in union is strength

Winnipeg, Manitoba

April 26, 1999

Preface

The National Farmers Union (NFU) welcomes this opportunity to present the views of Canadian farmers to the Standing Committee on Foreign Affairs and International Trade. The NFU is the only voluntary, direct-membership, national farm organization in Canada. It is also the only farm organization incorporated through an Act of Parliament (June 11, 1970). The NFU is non-partisan and works toward the development of economic and social policies that will maintain the family farm as the basic food-producing unit in Canada. To help realize this goal, the NFU and its members work to:

• create, expand, and safeguard orderly marketing and supply-management systems;
  
• develop and implement government programs which support farmers;
  
• ensure that Canadian food is safe, nutritious, and available to all who need it; and
  
• encourage farming practices that protect, enhance, and sustain the environment.

NFU members believe that individual farmers must work collectively and with government to realize the preceding goals.

The objective of this brief, and indeed of the NFU itself, is to help policy-makers, farmers, and Canadian citizens understand current agricultural and food issues and work in an informed and effective way toward positive outcomes

Index

1. Has increased agricultural trade benefited farmers?
   
2. Has increased agricultural trade benefited Canadian consumers?
   
3. Has increased agricultural trade benefited the Canadian economy?
   
4. Has increased agricultural trade benefited farmers around the world?
   
5. Conclusion: Canada, the WTO and the FTAA
   

National Farmers Union Submission
to the
Standing Committee on Foreign Affairs and International Trade
on
The effects of export-oriented agriculture on Canadian farm families, Canadian consumers, and farmers around the world

1. Has increased agricultural trade benefited farmers?

Figure 1. Canadian agri-food exports and realized net farm income: 1970-98

Sources: Statistics Canada Cat. No. 21-603E; AAFC Agri-Food Trade Service, "Agri-Food Export Potential for the Year 2000"; AAFC, "Canada's Trade in Agricultural Products: 1988, 1989, and 1990".

Figure 1, above, clearly demonstrates that farmers have not benefited from the manifold increase in agri-food exports. Since 1989, exports have doubled and net realized farm income has declined 19%. In this brief, we will attempt to solve the riddle of why increased exports do not translate into increased farm prosperity-for in this riddle lie the essential insights upon which Canada must build its WTO and FTAA negotiating position.

Canadian federal and provincial agriculture ministers have focused on increasing agri-food exports. In 1993, they set a target of $20 billion in exports by 2000-double 1989's level of $10 billion. Having reached $20 billion ahead of schedule, in 1998 the Ministers set a new goal of $40 billion in exports by 2005. This almost single-minded focus on export expansion has led some farmers to criticize the ministers for having no real agricultural policy: merely a trade policy which they occasionally dress up as an agricultural policy.

While ministers focused on export volumes, they might better have focused on net exports (exports minus imports). Increasing Canadian agri-food imports have largely kept pace with increasing exports. Net exports remain around $5 billion annually-largely unchanged over the past 15 years. Further, Agriculture Canada's Medium Term Policy Baseline (April 1998) projects that net exports will remain unchanged over their forecast period to 2007.⁽¹⁾

Figure 2: Canadian Agri-food exports, imports, and net exports: 1970-98

Sources: AAFC Agri-Food Trade Service, International Markets Bureau, Market and Industry Service Branch

We are losing Canadian domestic markets to imports at approximately the same rate that we are gaining export markets. The problem is, when we exchange $1 billion in domestic sales for $1 billion in exports, we often exchange stable, high-priced markets in Canada for volatile, low-priced foreign markets in Indonesia, Iran, or China.⁽²⁾ The recent hog price collapse triggered by the Asian crisis is an example of the volatility of those export markets and the negative effects that their collapse can have on Canadian producers.

Canadian governments continue to encourage increased hog production. That expansion is almost exclusively export-oriented as Canada has long been self-sufficient in pork. Figure 3, below, is taken from Agriculture and Agri-Food Canada's Medium Term Policy Baseline, April 1998 (p. 15.). It shows that Agriculture and Agri-Food Canada (AAFC) projects Canadian net pork exports⁽³⁾ to nearly double between 1998 and 2007.⁽⁴⁾

Figure 3: Canadian net pork export

Reprinted from Medium Term Policy Baseline, April 1998 (p.15.)

That AAFC publication also forecasts that hog farmers' incomes will plummet over the same period. Figure 4, below, shows that a benchmark central Alberta farrow-to-finish hog farm with 140 sows and 640 acres (raising wheat, malt and feed barley, and canola in addition to hogs) will see its net income drop steadily for the foreseeable future: declining from approximately $83,000 in 1997 to $28,000 in 2005. While the report only listed Alberta hog farms, similar calamities can be expected across Canada. Note that net farm income is not the same as profit: hog production is labour intensive and net farm income is calculated before allowing for farm family labour or management costs.

Figure 4. Alberta benchmark farrow-to-finish

Reprinted from Medium Term Policy Baseline, April 1998, (p. B-3.)

The declining farm incomes depicted in Figure 4 do not result from a failure of the export-expansion model. To the contrary, all indicators point to its continued "success": pork production and exports continue to rise; pork packing companies-having pushed wages down by up to 40% and having benefited from a sharp decline in pig prices-are more profitable than ever; ⁽⁵⁾ and world demand continues to rise. At the same time, however, family farm hog producers are being bankrupted and forced out of business.

Clearly, farmers are not winners as a result of increased hog exports and an increasing focus on export markets. This is predictable. Farmers, particularly, lose if we exchange domestic markets for foreign ones. Increased transportation costs and a larger number of intermediaries combine to reduce the farmers' share of the final, retail price-farmers get a smaller portion of a lower and more volatile price.

Increasing exports and trade also increases the "interconnectedness" of markets. This allows traders and processors to easily substitute one product for another. If Canadian canola oil becomes scarce and the price begins to rise, makers of processed foods-Pizza Pops, frozen lasagna, etc.-can easily substitute U.S. soybean oil. On a larger scale, canola oil becomes interchangeable with palm, corn, sunflower, cottonseed, and other oils. While this is bad for farmers, in theory it could be good for consumers-ensuring them lower-priced products (more on this later).

As markets and corporations internationalize, farmers, rooted to particular fields, are at an increasing disadvantage. Total 1997 Canadian gross farm revenues were $29 billion. Cargill's revenues were $56 billion that year. Philip Morris Inc. (Food: Post, Kraft, Oscar Mayar, Kool-aid, Jello, Maxwell House; Tobacco: Marlboro, Merit; Beer: Miller) had world-wide revenues in 1997 of $113 billion [CDN$]. 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. In this system, isolated farmers have no market power. More importantly, the huge size of agribusiness corporations relative to farms allows those corporations to maintain very high levels of profit relative to farmers.

In a globalized, trade-accelerating market environment farmers are pitted against farmers in other nations, deprived of market power, and forced to rely on distant, low-price, volatile markets. Despite a manifold increase in exports, Canadian farmers are facing the lowest net farm incomes since the 1930s. It is clearly time to reevaluate the "benefits" of exports for farmers.

AAFC's Sept., 1994 publication, Future Directions for Canadian Agriculture and Agri-Food, lists the benefits of realizing Canada's export target of $20 billion by the year 2000 (a target that we have since exceeded). One benefit, states that report, is that "for very $1 billion increase in exports...realized net farm income [will rise] $235 million." If this prediction held true, 1998 realized net farm income would be $4.3⁽⁶⁾ billion and not the $2.6 billion forecasted. The effects of increased exports are not matching the predictions.

Despite failing to meet the projections contained in Future Directions for Canadian Agriculture and Agri-Food, such projections are extremely useful. Before entering into future negotiations, the Canadian federal and provincial ministers of agriculture should publish extensive projections regarding the effects that successful negotiations and resulting increases in trade and exports will have on all sectors of the agricultural economy. It has become a standard business practice, before embarking on a new direction, to identify measurable objectives against which progress can be evaluated. Eleven years after the signing of the CUSTA and on the verge of new FTAA and WTO negotiations, Canadians still lack a framework for evaluating the effects of such trade agreements on farmers and the agri-food sector.

The National Farmers Union recommends that the Canadian government work with farmers to develop numerical objectives to serve as benchmarks against which Canadians can measure the success or failure of Canada's agricultural and agri-trade policies.

Further, because the benchmarks identified by the NFU in this brief all point toward the failure of trade and investment agreements to benefit Canada's farm families, the NFU recommends that the Canadian government should refrain from negotiating further agreements until they can assure farmers that situation will reverse.

2. Has increased agricultural trade benefited Canadian consumers?

When one looks at net farm income, it is hard to argue that increased agri-food trade has benefited farmers-net incomes and prices for most commodities are down. Lower commodity prices can have offsetting benefits. If hogs are cheap, so too should be grocery-store pork. Lower farm prices and world prices, if they translate into lower food prices, could have a salutary effect on the economy as a whole, if not on farm families. Unfortunately this is not the case. Figure 5, below, compares farmgate hog prices to grocery-store pork prices.

Figure 5: Farmgate hog prices and retail pork prices: 1976 to 99

Sources: Stats. Can. Cat. #s 23-603E, 62-010XPB, and Alta. Ag.'s Average retail food prices for Edmonton.

In the 1970s, farmers received between 50" and 75" per pound for their hogs and consumers paid $2.00 to $2.50 for pork chops. While hog prices have not risen-and have recently fallen dramatically to 23" per pound-grocery-store pork prices have doubled.⁽⁷⁾ The same picture emerges if one compares wheat and bread, corn and corn flakes, barley and beer, and almost every commodity/retail-product pair. The Statistics Canada consumer price index for food items indicates a 3=-fold increase since 1974-farmgate commodity prices have fallen over that same period.

Despite record and increasing agri-food exports and imports, consumers have not benefited from reduced food prices. Traders, processors, distributors, and retailers are taking an ever-larger cut-charging consumers more and paying farmers less.

3. Has increased agricultural trade benefited the Canadian economy?

The answer to this question is not completely clear cut. While the Canadian agri-food processing sector has expanded, it has, at the same time, been largely taken over by foreign corporations. Because of this, a large portion of the sector's profits are lost from Canada. This, combined with decreasing wages, casts doubt on the benefits of growth in this sector for the average Canadian citizen.

The following examples detail the extent of foreign/U.S. ownership of key Canadian food processing sectors.

Canadian wheat flour mills

79% foreign-owned
78% U.S.-owned

Archer Daniels Midland (ADM) alone owns 52% of Canada's milling capacity.

Canadian malt plants

93% foreign/U.S.-owned

ConAgra has 64% of the Canadian capacity through its inaccurately named "Canada Malting" plants in Calgary, Montreal, and Thunder Bay. ADM and Cargill are also major players.

Canadian durum flour mills

66% foreign/U.S.-owned

Again, ADM is a major player with 30% of capacity.

Canadian Pasta Plants

90% foreign-owned
67% U.S.-owned

Canadian beef-packing plants

66% foreign/U.S.-owned

Cargill and IBP together own 66% of Canadian capacity.

As stated, ADM owns 52% of Canada's wheat flour milling capacity. Even more provocatively, ADM's ownership share is up markedly from 30% in 1995 and 0% in 1985. When considering the upcoming WTO and FTAA negotiations, policy-makers should ask themselves how this dramatic increase in U.S. ownership and concentration of ownership is related to the CUSTA and NAFTA?

Even when the value-adding facilities are owned by "our own" multinationals, the benefits to farmers, workers, and the larger economy seem less than generous. Small and medium-sized hog farmers struggling against low farmgate prices take little solace in the fact that many of the newest and biggest pork packing plants are owned by Canadian-based transnational corporations. Workers at Maple-Leaf and Fletcher's packing plants take little solace in the fact that the companies which forced 40% wage cuts onto them-citing the need to remain internationally competitive-are Canadian-based.

While there may be an increase in processing plants in Canada, there is a decrease in Canadian plants. As a direct result of the CUSTA, NAFTA, and previous rounds of the WTO, Canadians have lost control of this important sector of their economy. While, in theory, trade and investment agreements could have allowed Canadians to increase processing and exports: in practice, it has merely turned the industry over to U.S. corporations. In evaluating the actual benefits of the past 11 years of trade and trade agreements, this consideration must figure highly.

Finally, note that while net agri-food exports are modest-$5 billion-none of those net exports are processed agri-food. In 1997 processed imports were $10.9 billion and processed exports $9.8 billion.⁽⁸⁾ It is not the case that we are expanding our food processing sector as a result of freer trade-we are a net importer of processed food.

Figure 1 clearly demonstrates that farmers have not benefited from a manifold increase in agri-food exports. Nor have consumers benefited through lower prices. Realizing this, most people quickly assume that the benefits of increased trade and trade liberalization must accrue to the Canadian food-processing sector. This is not the case. Canada imports more processed food than it exports and, increasingly, its food processing plants are owned by U.S. and other foreign corporations.

There are beneficiaries of increased agri-food trade and globalization: ADM's worldwide revenues have nearly doubled since 1990. ConAgra's have more than doubled since 1989. And Philip Morris's have tripled since 1987. As these huge corporations grow, their market power-their ability to buy cheaper from farmers, sell higher to consumers, and bargain harder with workers-also grows. The failure of increased agri-food exports to benefit Canadian farmers, consumers, or workers may be related to the takeover of the global agri-food sector by such corporations. When negotiating trade and investment agreements, the government should keep in mind that such agreements add to the power and profitability of these corporations at the expense of farmers and other citizens.

4. Has increased agricultural trade benefited farmers around the world?

Despite record and rising exports, Canadian farmers are facing the lowest income levels since the 1930s. For them, export-expansion is not a winning strategy. But we should also ask ourselves: What is the effect of ever more and ever cheaper Canadian agri-food exports on the farmers in the recipient countries?

If a Canadian farm family cannot make a living growing 1000 acres of grains and oilseeds using the latest technology, how are Thai and Peruvian farmers doing? Before we gear up to "serve the Asian market" we might want to ask who was previously serving that market? Before we negotiate the FTAA, we may want to ask what will be the cost in terms of economic dislocation? And when we see famine and starvation, homelessness and landlessness, economic instability and revolution around the world, we should ask ourselves if there is any connection between these calamities and the effects that our exports are having on indigenous farmers and communities? If Canadian farmers were winning and those in other countries were losing, then we might ask if the benefits were worth the cost. But with Canadian farmers losing as well, the answer is clear.

Around the world, peasants are being forced off their land and into cities. Without money to buy food or land to grow it, they face a desperate future. When we push other countries to rely on Canadian-grown food rather than their own, we foster a system wherein only those with the money to buy food can eat.

Flooding the world market with food at prices far below the cost of production damages other countries' ability to feed their citizens. Below are a few examples. We will begin in the Philippines:

Production of food for local consumption is likewise on a downward trend. The lack of government support, the unabated and indiscriminate conversion of prime agricultural lands, and the flooding of our markets with cheap imported agricultural goods, all combine to render agriculture a sunset industry in the very near future.⁽⁹⁾

In the Philippines today, 10 million of the 32-million-person labour force are unemployed and another 15 million are under-employed.⁽¹⁰⁾ Given this level of unemployment, moving to a import-based, cash-based food-distribution system seems unwise.

In Costa Rica:

[A] flood of cheap imported grain drove local farmers out of business as the number growing corn, beans, and rice, the staples of the local diet, fell from 70,000 to 27,700.⁽¹¹⁾

The story is the same around the world. Farmers are being forced off their land and into cities by a flood of cheap food imports. Those remaining are forced to divert land from domestic food production to export cash crops: simultaneously exacerbating domestic hunger and international oversupply. The U.S., EU, and, to some extent, Canada have attempted to save some of their farmers through multi-billion-dollar support payments. Unable to match such payments, developing countries are largely helpless as our cheap food washes away their farmers, rural communities, and capacity to produce food.

In November, 1998, 636 participants representing 316 organizations from 30 countries prepared a statement on the effects of increased trade and globalization on their countries. The following is an excerpt:

"[F]ar from its promise of jobs and progress, globalization has resulted in widespread unemployment, displacement of peoples and destruction of their livelihoods, marginalization of large sections of society, intensified discrimination and repression as well as the disintegration of families and communities. Far from its promise of development, globalization has wrecked societies, destroyed the means of subsistence of small entrepreneurs and producers and brought them to ruin and has led to famine conditions in many countries in Asia and the Pacific. It has brought peoples and countries to greater poverty and misery."
....
Food security is further threatened by the destruction of local food production, the widespread landlessness and displacement of peasants, the loss of biodiversity and indigenous knowledge, the new and fast expansion of genetic engineering and the dumping of agricultural supply from Northern countries."⁽¹²⁾

The NFU is a founding member and the North American coordinator of the Via Campesina: an international movement of 69 farm organizations from 37 countries.⁽¹³⁾ Through its work in the Via Campesina, the NFU has gained direct experience with the plight of farmers around the world. Farmers around the world are speaking out against a WTO regime which leaves them defenseless in the world market. The Via Campesina issued the following statement on the WTO at its May 17, 1998 meeting in Geneva:

The loss of national food sovereignty within the WTO is dangerous and unacceptable. Via Campesina strongly objects to the conduct of negotiations in agriculture under the terms of the World Trade Organization. The WTO policy is above all organized in the interests of multinational companies that dominate international trade destroying our capacity of food production, our communities, and our natural environments.

International trade must serve society!

The document went on to demand that governments and international organizations:

"Remove all negotiations in the areas of food production and marketing from the WTO."

In talking to farmers and farm leaders around the world, the NFU has encountered widespread resistance to the almost universally-discredited idea that agricultural trade liberalization and globalization will benefit farmers. Protests in France, Germany, the U.S., and in many developing countries demonstrate that farmers around the world are fed-up with low prices and unstable markets. Liberalized trade was first promoted to farmers as a win-win game-farmers all over the world would be better off. Later, as the reality of the situation set in, farmers were urged to compete in a win-lose game-some farmers will win and some will lose. It has now become clear to farmers around the world that they are in a win-lose game, but of a different kind-the vast majority of farmers around the world lose and agri-business corporations win.

The NFU recommends that the Canadian government would be wise to take advantage of international dissatisfaction with the WTO process to strengthen its negotiating position.

The NFU recommends this Committee send observers to the Third International Via Campesina Assembly (October 3-6, 1999 in Bangalore, India) to see the effects of export-acceleration on peasants around the world.

5. Conclusion: Canada, the WTO, and the FTAA

What does the foregoing indicate about how Canada should conduct itself in the upcoming WTO and FTAA negotiations? It indicates that because the benefits of increased agricultural exports are either much less than previously believed or non-existent, that we need not sacrifice our supply-management systems, Wheat Board, safety net programs, or sovereignty in order to gain market access and increased exports.

It also indicates that because serving our domestic markets offer higher and more stable prices and avoids displacing farmers in other nations, that we should serve that market. Canada has a supply-management system for milk, poultry, and eggs. Farmers in that system have been largely untouched by the current "farm income crisis." In contrast, those farmers heavily dependent on export markets have been hard hit. Supply management provides a striking alternative to the dominant WTO/NAFTA/FTAA model which promotes maximum production and maximum exports. Moreover, supply management stabilizes farmers' incomes, stabilizes consumer prices, and prevents oversupply. The trade-acceleration model implicit in the WTO and FTAA does the opposite.

Farmers around the world have faced low prices for most of the last 20 years. Despite widespread hunger, these low prices were usually attributed to "oversupply." If there is chronic oversupply, then a system which managed supply to ensure domestic food security and limit price-depressing surpluses would seem to be the wisest course. The adoption of such system would be a win-win solution for farmers in every country. It is exactly this sort of system which the upcoming WTO and FTAA negotiations threaten to make impossible.

Canadian negotiators must defend Canada's right to safeguard, create, and expand orderly-marketing and supply-management agencies and must not trade these agencies away in the upcoming WTO and FTAA rounds. Further, given low and volatile commodity prices, Canada must not further restrict its ability to create safety nets which stabilize farmers' incomes or programs which safeguard their interests. Finally, Canada must protect its land-ownership laws and other laws important to fostering family-farm-based agriculture.

The benefits of increased agri-trade to farmers and other Canadians are few. The costs implicit in future WTO and FTAA negotiations are potentially huge. Those costs could include the loss of our Wheat Board, milk marketing agencies, and the livelihoods of tens-of-thousands of Canadian farm families. Given the absence of benefits, the Canadian government should not trade away Canadian farmers' protections.

Finally, note that net agri-food exports are approximately $5 billion.⁽¹⁴⁾ Gross farm receipts are approximately $30 billion.⁽¹⁵⁾ And the domestic agri-food economy is approximately $100 billion!⁽¹⁶⁾ While our exports and export markets are important, they are modest compared to production and the total size of the Canadian domestic market. This being so, the primary focus of the government should be on the health of agriculture and the domestic processing and retailing industries. Exports should be a priority, but only a secondary priority.

Given the lack of benefits from increased trade, the National Farmers Union strongly recommends that the Government of Canada cease bargaining away Canada's orderly marketing and supply-management agencies, its ability to implement effective safety net programs, and its authority to make policies in the interest of Canadian farmers.