The downside of farm subsidies

Government money is usually welcomed but those 
who take it soon learn it can come with a heavy price

There are certain aspects of farming around the globe that are subsidized either directly or indirectly.

In the world of trade, these are sensitive issues. For example, what is the true level of subsidization in China? How does it enhance its competitive advantage? What is the real cost of production?

We have many guests in our humble country home from countries all over the world. And we have had a multitude of discussions on the true cost of subsidization because subsidies are not just a cost to the taxpayer, but a cost to the system. In other words, subsidies ignite severe deficiencies that can cripple an entire system. The question is: Can farming survive without them?

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The answer depends on the ground on which you stand.

It is like saying, ‘We have the best beef.’ Compared to what? Compared to whom?

If you are in Argentina, then they have the best beef and, of course, Canadians feel the same. Some farmers believe they cannot survive without subsidies and that is largely because it has become intergenerational. They know no other way. There are many, though, who have been brought up on it but now know the real cost of subsidization is the handicap of that industry.

Take the highly subsidized beef industry in Scotland for example. The result of ensuring farmers are in the game has had a huge cost in terms of productive capability. Open rates on cows run over 20 per cent. This is the norm. There is little incentive to improve herds because you do not have to. Young folks looking at improving production capabilities are downplayed by the industry in which they are in.

In some small farming communities, there is so much pressure to normalize that the fear of improvement far outweighs the economic benefit of greater profits. The question I often get asked is how do we do better on our farm without doing better than anyone else? That’s an impossible problem to solve.

Just think about the economic impact of infertility in a beef herd at a standard 20 per cent. In Canada we strive for eight per cent open or less, and get very concerned if it touches that level. There is no bailout for our inefficiencies, so it is Math 101 that drives improvement. But triple the open cow rate and we have a herd that is depleted on the income side for a full two years unless you can buy in young bred cows immediately. More importantly we would be asking why the problem occurred.

My question is: Why not challenge the status quo?

The only way for change to happen is for change to happen. I asked this of a group of farmers who were happy at 20 per cent and not going to challenge it for fear of being different than their neighbours. It makes me think of Billie Holiday who once said that “If I can’t sing differently, why sing at all?” I agree, but the solution — said my cheerful friends — was to diversify into agri-tourism because there were HUGE subsidies in that.

The U.K. has long been bent on keeping farmers on the land by paying them to do so. The environmental incentives alone would make us grin with greed. But it has drawbacks. Urban folks see nice cute animals like a badger and want it protected. In the interim, the TB risk grows and herds are being depleted. Just like a subsidy, protecting one part of the natural order of things or production chain results in a severe imbalance that takes a generation to correct.

When New Zealand pulled its dairy subsidies, it really hurt farmers but the story is one of survival. When you get to New Zealand though, the reality is a little starker. In some places, the practices are rather old compared to what we know can work and in parts nutritional advancement is still lagging far behind our standards. Efficiency is not an instant result everywhere because it has so many levels. In other tropical areas, the production capability is immense but food safety issues are of primary concern.

The trend towards investing government dollars in natural capital protection and environmentalism sounds good at the outset, but we need to watch that subsidization of this sector does not tip the scale against farms. We can overplay a subsidy so that it works against the farmer and our position on trade. It is a balancing act for sure, and one which we need to participate in. Not because farmers don’t care about the environment or about protecting or enhancing natural capital. It is because farming is their future and the future of our nation.

We will leave the true discovery of production subsidization in China up to the experts and continue to encourage our U.K. friends to enhance production capability in their herds. But that is their business.

The real challenge will be here at home as governments impose production regulations and develop their own mandates on managing our natural capital.

About the author

AF Columnist

Brenda Schoepp

Brenda Schoepp works as an international mentor and motivational speaker. She can be contacted through her website at www.brendaschoepp.com. All rights reserved.

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