm leaders, politicians, and trade officials from around the world, including Europe. European officials are blunt: they say that they have seen the countryside in northern North Dakota and some other parts of the United States: vast tracts of farmland and few farms or communities. They know that the western Canadian countryside is heading in a similar direction at an accelerating rate.

Europe enjoys a vibrant and well-populated countryside. European citizens and politicians want to see small farms in the country, dairy cattle grazing in mountain valleys, and thriving rural communities and they will do what it takes to ensure that those farmers, cow herds, and towns survive and prosper. European officials say that they will do everything necessary to protect their farmers. They tell us that they have seen what naked market forces do to farmers and to the countryside, and they refuse to abandon their farmers and rural communities to such destructive forces.

The EU will energetically resist attempts by Canada, the U.S., and others to force it to significantly reduce or eliminate support to its farmers. There is reason to doubt that we can force the EU to significantly cut subsidies.

Can we curb EU subsidies in time?

Despite the arguments above, some would still assert that the solution to the current farm income crisis is to force the EU (and other countries) to significantly reduce or eliminate subsidies and that we can succeed in doing so at the WTO and in other venues. Let's grant those assertions for the moment and ask: How long might it take?

The last round of WTO agricultural negotiations-the Uruguay round-began in 1986 and ended in 1994 (8 years later). The Uruguay-round agreement committed WTO members to modest subsidy reductions over periods ranging from six to 10 years. Today, 14 years after the start of that round, we have yet to see significant subsidy reductions.

We have entered a new round of WTO talks. In a January 20, 2000 letter from Agriculture Minister Lyle Vanclief to NFU President Cory Ollikka, Vanclief states: "Notwithstanding the failure to launch a new comprehensive round of trade talks in Seattle, negotiations on agriculture and services are already mandated by existing WTO agreements, so that discussions on both will start early in the new year [2000]."

Given the deadlock in Seattle, it is reasonable to expect that this round of WTO agricultural talks will take at least as long as the last round. Thus, a new agreement on agriculture is at least eight to 10 years away. As in previous agreements, subsidy reductions will be phased in over 10 or more years. It is unlikely that we will see significant reductions in agricultural subsidies before 2015, if ever. And even if world production does decrease as a result of subsidy reductions (as some argue it will) those production decreases will come still later. Any price increases that might follow are unlikely before 2020.

Canadian farmers face record and near-record low prices. They are struggling with Depression-era net incomes. These farm families tell federal and provincial governments that they need immediate financial assistance or they face bankruptcy. These farmers cannot hang on for even two years, let alone twenty.

EU subsidies: conclusion

To summarize: For those who assert that ending EU subsidies will curb production, end oversupply, increase prices, and solve the Canadian farm income crisis, this paper responds:

• There is no evidence that EU subsidies are the cause of the crisis;
• Even if there were, there is little hope that we could force the EU to reduce subsidies;
• Even if we could, it will happen too late to save Canadian farmers, the vast majority of whom need immediate help.

Part 2: The real explanation for the income crisis

Markets work?

The purpose of the preceding analysis is to refute the argument that European subsidies cause the current income crisis.⁽¹⁴⁾ Once accomplished, this will force elected leaders, trade officials, and other decision-makers to grapple with the real causes of the income crisis and, hopefully, the real solutions.

Before we turn to those real causes, I want to pause and examine why the EU subsidy explanation is so attractive. Many of the elected leaders and business people who gave us the recent parade of trade agreements, deregulation initiatives, and privatization schemes are market ideologies. They believe-a priori and often in spite of evidence-that markets work.

If markets work, how do elected and corporate leaders explain the economic carnage on family farms? They cannot concede that markets sometimes fail. They must, therefore, blame "market distortions" and "market barriers"-state trading enterprises, tariffs, and subsidies. Hence the attraction of the EU subsidy explanation.

The markets would work for farmers, these leaders declare, if only we could clear away the barriers and distortions. Hence, they charge off to the WTO to rid the world of tariffs and subsidies and free the invisible hand of the global market economy to dispense prosperity and freedom to the industrious and efficient.

The real explanation: market failure due to an imbalance in market power

The market is failing farmers, it is failing worldwide, and it has been since at least the late 1970s. The market is failing to return a fair and adequate share of the consumer dollar to farmers. And it is failing to allocate to farmers a reasonable return on labour, management, and equity from our agri-food system's huge revenue stream.

The EU spent approximately $90 billion in 1999 to protect its farmers from chronic market failure. The U.S. spent approximately $24.5 billion to protect its farmers.⁽¹⁵⁾ In Canada, federal and provincial governments have chosen not to protect farm families from this market failure. Federal agricultural spending has fallen to half the levels of ten years ago. The result is widespread bankruptcy, the rapid loss of family farms, decimated rural communities, and damaged regional economies.

Market failure is apparent to anyone who wishes to look. Moreover, it is entirely predictable. It is a direct result of dramatic market power imbalances between agri-food industry multinationals and the family farms that must do business with these firms.

The modern "food chain"

Imagine food production as a chain-a long, horizontal chain. At the left end is a link which represents oil and natural gas companies. Moving to the right, at the next link, oil is refined into diesel fuel and fertilizer companies turn natural gas into fertilizer (anhydrous ammonia, one of the most widely-used fertilizers, is created directly from natural gas).

Moving farther along the chain to the right, we have the chemical company link, the machinery companies, seed companies, and banks. All these links together are the "input" or the "upstream" links.

In the middle of the chain is the farmer link. This is where farmers combine the inputs-energy, seed, technology, and capital-with soil, rain, and sun to produce food.

Moving farther to the right, we find the "downstream" links: grain companies, railways, processors, packers, brewers, retailers, and restaurants.

Figure 3, overleaf, shows the modern food chain, the companies that dominate each link, and the revenues, profits, and return on equity rates each earns.

* Due to the large size of Figure 3 it is not included in the electronic version of this brief. Please contact the NFU national office at (306) 652-9465 for a copy of this figure *

When one examines the corporations arranged along this chain, several aspect stand out. Most important is that nearly every link, nearly every sector, is dominated by between two and ten multi-billion-dollar multinational corporations. The single significant exception is the farm link. In Canada, that link is made up of nearly 300,000 small, family-owned "firms." In the U.S., where many of the same input and processing companies dominate, the farm link is made up of over two million family-owned firms.

The size of agribusiness corporations relative to farms also stands out. Total 1998 Canadian gross farm revenues were $29 billion. Cargill's revenues were $75 billion that year. Philip Morris Inc. (Post, Kraft, Oscar Mayar, Kool-aid, Jello, Maxwell House, Marlboro, Miller) had revenues in 1998 of $109 billion.⁽¹⁶⁾ Nestlé (Stouffer's, Maggi, Libby's, Nescafé, Perrier, etc.) had revenues of $76 billion. While these revenues are large in relation to total revenues for all Canadian farmers, they are staggering compared to the revenue of any individual farmer.

If one looks objectively-without preconceptions about the marvels of the market-at the agri-food chain with its huge imbalances in market power, one would immediately have doubts that extremely numerous and relatively tiny family farms could extract fair and adequate revenues and profits from a chain dominated by firms a thousand to a million times larger.

A handful of firms dominate each sector

In addition to their advantage in size, the small number of firms which dominate each "link" adds to their market power:

• Three companies retail and distribute the bulk of Canadian oil, gasoline, and diesel fuel.
  
  
• Three fertilizer companies control 71% of Canada's nitrogen fertilizer production capacity:
  - Agrium (North America's largest nitrogen fertilizer producer) controls 45%;
  - Canadian Fertilizer Limited (a joint venture of Western Co-operative Fertilizers Ltd. {Agricore and SWP} and CF Industries {a consortium of U.S. co-operatives}) controls 14%; and
  - Saskferco (50% Cargill and 49% Gov't of Sask.) controls 12%.⁽¹⁷⁾
  
  
• Nine companies make and market almost all of the insecticides, fungicides, and herbicides used in Canada. Moreover, product specialization, patenting, and high registration costs limit the number of firms which sell a given type or category of pesticide. For example, Monsanto (Roundup) and one or two other companies sell the vast majority of non-selective herbicides in Canada. Worldwide, the top ten companies control 85% of the $45.4 billion market and six firms control 63%.⁽¹⁸⁾
  
  
• Four companies (DuPont/Pioneer, Monsanto, Novartis, and Dow) control 69% of the North American seed corn market and 47% of the soybean seed market. At the end of 1998, Monsanto controlled 87% of the U.S. cotton-seed market (it has since divested some cotton-seed interests in an attempt to win approval of its takeover of Delta and Pine Land).⁽¹⁹⁾ While Canadian canola figures are unavailable, it is probable that Monsanto's control of that market is between one-third and one-half. Monsanto sold 88% of the transgenic seeds in the U.S. in 1998. Approximately 60% of Canadian canola is transgenic.
  
  
• Three companies dominate the Canadian and North American farm machinery sector: Case/IH, New Holland, and John Deere. Soon there will be two, when Case/IH and New Holland merge. The Case/IH/New Holland side of this duopoly will have annual revenues of approximately $18 billion.
  
  
• Five banks control Canadian agricultural credit along with some participation by the federal Farm Credit Corporation and a network of relatively small Credit Unions. The combined profits of Canada's five chartered banks were $6.75 billion in 1998.

"Downstream," farmers face similar market concentration:

• Two railways, CN and CP, haul western Canadian grain. Their 1998 profits exceeded the combined realized net income of the 79,000 farmers in Manitoba and Saskatchewan. While two railways (a duopoly) would have significant market power, the distance between their mainlines means that most farmers are captive to one or the other (a monopoly). Further, the recently announced merger of CN with U.S. carrier Burlington Northern Sante Fe would create an $18.5 billion per year super-carrier. Finally, there is real doubt that Canada's other railway, CP, can survive with its tracks sandwiched between CN's to the north and BNSF's to the south. CP rail may go the way of Canada's junior air carrier, Canadian (formerly CP Airlines). If this happens, western farmers will be left with just one railway.
  
  
• Nine grain companies control grain collection in Canada. While this number seems relatively large and the prospects of competition reassuring, analysts predict that mergers and takeovers will soon leave only four. At an April 13, 1999 meeting of the Canada Grains Council, Agricore CEO Gordon Cummings predicted that American multinationals ConAgra, ADM, and Cargill will survive "and if we do things right, one Canadian-owned [company will survive]." He predicts that the consolidation will occur within two to five years following the conclusion of the next round of WTO talks.⁽²⁰⁾
  
  
• Two companies, IBP and Cargill, dominate the beef packing sector with 74% of Canadian capacity (37% each).⁽²¹⁾ These companies also dominate the U.S. beef packing sector with 32% and 19% of packing plant capacity respectively. Thus, these companies dominate the entire North American beef packing sector. Their profit levels reflect this dominance.
  
  
• While there is a relatively large number of large food processors in Canada and worldwide, there is substantially less competition than would first appear. This is because regional and product specialization means that in a given area, only two, three, or four firms process and market a given product.
  
  
  Three large firms manufacture pasta in Canada:
  Borden (Catelli, Lancia) with 39.2% of Canadian pasta plant capacity and $3.4 billion in annual sales worldwide;
  RJR Nabisco (Primo) with 25.3% of Canadian plant capacity and $25 billion in sales of processed foods worldwide; and
  Italpasta with 24.1% of Canadian capacity.
  
  Four corporations mill 80% of Canadian flour:
  Archer Daniels Midland with 46.3% of Canadian wheat flour milling capacity;
  Robin Hood Multifoods with 19.6%;
  Dover Industries with 6.5%; and
  Parrish and Heimbecker with 6.4%.
  
  In Canada, three companies manufacture the bulk of the soft drinks sold, four companies produce most of the cereal, a handful handle coffee, and a small number make frozen french fries. It is beyond the scope of this brief to exhaustively list the market shares for each firm and each product in the agri-food-processing sector. Suffice it to say, like the rest of the agri-food chain, the production and distribution of a given food product is almost always dominated by a few, very large corporations.
  
  
• Five companies control food retailing in Canada:
  Weston/Loblaws/Westfair (Superstore, Loblaws, Loeb, Provigo, IGA, SuperValu, Lucky Dollar, Extra Foods, The Real Canadian Wholesale Club, Your Independent Grocer, No Frills, Valu-Mart, etc.);
  Safeway;
  Metro-Richelieu;
  Empire/Sobeys;
  Pattison/Overwaitea.
  
  Again, the relatively large number of retailers is deceiving because two or three companies dominate most regions:
  Pattison/Overwaitea and Safeway market most of the food in British Columbia;
  Weston/Loblaws/Westfair and Safeway dominate food retailing on the prairies;
  The Ontario market is dominated by Weston/Loblaws/Westfair, Sobeys, Metro-Richeleu, and A&P
  Metro-Richelieu, Empire/Sobeys, and Weston/Loblaws/Westfair (Provigo) divide the Quebec market;
  And two companies-Empire/Sobeys and Weston/Loblaws/Westfair (Atlantic SaveEasy, Atlantic Superstore, Dominion, IGA)-share the Maritimes.
  
  
• A handful of restaurant chains control an increasing portion of the restaurant food trade. MacDonald's had worldwide revenues of $18.3 billion in 1998. Tricon (KFC, Taco Bell, and Pizza Hut) has 29,700 franchised locations in 100 countries and gross revenues of $12.5 billion.

The small number of very large corporations that dominate each link in the agri-food production chain means that these firms can exert significantly more upward pressure on their selling prices and profits and more downward pressure on their buying prices than would be the case in competitive markets. At many links, market power is much closer to monopoly levels than it is to levels found in competitive markets. This extreme concentration of market power enables these firms to extract extremely high profits. This is especially true when they transact with players several orders of magnitude smaller, such as farmers.⁽²³⁾

Profits in the chain

When farmers look at the large size and the small number of firms that dominate each link in the agri-food production chain, they become concerned. Those concerns are borne out when one looks at the profit levels at other links in the chain. The farm income crisis is a crisis only on the farms. While farm families face large losses, the huge corporations that dominate the other links in the agri-food chain continue to earn large profits.

"Return on equity" is a common measure of profitability. It is calculated by dividing net income (profit) by average equity (assets minus debt). An accurate and startling picture of relative profitability emerges when one compares return on equity rates for farmers to those in the other links in the chain. While farmers earn five-year average return on equity rates of just 0.7%, agribusiness corporations earn 5%, 10%, 30%, and, in several cases, over 40%. Please see Figure 3 to compare 1998 and five-year return on equity numbers for farmers and leading agribusiness corporations.

Some explanation is needed regarding return on equity calculations for farmers. Net farm income (realized or otherwise) is not the same as corporate "net income" (also called "profit"). Corporate net income (profit) is calculated after everyone-workers, managers, and the CEO-is paid. In contrast, net farm income is calculated before any allowance is made for the labour or management contributions of farm family members. To calculate return on equity numbers for farms that are comparable to those in industry, one must subtract the estimated value of farm family labour and management from published net farm income numbers. Thus, return on equity is calculated as follows:

Other than the value of farm family labour and management, all the figures needed to calculate return on equity are included in Statistics Canada's Agriculture Economic Statistics (Cat. # 21-603). The challenge is to accurately estimate the value of farm family labour and management. This brief will leave that task to agricultural economists. As a proxy, this brief will use a crude but extremely conservative estimate: $30,000 per farm with sales over $100,000 (83,140 of Canada's 276,548 farms as of 1996 census) and zero for those farms with sales under $100,000.

Calculated using the formula and assumptions listed above, the 1998 return on equity rate for Canadian farms is 0.3% and the five year average is 0.7%. This rate is for all farmers. Although segregated data are not available, grain producers almost certainly earned large negative returns on their equity in 1998 and over the five-year average. Moreover, once economists generate a more precise and less conservative estimate of the value of farm family labour and management, it is almost certain that new calculations of farmers' returns on equity will show negative rates. Total "profit" (net income minus the value of f labour and management) for all farmers for 1998 was $366.8 million-$1,326 per farm.

It is intuitively obvious that grain, hog, and many other farmers earn near-zero or negative returns on equity. To have a positive return on equity, one must have profits. This means that there must be money left over after everyone is paid for labour and management. On many farms, one or both spouses work off the farm to buy clothes and food. Thus, it would seem that not only is there no money left over when everyone is paid for labour and management, but also that there is not even enough money to pay everyone for labour and management. If a business cannot even meet payroll, it surely has no profit and it surely has a negative return on equity.

These tiny or negative returns are unique to farmers. The other players in the chain reap large profits and, hence, high rates of return on equity. While the farmers growing cereal grains-wheat, oats, corn-earn negative returns and are pushed close to bankruptcy, the companies that make breakfast cereals reap huge profits. In 1998, cereal companies Kellogg's, Quaker Oats, and General Mills enjoyed return on equity rates of 56%, 165%, and 222% respectively.⁽²⁴⁾ While a bushel of corn sold for less than $4, a bushel of corn flakes sold for $133. In 1998, the cereal companies were 186 to 740 times more profitable than the farms. Maybe farmers are making too little because others are making too much.

In Canadian retailing, George Weston Ltd. (Superstore, Loblaws, Loeb, Provigo, IGA, SuperValu, Lucky Dollar, Extra Foods, The Real Canadian Wholesale Club, Your Independent Grocer, etc.) earned a 1998 return on equity rate of 37.3% and profits of $773 million. This one company's profits were double that of all Canadian farmers combined ($366.8 million: see three paragraphs previous). Its return on equity rate was 124 times higher than that of farmers.

In 1998, Campell Soup made a profit of $971 million and a return on equity rate of 76%. Philip Morris, the world's largest food, beverage, and tobacco company, earned $7.9 billion in profits and a 33% return on equity. Another processing giant, ConAgra (Butterball, Hunt's, Orville Redenbacher, Healthy Choice, Knott's Berry Farm, Wesson, barley malting, grain handling, input sales, etc.) made $901 million in profits and a 22% return on equity.

Some companies lose money and record negative return on equity rates in a given year. Recently, this has been the situation for some Canadian grain companies. In 1999, Sask. Wheat Pool lost $12.9 million (SWP's year end is July, 1999). This is not the norm, however. Sask. Wheat Pool's average return on equity for the previous five years (1994-98) was 7.74%. Unlike farmers, the huge agribusiness corporations that make up the bulk of the agri-food production chain consistently enjoy high and positive returns on equity.

Consumers pay trillions for food. The prices they pay increase each year. The corporations that make, transport, package, process, and sell the food make billions in profits. The corporations that make tractors, fertilizer, and pesticides make billions. There is no shortage of money in the agri-food system; there is merely a maldistribution of money. The farm income crisis is caused by that maldistribution, not by EU subsidies.

Agribusiness corporations earn 5%, 10%, 20%, and higher returns on equity. If farmers earned just a 5% return on their equity, Canadian realized net farm income would be $9.3 billion in 1999 instead of the projected $2.8 billion. Even a 3% return would largely solve the problem. If farmers enjoyed returns on equity comparable to those enjoyed by other players, there would be no farm income crisis.

Returns and market power

Firms wielding immense market power squeeze farmers from both sides. We will begin by looking at examples in the "downstream" side of the food chain. The market power of the retailers, processors, railways, and grain companies that dominate the downstream side of the agri-food chain allow them to take large and increasing portions of the consumers grocery store dollar and, hence, large profits. See Figure 4 below:

Processors and retailers can reach into the food system revenue stream and extract very high returns. As their power increases, less money makes it back to the farm level. In 1975, 13% of the retail value of bread went to farmers; today, a mere 4% does. The farmers' decreasing share is a direct result of processors' and retailers' increasing market power. The farm income crisis is caused by these firms using their market power to take an ever larger share of the grocery store dollar and, thus, to choke off the flow of money to farmers.

Farmers are also squeezed from the other side by powerful input suppliers. When an abnormally large amount of money does make it back to the farm level, the large size and small number (the market power) of the machinery, fertilizer, and chemical companies that dominate the input side of the agri-food chain allows them to quickly draw those increased returns out of farmers' pockets.

During the 1994/95 and 1995/96 crop years, Canadian crop prices rallied. Wheat prices increased from $3.82 in 1993/94 to $4.66 in 1994/95 and $5.71 in 1995/96. Prices for corn, soybeans, and other crops increased similarly. Input suppliers moved quickly, however, to extract a very large portion of farmers' increased returns. Figure 5, below, charts wheat price increases and anhydrous ammonia (nitrogen) fertilizer price changes:

Figure 5: Wheat and anhydrous ammonia fertilizer prices: 1990-99

Sources: Alberta Average Farm Input Prices, Alberta Agriculture, Food, and Rural Development. StatFacts, 10.03, Saskatchewan Agriculture and Food

As grain prices moved up, fertilizer companies increased prices in step. Fertilizer companies priced according to what the market would bear and used their market power to extract increasing returns from farmers. Fertilizer prices rose 75% while the cost of producing it, mainly the cost of natural gas, remained unchanged. Companies in other input sectors raised their prices in a similar manner.

Since 1974, farmers have tripled their gross incomes and their net incomes have declined. The explanation begins to emerge when one learns that over the same period, farmers' expenses increased 4½-fold. Seen another way, since 1974, gross farm income has increased from $9 billion to $29 billion. Corporations which sell inputs used their market power to capture 100% of that increase.

The market power of retailers, processors, grain companies, and railways means that little money makes it back to the farm; the market power of chemical, fertilizer, seed, and machinery companies means that little of what makes it back, stays.

Hog farmers: a case study in the effects of market power imbalance

Canadian hog farmers have been hard hit by falling prices. The price decline began in October of 1998 and has continued over the past year. At its worst-November and December 1998-hog prices fell to $25/hundred pounds (cwt) (dressed weight) in Manitoba and $22/cwt in Ontario. These prices are down markedly from the $70-$90/cwt range for the same months in previous years.⁽²⁶⁾ While current prices have improved from their lowest levels, they remain below $60/cwt-far below the cost of production and $20 below recent averages.

Political leaders, many economists, and the media blame the hog situation on oversupply and the collapse of the Asian market. Figure 6, below, paints a more ambiguous picture. Canadian pork exports to Asia did decline, but they did so almost a year before the current price collapse. By the October 1998 beginning of the hog price crisis, exports had recovered significantly and have since risen to levels surpassed only by four months of record exports in 1997. 1999 exports are far above 1996 levels, yet prices are far lower. It is hard to believe that a relatively small change in Asian exports, a market that consumes just 7% of Canadian pork annually, could cause prices to fall far below anything seen in the last 23 years.

Figure 6: Canadian hog/pork exports to Asia: 1996-99

Source: Data provided on request from Agriculture and Agri-Food Canada: Trade Evaluation and Analysis Division.

Nor is the hog price downturn easily explained by looking at the retail price of pork. Figure 7, below, demonstrates that while hog prices have remained the same over the past 23 years, packers and retailers have used their market power to increase the price of pork chops to the consumer by over 200%:

Figure 7: Hog and pork chop prices: 1976-99

Sources: Consumer Prices and Price Indexes, Statistics Canada Cat. # 62-010 and Livestock Statistics, Statistics Canada Cat. # 23-603.

The current industrial pork production, processing, and distribution system is treating neither farmers nor consumers fairly. Farmers are forced to accept hog prices farm below the cost of production and consumers are asked to pay ever-increasing prices for pork.

Early in 1999, the National Farmers Union began working with its partners on a project called "Pork Links." In the midst of record-low hog prices, the Saskatoon Child Hunger and Education Program (CHEP), the Council of Canadians (C of C), and the NFU helped link family farm hog producers directly to urban consumers (many on low incomes). The program continues to grow and its economics are enlightening. Urban families can buy locally-grown pork at a 33% saving and rural families can sell hogs at twice market price.

The Pork Links program, like the comparison of grocery store pork and farmgate hog prices (see Figure 7, above), demonstrates that hog farmers are receiving a tiny and declining portion of the grocery-store dollar. If hog farmers had maintained the 30% share of the grocery-store dollar that they enjoyed in the 1970s, current hog prices would be $1.10- $1.20 per pound (versus the 22¢ to 60¢ farmers received over the last year) and consumer prices would not be a penny more than they are now. Seen another way, on the 21 million hogs marketed in an average year, a 30% share of the grocery store dollar would mean an additional $2.1 billion annually to hog farmers in increased farmgate returns.

Like the grain price downturn, analysts often point to an oversupply of pork and hogs as the cause of the past year's price declines. If we grant, for the moment, that oversupply was the cause, it is instructive to look at how the other links of the pork production and distribution chain fared during this alleged glut of pork.

Maple Leaf and Fletcher's are two of Canada's largest pork packing companies. The current pork price crisis began in the fourth quarter (Oct.-Dec.) of 1998 and continues today. Low prices have forced hundreds, possibly thousands, of Canadian farmers out of hog production over that time. The table below lists profits for Fletcher's and Maple Leaf:

For the 12-month period of fiscal 1996, Maple Leaf made $42 million in profits. In 1997, it made $47 million. In 1998, it lost $23 million. In the most recent 12 months for which information is available (Oct. 1998 to Sept. 1999)-a period that overlaps the worst part of the hog price crisis-Maple Leaf earned record profits of $72.9 million.

In its first quarter (Jan.-Mar. 1999) report, Maple Leaf alludes to low pork prices as a significant factor in its profitability, stating: "Maple Leaf Pork benefitted from favourable commodity markets." In its second quarter (Apr.-June 1999) report, Maple Leaf notes that "Maple Leaf Foods International recorded excellent results due to strong demand from global markets, particularly in Asia." In its third quarter (July-Sept. 1999) report, Maple Leaf says: "The Meat Products Group and the Agribusiness Group both reported strong year-over-year earning increases." Maple Leaf's "Agribusiness Group" sells animal feed, including hog feed. In that same report, Maple Leaf also credits its profitability partly to "strong pork sales into Japan."

Similarly, Fletcher's Fine Food recorded profits of $6.3 million for the 12-month period that overlaps the hog price crisis so far. This significantly exceeds the average profit for the previous three years ($3.5 million). The $6.3 million in profit works out to a return on equity of approximately 7.7%.

However, Fletcher's management is not completely satisfied with its profits. Surprisingly, CEO Fred Knoedler cites "a shortage of hogs in Western Canada" as one factor holding back Fletcher's revenues and profits (November 10, 1999 news release). The hog price crisis becomes "curiouser and curiouser" when one learns that farmers are suffering due to hog surpluses and packers due to hog shortages.

The pain of the hog price crisis is not spread equally among all the participants in the hog/pork markets. Farm families wrestle with bankruptcy while packing plant stockholders enjoy record incomes. Record packer profits seem inconsistent with the contention that there is a glut of pork on the market or that export markets are closing. Record profits are, however, consistent with the contention that increasing market power allows packers to take lavish profits while, at the same time, pushing down prices to farmers and wages to workers. Canadian packers have also forced workers to take a 40% wage cut. The two main costs in a packing plant are pigs and people. Packers are getting their people 40% cheaper and their pigs up to 25% to 50% cheaper. Thus, record profits are not surprising.

The WTO, trade agreements, and market power

Trade agreements such as the Canada-U.S. Free Trade Agreement (CUSTA), the North American Free Trade Agreement (NAFTA), and the World Trade Organization (WTO) agreement are designed, we are told, to level the playing field. A level field sounds desirable and fair. But is it sufficient?

Is a level field alone sufficient to give all players in the game an equal chance of scoring? What if some players are far larger and more powerful, perhaps a million times larger? The extreme imbalance in relative profitability obvious in the current agri-food system comes despite an increasingly level playing field. If the aim is to solve the farm income crisis and ensure that farm families and rural communities can survive and prosper, governments and others should focus, not on the tilt of the field, but on the size of the players.

By leveling the playing field, it is not just that the WTO and other trade agreements ignore the size of the corporate players. By erasing borders and globalizing markets, these agreements enable and encourage the already-dominant players to grow ever larger. Corporations merge and take over competitors in an attempt to "maintain global competitiveness." Canadian banks tried to do so; Cargill and Continental, Case and New Holland are doing so.

WTO negotiations hold few solutions for farmers. They will neither end subsidies nor solve the farm income crisis. They may level the playing field but at the same time they will craft rules that allow for, and encourage, larger, more powerful players. And these negotiations threaten the few protections farmers now have-marketing agencies and effective safety net programs. Corporate power is the cause of the income crisis: the WTO negotiations are aimed at vastly increasing that power. The effects on farm families are easily predicable.

The market power imbalance and the farm crisis: conclusion

Farmers have been forced to accept the vast majority of the risks in the food production chain-weather, commodity prices, insects, and market collapse-and have, at the same time, been largely excluded from participating in the profits. Because large, urban-based corporations take the profits before they can make their way back to farms and rural communities, those farms and communities are becoming poorer and less numerous. There were 430,522 Canadian farms in 1966. Today, only 276,548 remain. We falsely call this a crisis, as if it is an unintended consequence. In reality, low farm incomes and rural depopulation are integral parts of the agricultural market structure that corporate and elected leaders in Canada and around the world have created.

Traditionally, farmers relied on governments to regulate the marketplace. Unfortunately, the rapid increase in the size and power of agribusiness corporations has been accompanied by a marked decrease in governments' willingness to oversee or regulate the markets in which those corporations operate. Governments enthusiastically sign trade agreements which tie their hands at the same time that globalization has fostered an explosion in corporate growth, wealth, and power. Thus, having little market power and with politicians increasingly hesitant or unable to use political power, farmers have watched their incomes and prospects decline sharply over the last two decades.

If our Canadian government remains unwilling to consider the possibility that the markets are failing, that deregulation and privatization are hurting farmers, and that extreme imbalances in market power make reasonable farm profit unlikely, then the problems outlined above-the problems at the root and heart of the farm income crisis-are insoluble. Government may dole out taxpayers' money to replace farm income dollars snatched by powerful multinationals but this will be merely a delaying tactic at best. The Canadian government-if it continues to pursue policies that turn farmers over to unbalanced and dysfunctional markets-will preside over the end of the family farm, the depopulation of rural Canada, and the betrayal of generations of Canadians who worked the land and built the nation.

Most executives, journalists, economists, and politicians point toward false problems and encourage farmers toward false solutions. Farmers are encouraged to blame themselves, farmers across the border or across the sea, their marketing agencies, their own government, or foreign governments. Thus, farmers have dissipated their energies fighting among themselves, bewailing their governments, and attacking agencies which give farmers some power in the marketplace.

Those who argue that EU subsidies cause the farm income crisis are the most recent in a long line of those who invoke false problems in an attempt to deflect farmers toward false solutions. The real problem for farm families is an imbalance in market power and a resulting imbalance in the distribution of profits in the agri-food system. For 25 years, political and corporate leaders have succeeded in sabotaging farmers' attempts to understand and solve that problem. That must now change.

Appendix 1: World wheat and coarse grain stocks/use ratios:

Page 7 contains comparisons of trendline wheat production changes for various countries for the period from 1980 to 1999. When one calculates a trendline for 1980-99 wheat production changes one finds that production is up 42% in the EU, 44% in Australia, 26% in Argentina, 11% in Canada, and down 7% in the U.S. [Please see Table A, page 7.]

As explained in the footnote on page 7, the trendline percentages change depending on the year one chooses as the start year for the trendline calculation. The selection of 1980 is, to some extent, arbitrary. It gives a long time period-20 years-but not so long that it confuses matters unduly by bringing major changes in technology into the equation.

The data in Table F demonstrates that where a start year other than 1980 is used, the subsequent numbers better serve to illustrate the point that production increases in the EU are matched or exceeded by non-subsidized countries.

For instance, if one looks at production changes on a trendline calculated over a ten-year (1990-99) period, EU production is up 14% while Argentina and Australia post increases of 39% and 84% respectively. Over any reasonable period that one could choose to measure relative production changes, EU wheat production increases are matched or exceeded by a significant number of non-subsidized countries. The same is true for coarse grains and total oils.

Table F: Percentage change in trendline wheat production using selected start years.

Those wishing to see the production data for these and other countries can visit the internet website: http://jan.mannlib.cornell.edu/data-sets/international/93002/ or contact the National Farmers Union.