Mr. Speaker, it is a privilege to speak to Bill C-57, a bill to enact the World Trade Organization agreement.
Canada has been, is and I presume will be a trading nation. The part of the country that I come from, the west, was opened to European civilization through the act of trading; the traders from the Hudson's Bay Company and the Northwest Company. Their main purpose for exploring the west was on a trade mission. It has been a healthy environment for Canada whenever we have been able to trade freely and unhindered.
I wish to speak today with regard to the issue of farm safety nets. They are also impacted by the legislation that we are dealing with today.
We have to understand that agricultural safety nets are really risk management policies. They are mechanisms to help the farmer manage risks associated with producing a valuable commodity, food. We all need it.
The production and selling of goods such as food has a characteristic in addition to its value as a physical sustenance that makes it unique. That characteristic is perishability. There are unique risks associated with the provision to the world of a perishable commodity, that food that sustains us all.
It is these characteristics of food and the accompanying risks that lead us to develop risk management programs or our farm safety nets. The basic responsibility for managing the risk falls to the farmer just as it does for any other businessman. Farmers accept the fact that there are unique risks in producing food. They try to make wise decisions and carefully manage the product through its life cycle.
The other basic risk in farming in addition to this aspect of perishability is the highly fluctuating or uncertain income caused by forces over which farmers such as myself have no
control. Those forces are natural hazards, market cycles and trade distorting influences.
Therefore the risk management tools that farmers basically need are threefold: a crop or livestock insurance program to deal with the natural hazards, an income stabilization program to deal with market cycles and a trade distortion adjustment program to deal with trade distorting influences.
My party, and I was pleased to be involved with that, was able to consult widely across Canada prior to the 1993 election with farmers to develop their thoughts on these matters. We are happy to see that the Liberals who did not campaign on a post-GATT platform begin now to recognize that the old farm safety nets are going to have to change.
It seems rather odd that the Liberal Party, one of the oldest parties in Canada, did not start consulting with farmers earlier. In fact we are finding in this House that the Liberals are doing all their consulting after the election. I am proud to belong to a party that did its consulting before the election. I consider that to be one of the reasons why so many of us were elected. It also gives us great authority to speak on most of the issues that we address in the House, including this bill.
What are some of the concepts that have led to the rules and conditions and definitions of what now have to be internationally accepted farm safety net programs? There has been much talk about improving agriculture policy related to farm safety net support in recent years.
While the GATT talks have brought reform, there is still much to be achieved in practice. The organization known as the OECD, the Organization for Economic Co-operation and Development, consists of Australia, Austria, Canada, the European community, Finland, Japan, New Zealand, Norway, Sweden, Switzerland and the United States.
In the OECD overall support from government budgets and consumers to agriculture production still accounts for well over 40 per cent of the value of that agricultural production. In spite of some progress in tackling domestic farm programs, trade barriers remain stubbornly resistant to liberalization. Many of the alternative measures being put in place, including direct income support to farmers to replace subsidies, are still linked in some way to the production of agricultural commodities.
With respect to rules based trade, the feeling is commonly held by a lot of farmers that lawyers and bureaucrats are going to spend huge amounts of time and money trying to figure out how to beat the GATT rules. We already know, for example, that the EEC has kept its sum total payment policy in exchange for the U.S. keeping its nationalistic farm policy.
In other words, we are going to see a lot of wheeling and dealing and shifting and fudging of numbers in trade and support account columns. I suppose that such is the give and take of international negotiations but unfortunately farmers are the ones who are usually caught in the economic cross-fire.
Currently in the OECD, there are different types of safety nets and support programs for agriculture. First, of the total support that comes from consumers and government budgets to the OECD agriculture, around 71 per cent is transferred by policy measures that raise market prices received by farmers for their produce and are paid by consumers for their food beyond those existing in the world market. These are commonly known as commodity price support systems.
In Canada's case, the supply management system falls within this category. There are a lot of positive things that could be said about supply management but there are certainly a lot of negative things that have to be said about it as well.
One of the great negatives of the supply management system is the interprovincial trade barriers that we have within our own country. It is rather ironic that today we are discussing legislation that breaks down international trade when we are such a poor example to our international trading partners with our domestic policy.
Whatever form our support takes, the real problem for farmers, as my hon. colleague opposite from Malpeque has often stated, is low, real net market income for food. Farmers simply deserve a fair return on their investment. They want to get paid what their product is worth just like anyone else. They do not particularly want to have a lot of subsidies and government support.
I would suggest to hon. members opposite that the way to get more market income is to relax these types of price support policies that restrict the market forces. We need to trust a free and fair marketplace to bring the returns that we all want. I am happy to see that our rules based trading arrangements are addressing these type of subsidies and moving toward their elimination.
Second, only 13 per cent of farm support given is in the form of direct payments to farmers from government budgets. Much of this is transferred to the farming sector by policies that raise prices received by farmers through subsidies based on output or production. Although such subsidies do not directly affect the market prices paid by consumers, most of these measures are production related. They take the form of deficiency payments which are payments that make up the difference between a guaranteed price per unit of commodity and the actual market price. Headage payments are payments paid on the amount per head of cattle or sheep, et cetera.
The third type of support represents 16 per cent of the total and is largely made up of government's budgetary finance measures that are not targeted to specific farmers or commodities but to the agricultural sector as a whole. These include
publicly financed infrastructure, research, inspection, information or education and training.
We must note that the amount of support provided by these three different types of policy measures is very uneven across the OECD countries. Some countries give more weight and emphasis to the support of market prices, others to direct payments and yet others to non-targeted general support. Therein lies the problem of negotiation for rules based and equal treatment trade.
Therein also lies the potential for a harmonized movement away from market distorting programs to a free and fair international marketplace where farmers can make a living providing one of the most important products to humanity, the food we eat.
The pricing support programs and other subsidies I have referred to apparently cost consumers and taxpayers in OECD countries over $350 billion a year in higher food bills and in taxes. These policies distort trade patterns and heighten tensions between countries.
At the OECD ministerial meeting in 1987 their governments therefore committed themselves to reducing total support and to moving away from production and output related subsidies to other policy measures. One of the programs considered by GATT to be green is direct income payment to farmers which comes under the second type of safety net or support that I have referred to, direct payments.
I want to talk about the matter of direct income payments for farmers. We refer to it as an income stabilization program or ISP and that addresses the risk of market cycles. Direct income payments are literally that, explicitly budget financed income transfers made directly to individual farmers. Thus, they are distinct from the other policy mechanisms that transfer income to farmers indirectly either through commodity price supports which raise consumer prices or through lower input costs or through money spent on the farm sector as a whole.
The main advantage of direct income payments is that they can be targeted to the specific farmers whose situations are deemed to warrant such payments. This is in sharp contrast with price supports that are targeted at commodities which thereby give most benefit to the largest producers who may not warrant such support.
A commodity price support system such as our supply management also creates a prohibitive expense in its tool of production, the quota. It restricts farmer entrepreneurship because new entrants can only get in with large capital outlay through means such as large debt or a fortunate inheritance.
As a regulated marketing mechanism it does not transmit the signals of the market back to the producers quickly enough and reduces the innovative abilities of the industry. Therefore, the supply managed system must speed up its adjustment to liberalized trade as it will be in its own best interest. I know some of the members opposite are beginning to agree with this certainty even if they do it with reluctance.
Moreover, support to the income of farmers is more efficient than support to the prices of products. Price supports easily leak into the sectors upstream or downstream from the intended recipients or are wasted in competitive price subsidization between countries illustrating a phenomenon known as transfer inefficiency.
Well targeted direct income payments have a high degree of transfer efficiency because nearly all of the transfer ends up where it is intended, supporting farmers' incomes.
Moreover, in case members opposite are still not convinced of a better way, let me offer another advantage of farmer income support as opposed to commodity price support. Since income supports are financed from national budgets, they are more transparent and can thus be scrutinized more easily than price supports which are hidden in high consumer prices.
In all fairness and objectivity, we must admit that all measures of support including direct income payments will produce distortions to some degree. I am saying that those supports linked to pricing or production of specific commodities are the most distorting. Price supports are guilty, as I have mentioned above.
Production support systems are faulty because they give incentives to over or underproduce certain commodities, thus creating a moral hazard or a situation called farming the system, or they encourage unfriendly environmental practices. All in all it should be obvious that moving away from price and production support and toward income support is the wave of the future. All would be well-advised to get on board.
Direct income payments must satisfy two conditions in order to allow farmers to become more market reliant. First, the amount of payment should be generally fixed to a particular period of time and thus remain immunized from moral hazard. We do not want an income support program that would give an incentive to alter behaviour for monetary gain at the expense of environmental stewardship or fair business practices.
Second, the amount of payment should not be determined by the volume of current or future production of specific commodities or inputs to avoid biasing farmers' choices between specific commodities or those production techniques.
We must also continue to carefully define the objective of each type of direct income payment, whether it is income payment to help farmers adjust to alternative activities, a scheme to establish a minimum income, a measure to encourage environmental activities or a program to stabilize income be-
cause of market cycles. All these appear to be eligible under GATT. The situations for which direct income payments could be made available have to be very carefully specified to ensure there is the least distortion to the use of resources and to avoid back door channels of support to agriculture commodities, which would undermine the current reforms taking place.
How do we decide the amount of direct income payment? Basically there are two ways. First, we can assess the costs incurred by the farmer in undertaking activities for which payments are targeted. The second way is to evaluate income foregone by not undertaking an activity or measured against a predetermined base line such as loss of income due to market cycles compared to a recent income trend.
The duration of direct income payment programs depends on the duration of the problem being addressed. As far as possible, market-based solutions should be encouraged because they are longer term and are likely to emerge as reform evolves.
As I opened my comments I talked about the west being explored and developed because of free traders, because of people who wanted to go out, take some risks and try to make a few dollars. I suspect that as Canada moves into the global economy we can again expect to have some adventures, perhaps in a different situation, perhaps in the high tech civilization and society that we now live. It will be exciting for agriculture as well. There are great opportunities and this Bill C-57 is in a small way opening the door of opportunity.
While this bill will not solve all problems facing world trade, certainly not all of the problems facing agriculture, it is a step in the right direction. Therefore we offer our support for the GATT agreement, for the World Trade Organization Implementation Act and we hope this is one move toward reducing government funding for not only agriculture, but many commodities. It will give an opportunity for the market to sustain our industries, including the agricultural industry, so that not only farmers but all Canadians will enjoy lower taxes, a strong economy, and have a bright outlook on the future.
