Agricultural Policy Monitoring and Evaluation 2018

Chapter 5. Canada

Support to agriculture

Canada has significantly reduced its agricultural support since the late 1980s. Producer support as a share of gross farm receipts fell sharply between 1986-88 and 1995-97, in large part because market price support (MPS) to the grains industry was discontinued in 1995. The decline in the level of support since then has been more gradual because there have not been any significant policy changes to MPS measures for dairy, poultry, and eggs. Lower levels of disaster payments in recent years and a shift of budgetary expenditures towards general service support to the sector since the mid-1990s have resulted in lower farm income support overall.

Canada’s PSE declined from 36% in 1986-88 to 9% in 2015-17, and has been consistently below the OECD average. However, the share of potentially most distorting support (based on output and variable input use – without input constraints) was 69% in 2015-17, above the OECD average and at a similar level to 1986-88. MPS for milk accounts for the largest share of potentially most distorting support. On average, prices received by farmers were 12% higher in 2015-17 than those observed in world markets. The share of the General Services Support Estimate (GSSE) in the Total Support Estimate to agriculture (TSE) has almost doubled since 1986-88 and reached 28% in 2015-17.

Main policy changes

The agricultural policy framework in Canada, Growing Forward 2 (GF2), expired in March 2018. In 2017, the core elements of the next framework agreement, the Canadian Agricultural Partnership (CAP) were agreed between the Federal, Provincial, and Territorial (FPT) ministers of agriculture. CAP prioritises investment in six areas: 1) science, research and innovation; 2) markets and trade; 3) environmental sustainability and climate change; 4) value-added agriculture and agri-food processing; 5) risk management; and, 6) public trust. It will also feature new programmes that facilitate regional collaboration among Canadian provinces and territories and strengthen the participation of women, youth and Indigenous Peoples in the agriculture and agri-food sector. Similar to GF2, CAP has three elements: 1) federally-delivered CAP activities; 2) FPT cost-shared programming delivered by Provinces and Territories; and 3) FPT cost-shared business risk management (BMR) programmes.

In September 2017, provisional application began for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Under the CETA, Canada established annual duty-free Tariff-Rate Quotas (TRQs) for cheese from the European Union. To help dairy farmers and processors to adapt to the anticipated impacts from increased cheese imports from the European Union, Canada has established two different programmes.

The Dairy Farm Investment Program (DFIP) supports Canadian milk producers to improve productivity through upgrades of their equipment. The programme will begin as a five-year CAD 250 million matching contribution programme with the dairy producers. The programme will encourage producers to make productivity enhancement investments, to improve equipment and herd management.

The Dairy Processing Investment Fund (DPIF) provides funding to dairy processors for investments that will improve productivity and competitiveness in the dairy sector. The programme provides non-repayable contributions to support projects through capital investment in equipment and infrastructure and access to expertise to engage private sector technical, managerial, and business expertise. The overall budget of the DPIF is CAD 100 million (USD 77 million).

Assessment and recommendations

• Over time, there has been an increasing emphasis on general service support to the sectors relative to farm income support through new programmes that target industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives.

• The dairy, poultry and egg sectors are protected from international competition and continue to receive high market price support. This distorts production and trade and acts as a barrier to entry into those supply-managed sectors, because high rents are capitalised in the value of quotas required to produce under the supply-management system.

• As a step towards phasing out the supply management, the available quotas should be increased in size and price support for the dairy, poultry and egg sectors should be reduced. This would encourage greater market responsiveness, stimulate innovation (to increase efficiency and diversify towards higher value products), and reduce quota rents.

• Stricter protocols and disciplines should be in place for programmes that provide budgetary support to mitigate farm income fluctuations. This would reduce potential pressure for additional support in situations where existing programmes suffice, and encourage farmers to find better ways to manage risk at farm level.

• The policy focus should continue to shift towards facilitating the adoption of innovation by targeting industry-led research and development, and marketing initiatives. This would contribute to the long-term objectives of improving the competitiveness and sustainability of the sector.

Figure 5.1. Canada: Development of support to agriculture

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to farmers (%PSE) has declined gradually over the long term. In the most recent period support has been around 10% of gross farm receipts, below the OECD average. The potentially most distorting support remains to be the largest share of producer support, due to market price support (MPS) to the dairy, poultry and egg sectors (Figure 5.1). The level of support in the most recent year remained almost unchanged, as a lower level of MPS was offsetting the increase in higher budgetary payments. The decrease in MPS results from a smaller price gap as domestic prices increased less than world prices (Figure 5.2). Prices received by farmers, on average, were slightly higher than world prices; large differences between commodities persist with the domestic price for milk being more than 80% above world prices. MPS is the main component of Single Commodity Transfers (SCT): milk has the highest share of SCT in commodity gross farm receipts (Figure 5.3). Overall, SCT represent 79% of the total PSE. The expenditures for general services (GSSE) measured relative to agriculture value added were above the OECD average. Total support to agriculture as a share of GDP has declined significantly over time. More than 70% of the total support is provided to individual farmers (PSE).

Figure 5.2. Canada: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 5.3. Canada: Transfer to specific commodities (SCT), 2015-2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 5.1. Canada: Estimates of support to agriculture

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Contextual information

Canada is a large, wealthy country with a small population relative to its area. Primary agriculture accounts for l.5% of GDP, but is important in some of its regions. Canada is a large net exporter of agricultural products, which account for 12% of total exports, and access to export markets is a significant issue for the sector. More than half of Canada’s agriculture exports are destined to the United States. Crop production is concentrated in the western prairies, where the typical farm is twice as large as the national average, highly productive and produces largely for export. Most milk production is located in Eastern Canada, which has relatively smaller farms and a larger variety of crops. Red meat industries (hogs and beef cattle) are present across Canada, especially in Western Canada.

Table 5.2. Canada: Contextual indicators

	Canada		International comparison
	1995	2016*	1995	2016*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	686	1 625	2.5%	1.9%
Population (million)	29	36	1.0%	1.1%
Land area (thousand km2)	9 094	9 094	12.2%	12.0%
Agricultural area (AA) (thousand ha)	67 994	65 256	2.5%	2.4%
			All countries analysed1
Population density (inhabitants/km2)	3	4	38	45
GDP per capita (USD in PPPs)	23 395	44 793	9 650	24 866
Trade as % of GDP	29	25	10.2	14.3
Agriculture in the economy			All countries analysed1
Agriculture in GDP (%)	2.9	1.5	3.0	3.1
Agriculture share in employment (%)	4.1	1.9	-	-
Agro-food exports (% of total exports)	6.8	12.0	7.7	7.3
Agro-food imports (% of total imports)	5.5	8.5	7.8	6.7
Characteristics of the agricultural sector			All countries analysed1
Crop in total agricultural production (%)	50	58	-	-
Livestock in total agricultural production (%)	50	42	-	-
Share of arable land in AA (%)	67	71	30	30

Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Canada enjoys a stable macroeconomic environment, with rapid recovery from the 2007-08 economic crisis and steady GDP growth since. Inflation rates have been below 2% since 2012. Recent changes in agro-food trade values mainly reflect commodity price fluctuations. Most of Canada’s agro-food exports are primary products for processing (around 37%), forming part of other country’s production system. On the other hand, agro-food imports are largely final products for consumption.

Figure 5.4. Canada: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

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Figure 5.5. Canada: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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Total factor productivity (TFP) growth is driving agricultural output growth in Canada. TFP growth averaged 0.8% per year between 2005 and 2014, below the world average. Annual output growth at 1.0% was also below the world average, achieved with less use of primary production factors, but higher use of intermediate inputs.

Canadian agriculture benefits from relatively abundant resources (e.g. land and water), and agricultural output growth has been achieved with minimal increased pressure on natural resources. Nutrient surplus intensities at the national level are close to the average for OECD countries, as are GHG emissions.

Figure 5.6. Canada: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

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Table 5.3. Canada: Productivity and environmental indicators

	Canada		International comparison
	1991-2000	2005-2014	1991-2000	2005-2014
			World
TFP annual growth rate (%)	2.75%	0.81%	1.60%	1.63%
			OECD average
Environmental indicators	1995	2016*	1995	2016*
Nitrogen balance, kg/ha	18	28	33	30
Phosphorus balance, kg/ha	2.0	1.3	3.7	2.4
Agriculture share of total energy use (%)	2.2	3.3	1.8	1.9
Agriculture share of GHG emissions (%)	8	8	8.5	8.5
Share of irrigated land in AA (%)	1.2	1.2	-	-
Share of agriculture in water abstractions (%)	9	6	45	43
Water stress indicator	1.3	1.0	10	10

Note: * or latest available year. EU treated as one.

Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Description of policy developments

Main policy instruments

Canada’s agricultural policy framework prioritises risk management and investments to enhance the sector’s competitiveness, marketing and trade, food safety, and research capacity. Since 2003, the main programmes and services have been delivered through joint five-year Federal, Provincial, and Territorial (FPT) agreements. The current FPT multilateral policy framework, called Growing Forward 2 (GF2), covers the period from 2013 to 2018.

Under the Canadian Constitution, federal and provincial governments share the responsibility for agriculture. The GF2 framework provides flexibility for provinces and territories to design and deliver programmes that respond to their regional priorities. In addition, provinces and territories can develop and fund their own agriculture programmes outside of this framework.

The GF2 framework has two main sets of programmes: a suite of Business Risk Management (BRM) programmes, which help farmers manage risks related to severe market volatility and disaster situations; and non-BRM Strategic Initiatives, which provide indirect support to the sector through investments in research and innovation, food safety measures, and market promotion.

There are five BRM programmes, cost-shared between the federal and provincial governments: AgriStability (a whole-farm margin programme providing support in years of significant income declines); AgriInvest (a government-matched producer savings account for moderate income declines or for making investments in farming operations to mitigate risk); AgriInsurance (providing coverage for production losses due to natural perils); and AgriRecovery (the FPT co-ordinated disaster relief framework). These four programmes provide protection against different types of losses, as well as cash flow options. The fifth programme introduced in GF2, AgriRisk Initiatives, supports the industry to investigate risk, develop and implement new tools as well as to engage the support and participation of the private sector.

GF2 also introduces three new federal Strategic Initiatives: the AgriInnovation programme (which supports investments in developing and commercialising new products and technologies); the AgriMarketing programme (which supports investments to increase industry adoption of food safety and traceability systems, and investments to create and maintain access to new markets); and the AgriCompetitiveness programme (which supports investments in increasing profitability in domestic and global markets). These programmes support investment in industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives.

Canada’s agricultural support policies differentiate between the supply-managed sectors, which are protected by high custom tariffs and oriented towards the domestic market, and other commodity sectors, which operate within an open market environment and are export oriented. A supply management system provides market price support to the dairy, poultry and eggs sectors through tariffs and production quotas that are tradable only within provinces, combined with a system of domestic price-setting according to production costs. The GF2 framework recognizes supply management as a BRM programme.

Most farm-level environmental programmes are designed and administered by provincial governments. Two programmes (cost-shared between federal and provincial governments) aim to advance environmentally sustainable agriculture: the Environmental Farm Plans (EFP) programmes and the Environmental Stewardship Incentive programmes. The EFP consists of an assessment of on-farm environmental risks, and the development of an action plan to mitigate those risks. The Environmental Stewardship Incentive programmes provide cost-shared financial assistance to farms with an EFP to adopt specific beneficial management practices, such as nutrient management, manure storage and soil erosion controls.

Canada ratified the Paris Agreement on 5 October 2016. Its Nationally-Determined Contribution (NDC) includes a commitment to reduce greenhouse gas emissions by 30 percent below 2005 levels by 2030. The Pan-Canadian Framework on Clean Growth and Climate Change (PCF) adopted in December 2016 is a comprehensive plan to reduce emissions across all sectors of the economy, accelerate clean economic growth, and build resilience to the impacts of climate change. There are three agriculture-related actions identified under the PCF: increasing stored carbon in agricultural soils to partially offset emissions from the sector; generating bioenergy and bioproducts to displace emissions in other economic sectors; and, advancing innovative GHG-efficient management practices to reduce agricultural emissions and emission intensity. Other measures include the Agricultural Greenhouse Gases Program which supports research to enhance the understanding and accessibility of agricultural technologies, beneficial management practices and processes that can be adopted by farmers to mitigate GHG emissions, and the Agricultural Clean Technology Program which targets bioeconomy innovation and adoption of precision agriculture technologies. A number of federal and provincial initiatives also support the development of bio-based industrial products, such as the Federal Eco-Energy for Biofuels initiative.

Prior to the expiration of the GF2 framework in 2018, Canadian federal and FPT ministers of agriculture reached an agreement on the core elements of the next framework agreement, the Canadian Agricultural Partnership (CAP). CAP will prioritise investment in six areas: 1) science, research and innovation; 2) markets and trade; 3) environmental sustainability and climate change; 4) value-added agriculture and agri-food processing; 5) risk management; and 6) public trust. It will also feature new programmes that facilitate regional collaboration among Canadian provinces and territories, and strengthen the participation of women, youth and Indigenous Peoples in the agriculture and agri-food sector. Similar to GF2, CAP has three elements: 1) federally-delivered CAP activities; 2) FPT cost-shared programming delivered by Provinces and Territories; and 3) FPT cost-shared business risk management programmes. The CAP launched on April 1, 2018.

Domestic policy developments in 2017-18

Federal level

Regarding grain transportation, the Government of Canada passed the Transportation Modernization Act in 2017 to advance the long-term agenda for a more transparent, balanced, and efficient rail system, which comes into force in 2018. The Act makes a number of changes to the “Canada Transportation Act” that should impact the movement of agricultural products, including Western Canadian grain. These include the ability to establish reciprocal penalties between railway companies and their customers. The Act also introduces a new provision called “Long-Haul Interswitching” (one railway company carries traffic for the other railway company) to increase competition. It also extends the Maximum Revenue Entitlement, a limit on the average revenue per tonne that can be earned by prescribed railways for shipping regulated grain to designated export positions, to encourage railway investment in infrastructure.

Within business risk management programmes, two new initiatives were established under the AgriRecovery framework:

• The Canada-British Columbia Wildfires Initiative provided financial assistance to British Columbia’s producers whose operations were affected by the 2017 wildfires. The programme provides assistance for the extraordinary costs related to livestock feed, health and safety, and assists producers with the costs to resume crop and livestock production and the re-establishment of related infrastructure. The programme provided approximately CAD 0.73 million (USD 561 000) in 2017.

• The Canada-Quebec Hail Assistance Initiative assists producers with the extraordinary costs associated with recovering from and mitigating the impacts of the 2017 hail events. The financial assistance contributes to land cleanup and repairs, planting a cover crop, and disease/nutrient management. No payments were made in 2017, payments are expected to begin in early 2018.

Two programmes were introduced to support investment in the dairy sector, following the implementation of CETA:

• The Dairy Farm Investment Program (DFIP) supports Canadian milk producers improve productivity through upgrades of their equipment. The DFIP began in the 2017-18 fiscal year as a five-year CAD 250 million (USD 192 million) matching contribution programme. The programme will encourage producers to make either small scale (less than CAD 60 000 ‑ USD 46 153), or large scale (up to CAD 250 000 ‑ USD 192 308) productivity enhancement investments, to improve equipment and herd management.

• The Dairy Processing Investment Fund (DPIF) provides funding to dairy processors for investments that will improve productivity and competitiveness to improve the dairy sector. The programme provides non-repayable contributions to support projects through capital investment in equipment and infrastructure and access to expertise to engage private sector technical, managerial, and business expertise. The overall budget for the DPIF is CAD 100 million (USD 77 million). The maximum funding available per Capital Investment project is CAD 10 million (USD 7.7 million) and CAD 250 000 (USD 192 308) per Access to Expertise project. The maximum amount an applicant can receive is CAD 10 million in total per year.

In 2017, a new partnership based Plant and Animal Health Strategy (PAHS) for Canada was created by partners from industry, FPT governments, academia, and other stakeholders as a comprehensive, effective and integrated system that prevents and proactively addresses plant and animal health risks. PAHS increases the focus on preventive risk management and more collaborative way of working among partners. For example, the PAHS will enable the Canadian Food Inspection Agency (CFIA) to facilitate the further development and implementation of national biosecurity standards in collaboration with producer organisations, provincial/territorial governments, and academia.

Provincial level

As part of risk management, British Columbia launched the 2017 AgriStability Enhancement programme to help producers who recorded income declines during the year. This enhancement programme allows agricultural producers to enroll late and without penalty into the existing AgriStability programme. For 2017, it also includes an increase of the compensation rate from 70% to 80% and the elimination of the maximum reference margin limit. British Columbia also made some changes to the AgriInsurance programme to better reflect the value of quality loss claims made by tree fruit growers. Cherry production coverage for 2018 is added to production insurance.

Manitoba is promoting the use of price risk management tools by livestock producers by making them eligible for a one-time interest rebate of 0.25% of the loan amount when they take out a loan through the Manitoba Agricultural Services Corporation and purchase a Western Livestock Price insurance policy.

Ontario is supporting the growth of small scale agri-food businesses on farms by giving more flexibility to municipalities to tax some activities at a lower rate than the commercial or industrial tax rate. The Ontario Edible Horticulture Support programme is being planned as a two-year initiative that will take effect in 2018. Eligible producers will receive payments based on their eligible net sales to help them to reduce financial risks and to improve their ability to better market and promote their products.

With regard to Environment and resource management, British Columbia updated its water regulations, following the Water Sustainability Act (2015) implemented in 2016. The Act includes the licencing of groundwater users. Existing users have until 1 March 2019 to receive a priority date based on first use. A new streamlined application process is in place. The province developed an agricultural water calculator that helps users estimate their annual irrigation or livestock water demand for a farm.

Through the Environmental Farm Plan, Manitoba introduced the Beneficial Practices for Species at Risk Initiative which supports the conservation of wildlife species at risk.

Ontario introduced a Soil Health programme that helps producers shift their focus from near-term yield increases to long-term stewardship of the soil and agricultural system such as reduced tillage, cover cropping and crop rotation. Ontario also introduced the Ontario Biogas Based Fuelling programme to show how agri-food materials and food waste can be diverted from landfill to generate additional revenue by producing renewable natural gas. Ontario proposed to amend its Ethanol in Gasoline regulation to increase ethanol blending requirements in gasoline from the current 5% requirement to 10%.

In the areas of food safety, quality and animal welfare, British Columbia updated its organics certification regulation to require all domestically produced and processed foods and beverages marketed in the province as organic to be certified through a federal or provincial programme from 2018 onwards. The province continued to support local producers by launching the Eat Drink Local campaign that connects local producers with restaurateurs and chefs who are developing menus that highlight locally grown and produced foods.

British Columbia updated and amalgamated two existing regulations related to poultry into a single regulation called Poultry Health and Buying Regulation. This regulation ensures breeder flock health continues to be monitored to ensure broiler chicks entering the system are appropriately healthy. Requirements are included for buyers of live poultry who process and sell poultry that operators are using appropriate preventive measures to prevent the presence, transmission or spread of notifiable and reportable diseases among breeding flocks.

In Alberta, the Goat RFID Technology Adoption Program encourages the use of Radio Frequency Identification (RFID) technologies in the goat industry to improve animal identification and herd management to enhance the integrity of Alberta’s traceability system for animal health, public health and food safety purposes.

Following the adoption of the new animal welfare law in Quebec, the provincial government is providing assistance to producers so that they can make their buildings and production facilities compliant with the new codes of practice and adjust to changing consumer preferences.

Trade policy developments in 2017-18

In September 2017, provisional application began for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). CETA provides for improved agricultural market access through tariff elimination for most agricultural exports, and through the establishment of tariff rate quotas for others. CETA provides for the establishment by Canada of tariff-rate quotas for cheese from the European Union. It also provides for the elimination of Canada’s milk protein substances tariff. There is no additional access provided for any other Canadian supply managed product (other dairy, poultry and eggs). Canada has established two different programmes to help dairy farmers and processors to adapt to the anticipated impacts from CETA, which are described under domestic policy changes.

Also in 2017, the Canada-Ukraine Free Trade Agreement came into force; Canada and ten other countries reached agreement on the core elements of a new agreement called the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP). Canada, the United States and Mexico began negotiations toward modernising the North American Free Trade Agreement (NAFTA). In addition, Canada launched negotiations toward a free trade agreement with the Pacific Alliance (Chile, Colombia, Mexico and Peru); agreed to launch exploratory discussions on a potential ASEAN-Canada FTA; and continued its efforts in engaging in exploratory discussions on whether to launch free trade negotiations with China.