The Politics of Agricultural Policy-making in Canada 9781487574703

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THE POLITICS OF AGRICULTURAL POLICY-MAKING IN CANADA

Agriculture has historically been a critical and sensitive area in the Canadian economy. Grace Skogstad presents a detailed study of how agricultural policy has been made in recent years at the federal and provincial levels. Three initiatives serve as the focus: income stabilization - a sphere in which the two levels share jurisdiction and responsibility; marketing of commodities - in which federal and provincial governments designate a national agency and provincial boards to act as their agents; and the transportation of western grain - a federal responsibility. The transportation of western grain, traditionally subsidized through the mechanism of the Crow's Nest rates, has been the cause of frequent controversy in Canadian politics. Skogstad provides an in-depth analysis of the long and painful process of 'revising the Crow' that preoccupied so many politicians and farmers through much of the 1970s and 1980s. From her three case studies emerges a well-defined analysis of the processes of policy-making and roles of the various participants. Skogstad illustrates the origins of federal-provincial as well as interprovincial disagreements. She considers the incentives which can lead governmental units toward a co-operative solution to their differences, and questions whether federalism has contributed to the problem of framing a coherent agricuhural policy. GRACE SKOGSTAD

Toronto.

teaches in the Department of Political Science, University of

GRACE SKOGSTAD

The Politics of Agricultural Policy-Making in Canada

UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

© University ofToronto Press 1987 Toronto Buffalo London Printed in Canada Reprinted in 2018

ISBN 0-8020-5728-4 ISBN 978-1-4875-8530-3 (paper)

Canadian Cataloguing In Publication Data

Skogstad, Grace Darlene, I 948The politics of agricultural policy-making in Canada Includes bibliographical references and index. ISBN 0-8020-5728-4 I. Agriculture and state - Canada. 2. Federal-provincial relations - Canada.• I. Title. IIDl787.S591987 338.1'871 C86-094963-X

This book has been published with the help of a grant from the Social Science Federation of Canada, using funds provided by the Social Sciences and Humanities Research Council of Canada, and from the Publications Fund of University of Toronto Press.

Contents

PREFACE vii

1 Introduction: Concurrent jurisdiction and shared responsibility 3 PART ONE: POLITICAL ECONOMY AND HISTORY 2

Canada's agricultural economy 15 3

Federal agricultural policy before 1970 38 PART TWO: SHARED RESPONSIBILITIES: THE 1970S AND 1980S 4

Stabilization 53 5 National marketing and supply management 84 6

Revising the Crow rates 121 7

Conclusion 157 APPENDIX: Tables 173 NOTES 187 INDEX 223

To my parents, Ellis and Muriel Skogstad

Preface

This work explores the impact of federalism on Canadian agricultural policy. It focuses on three issues that have particularly preoccupied agricultural officials and Canadian farmers since the 1970s: the transportation and handling of grain, including the Crow's Nest freight rates; national marketing plans and supply management in the poultry and dairy sectors; and stabilization of agricultural commodities. Within each of these areas, I examine the pattern of intergovernmental interaction, the degree of conflict and consensus, and the economic, political, philosophical, and institutional bases of conflict and co-operation. Major questions addressed include the following. Has the exercise of concurrent jurisdiction over agriculture led to more frequent interaction of federal and provincial governments? Has it led to more co-operation or greater conflict? How has the division of authority over marketing affected the goals of farmers in different provinces as well as the Canadian economic union? What are the effects of economic, ideological, and partisan factors on provincial and federal agricultural policies and on intergovernmental harmony? This book is a political scientist's perspective on agricultural policy. It is not the work of an economist, and it is not primarily a critique of federal agricultural policy. The book's main objective is to further our understanding of how political and economic factors have interacted to result in agricultural programs taking the form they have. When agricultural policies and policy-making are appraised, it is principally in order to shed light on their political consequences and only secondarily to assess their economic ramifications. Professional economists and agricultural producers are thus forewarned that relatively limited time is spent evaluating the merits and shortcomings of current agricultural programs. In preparing the book, I have benefited from the assistance of a number of people. Four people were particularly helpful in reading earlier versions of the manuscript and giving generously of their time for interviews and discussions:

viii Preface Dr A.W. Wood of the University of Manitoba; Dr Gerry Trant, former senior assistant deputy minister, Agriculture Canada; Dr George Pearson of the Saskatchewan Department of Agriculture; and Dr Earl Haslett of the Ontario Ministry of Food and Agriculture. At a later stage, I benefited appreciably from the comments of one reader for the Social Science Federation of Canada and another for the University of Toronto Press. Special thanks must also go to Gerry Sheehan at Media Monitoring in Agriculture Canada, who allowed me access to what must surely be the best collection of periodical and newspaper clippings on agriculture in Canada. Other people who allowed me to interview them and who made available valuable documents include: Ms Linda Coady of the BC Federation of Agriculture; Dr Christopher Gibbs, Mr Ian Carne, and Mr S. Peterson of the BC Department of Agriculture; Dave Stupich, former BC minister of agriculture; Dr Peter Meekison, former deputy minister of federal and intergovernmental affairs in Alberta; Mr Clark Ferries, Ms Francie Harle, and Mr David Tanner of the government of Alberta; Jijn Om Jijnsson of the Department of Agriculture, Dr Howard Leeson, former deputy minister of intergovernmental affairs, and Mr Doug Maley, director of marketing and economics in the Department of Agriculture, government of Saskatchewan; Mr James Downey, former minister of agriculture in Manitoba; Mr Eugene Whelan, former minister of agriculture, government of Canada; Mr Keith Matthie, former assistant to Mr Whelan; Dr Geoffrey Hiscocks, Department of Consumer and Corporate Affairs, government of Canada; Mr Bernie McCabe and Mr John McMurchy, Ontario Ministry of Agriculture and Food; Mr Fran~ois Dagenais and Mr Jean Garon of the Quebec Ministry of Agriculture and Food; Mr Benoit Lavigne, president, Regie de Marches agricoles du Quebec; Mr James Mayne, former president of the National Farmers Union; Mr Harry Fraser, member of the Eastern Canada Potato Producers Council; Mr John Murphy of the PEI Department of Agriculture; Mr Charley Gracey, general-manager of the Canadian Cattlemen's Association; Mr David Kirk, Secretary of the Canadian Federation of Agriculture; Ms June Menzies, chair, National Farm Products Marketing Council; Mr David Byer, legal adviser to the NFPMC; Mr Romeo LeBlanc, general-manager of the Canadian Chicken Marketing Agency; Mr Kenneth Crawford, general-manager of the Canadian Turkey Marketing Agency; Mr Doug Neil, Mr John Wise, Mr Charles Mayer, Mr Bill McKnight, Mr Bert Hargarve, and Mr Jack Murta, members of the national Progressive Conservative caucus; and Mr Vic Althouse, MP, Mr Bob McMullin, and Mr Nelson Coyle of the national New Democratic party. The work could not have been prepared without the kind assistance of these individuals. I am grateful, as well, for the financial assistance of the Donner Foundation and the University Council for Research at St Francis Xavier University. My family and friends have made an important contribution in boosting my

ix Preface spirits and furnishing transport and bed and breakfast. I would like to thank them, and especially Julia Eastman and Herman Bakvis who made many helpful comments on the penultimate version of the manuscript A very special thank you goes to my husband, Richard, for his unerring good sense in persuading me to persist in spite of interminable delays.

THE POLITICS OF AGRICULTURAL POLICY-MAKING IN CANADA

1 Introduction: Concurrent jurisdiction and shared responsibility

The 1970s and early 1980s witnessed a shift in the traditional roles of both provincial and federal governments in the making of Canadian agricultural policy. The redefinition and consequent expansion of their responsibilities became particularly evident in an increasing willingness to legislate and to spend in order to shield producers from the recurrent instability to which agriculture is prone. Motives for so doing varied from reaction to interest-group pressure to goals of province- or nation-building. With greater governmental participation, agriculture policy-making in Canada became marked by increasing intergovernmental interaction and a corresponding recognition of the need for more harmonization of policies and programs. Politicians and officials in the eleven provincial and federal departments of agriculture have 'generally' co-operated and consulted with each other 'to work out mutually acceptable policies and programs.' 1 Thus good relations have been the norm rather than the exception. However, agriculture has not been immune to the conflict and controversy which, as in other policy areas, accompanied increased governmental interaction in the 1970s. Intergovernmental controversy, like intergovernmental co-operation, has had an important effect on Canadian agriculture policy. This study examines actions of the governments of Canada and the provinces in the area of agriculture in order to shed light on the nature and pattern of federal-provincial relations in this field. The primary focus is on federal agriculture policy. Provincial programs that affect federal agricultural policy-making receive considerable, but secondary, attention, while those with minimal effect are disregarded. The study discusses policies with respect to three matters: stabilization of producer prices and incomes, marketing of agricultural commodities, and the western grain-handling and transportation system. The choice of these issues is guided by considerations of practicality and theoretical significance. Programs in

4 Introduction these three areas claimed a large share of the time, attention, and finances of agricultural policy-makers in the 1970s. From Agriculture Canada's perspective, expenditure and regulatory measures in these areas are major instruments for realizing targeted goals for agriculture. For their part, in 1978 the provinces identified the matters of transportation and farm-income stabilization as requiring 'immediate priority attention' and those of grain marketing, domestic and international marketing of agricultural and food products, and marketing boards as necessitating 'attention over the mid-term.' A quick glance at the farm press and indeed, the national press - confirms the continuing salience of these issues in the 1980s. Moreover, with respect to the prairie provinces, western discontent with the national government's grain transportation policy undoubtedly fuelled western discontent over the past decade and figured prominently in electoral politics in at least one provincial election campaign. 2 Focusing on issues that preoccupy politicians and citizens and that are currently a source of tension in Canada is therefore of practical importance. But there is considerable theoretical justification for these choices, as well. For students of federalism, the selection of these aspects of agriculture policy affords a unique opportunity to study the relationship between, on the one hand, constitutional and institutional structures and, on the other, the process and consequences of policy-making. It further offers a discussion of the links between institutional forms and national unity and economic integration. The three policy areas chosen enable a comparison of intergovernmental relations and policy-making in three different jurisdictional cases: in an instance of shared authority where each level of government may act independently, in the case of divided jurisdiction, and in a situation of exclusive (federal) authority. The British North America (BNA) Act of 1867 assigned the federal and provincial governments concurrent jurisdiction for agriculture. Provincial and federal governments may therefore act independently in their legislative, regulatory, and expenditure programs for agriculture, although section 95 stipulates that federal legislation will be paramount in the event of a conflict. The first area examined in this work - the stabilization of commodity prices and producer incomes - is an example of a policy area of joint authority, in which provincial and federal programs coexist. Mutually free to act, neither government is subordinate to the authority of the other. In another area, the marketing of commodities.jurisdiction is divided between federal and provincial governments. This division of authority is the consequence of judicial review and not of an explicit delineation of authority in the written constitution. The marketing of foodstuffs, the second issue of agricultural policy investigated in this study, is thus a sphere of mutual dependence, in which not only does each level of government have the ability to thwart the other level

5 Concurrent jurisdiction and shared responsibility from realizing its goals, but provincial governments can hamstring each other's marketing policy objectives. Other features of Canada's constitutional framework bear upon agricultural policy. Section 92.10.c of the BNA Act of 1867 allowed the federal government to bring 'works' - such as local railway lines or grain elevators - under federal authority, simply by declaring them to be 'for the general advantage' of Canada. In addition, sections 92.10.a and b, in conjunction with the 'Trade and Commerce' power in section 91.2, give the federal government authority to regulate interprovincial transportation. Under these powers, by 1935 the federal government had assumed control of the movement of grain across the country on a national transportation system and regulated its sale in interprovincial and export markets. The third aspect of agricultural policy discussed here, the western grain-handling and transportation system, is thus a policy field of federal independence. In this area of federal exclusive jurisdiction, the provincial role in policy-making is one of dependence on federal initiatives and expenditures. Agricultural policy, in particular the three aspects under scrutiny here, presents therefore a unique opportunity to examine how the division of governmental authority between two levels of government affects policy-making and policy outcomes in Canada. The question has been much addressed, with many observers arguing that the federal system substantially affects the way in which public policy is made in Canada as well as the nature of that policy. A survey of the arguments of the leading analysts, which are for the most part general and not confined to any specific policy area, provides a useful background for this inquiry into the impact of federalism upon policy-making. Students of our system describe contemporary Canadian federalism as characterized by the following features; strong and activist governments at both levels; considerable interdependence among governments owing to 'fuzzy lines of jurisdictional demarcation' 3 and overlapping of policy responses; extensive intergovernmental interaction to co-ordinate interdependent and overlapping activities; considerable competition between provincial and federal governments, notwithstanding the large degree of intergovernmental collaboration; and, finally, the emergence of provincial governments as claimants to the exclusive representation of territorially based interests. Many of these characteristics of current Canadian federalism emerge from the first feature: the fact that in the 1970s both federal and provincial governments were willing to 'deploy' their 'impressive array of jurisdictional, financial, administrative and political resources' in the pursuit of planned and comprehensive development strategies. As provinces embarked on what came to be described as 'province-building,' devising economic development strategies to

6 Introduction realize political goals as much as to further economic development, they challenged the federal government's justification of its political and economic predominance of earlier decades as requisite to nation-building. Federal policies were labelled interference by provincial governments anxious to eliminate external control and minimize extraneous influences.4 At the same time, governments at both levels found that the achievement of program goals depended on the co-operation of other governments - which were able to pursue contradictory policies or which possessed jurisdictional or financial levers necessary to the successful execution of a development strategy. While collaboration to achieve policy co-ordination seems logically inevitable, provincial and federal governments have taken unilateral actions to 'reduce the environmental uncertainty emanating from the conduct of other governments' for instance, by embarking on programs in a policy area vacated by the other level. There are compelling incentives for them to do so: 'the need to gain power, to enhance their status, and to maintain their political support.' In short, with both levels of government anxious to expand their reach, the struggle over who has authority to do what has put them in competition. To bring citizens on side in support of their jurisdictional position, governments have tended to playdown and query the legitimacy and representational capacity of the other level of government. In the 1970s this proved an effective tactic for provincial governments because of the widespread evidence that national institutions were incapable of effectively representing the interests of all regions. With the Liberal government lacking significant electoral representation in western Canada, the leaders of those provinces viewed themselves as having an 'almost exclusive franchise to be vehicles for the representation of [their area's] interest.' 5 This description of contemporary Canadian federalism includes the following portrait of the initiation, formulation, and implementation of policy. Where jurisdiction is shared, divided, or overlapping, policy formulation will be characterized by the simultaneous occurrence of intergovernmental activism, interaction, collaboration, and competition. With respect to the initiation of policy, Alan C. Cairns argues that governments will often take the lead rather than wait for citizens to urge action: 'In innumerable fields there is, in fact, an intergovernmental competition to occupy the field, and slackness by one level of government provides the occasion for a pre-emptive strike by the other.' 6 Where jurisdiction resides unilaterally with one government, the other level will not be quiescent but instead will actively press its interests - usually by assisting pressure groups with congruent aims. Policy implementation will be similarly characterized by a mix of intergovernmental co-operation and competition. Divided jurisdiction may make co-operation a legal necessity for effective regulatory policies, but that very division of legal authority may heighten conflict as governments

7 Concurrent jurisdiction and shared responsibility attempt to use their jurisdictional trump card to finesse other governmental players. But jurisdictional realities will not be solely responsible for intergovernmental competition and conflict As noted above, tensions will develop as a result of differences of two other kinds: the political interests of governments and the economic goals of their clientele. The clash between province-building and nation-building, often more aptly and vividly described as a power struggle, is essentially a dispute arising from the disparate political interests of governments seeking to augment their authority and legitimacy at the other's expense. Critics of province-building, fretful that it will undermine national unity and erode the federal government's capacity to manage the national economy, stress the motives of personal aggrandizement and electoral self-interest that lie behind the phenomenon. In contrast, Garth Stevenson links provincial policy activism and competitiveness to the political economy of Canada. The existence of regional economies, says Stevenson, ' increases the probability that a particular sector of the economy will be largely concentrated in one province and will exercise significant economic and political power within the province.' But if it is regionally concentrated it will likely not be of nation-wide importance, and the federal government may accord it relatively low priority. Not unnaturally, the economic group ignored at the national level will ally itself with the provincial government, which 'will become in a sense the spokesman of the class fraction concerned,' since placating that dominant local interest is important to the provincial government's political livelihood and, possibly, the province's economic wellbeing. As the provincial government responds to that dominant economic group, by formulating policies to advance its interests, it is likely to come in conflict with other provinces and, indeed, with the national government, which opposes provincial economic nationalism as contrary to the national economic interest in unrestricted interprovincial trade and economic interdependence across provincial borders. Donald Smiley concurs, stressing that provincial policy activism has come about because provinces are engaged in long-run economic development projects and come into conflict with other governments, the policies and actions of which impede the successful execution of their own projects.7 Alan Cairns argues that the potential for intergovernmental conflict has multiplied because both levels of government have intervened 'vigorously in the overlapping societies and economies under their jurisdiction in the pursuit of divergent grand designs.' In his words, 'In a federal state the displacement of the market generates intergovernmental conflict' because of the politicization and federalization of 'what was hitherto handled by the processes of markets and by nonpolitical decision makers.' 8

8 Introduction Intergovernmental discord surrounding national energy policy in the 1970s and 1980s lends support to Stevenson's thesis that intergovernmental relations and policy-making in Canada are affected significantly by the fact that Canada's economy is characterized by regional economies. The territorially specific location of oil and gas resources in Alberta and Saskatchewan, and the regional concentration of industrial and non-industrial consumers (principally in Ontario), made the conflict over domestic energy prices directly inter-regional: 'Producers seek higher prices and control over revenues; consumers seek lower prices and shared revenues. In the short-run it is a zero-sum situation, a gain for one region is a loss to another.' The internal divisions, says Richard Simeon, are 'sharpened' •as the transfers flow from one group of Canadians to another. ' 9 While national energy policy constitutes one of the most visible recent examples of disparate regional economic interests creating difficulties for national policy formulation, other examples include interprovincial differences of viewpoint with respect to regulation of foreign investment and trade liberalization. It is well known that the economically specialized nature of Canada's economy created tensions between the export-oriented resource-producing provinces and the domestically oriented manufacturing provinces. The cleavage that developed between the agriculturally dependent prairie region and the tariffprotected industrial centre has never completely disappeared since the National Policy was initiated in 1879. Prairie farmers, price-takers in international markets, resented the fact that as consumers of manufactured goods they bore the cost of higher-priced inputs produced outside their region. Stevenson argues that it was this perception of federal neglect of their concerns and federal championing of their opponents' interests that led western agricultural interests to align with provincial governments. Less attention has been directed to the potential for internal tension within Canada's agricultural industry. As chapter 2 will document, Canada's agricultural economy is one of regionally concentrated commodity sectors and, with one exception, of regional commodity specialization rather than diversification. The result of the 'fundamental differences' among Canada' s five agricultural regions, and of the conflicts of interest in trade policy between regionally grouped commodity sectors, is that the agricultural policy planner is confronted 'with such a variety of unique regional problems and opportunities that the formation and implementation of national policies and programs that apply equally well in all regions is difficult, if not impossible.' 10 The differences of economic groups that distinguish the political constituencies of federal and provincial authorities and that promote intergovernmental conflict are further accentuated by differences in philosophical and ideological

9 Concurrent jurisdiction and shared responsibility goals. The well-documented discrepancies in the political and cultural values of Canadians in various regions 11 inject another potential source of intergovernmental cleavage. Constrained by their own ideological beliefs, as well as by the preferences of their citizens, political authorities may fall into philosophical disputes about the appropriate scope and means of governmental action to redress problems. In summary, citizens in different provinces are often divided by their economic and ideological goals. Those disagreements may become elevated to the level of intergovernmental conflict in policy-making because governments possess the political motives and resources to champion particularistic interests. The contemporary policy-making process, wherein provincial and federal politicians and bureaucrats are the primary players in shared and overlapping policy fields, 'shape[s] the way policy issues are perceived, the manner in which they are debated and decided, and the nature of the outcome.' Two kinds of interests in particular are likely to be highlighted: territorially based interests and, often coincidentally, interests that further the political needs of governments. That is, groups whose interests can be equated with the entire province's well-being will receive foremost attention, since they are usually linked to the incumbent administration's political survival. The absence of regional representation in any of several national institutions - the federal cabinet being the most visible national decision-making forum - will mean that provincial politicians will find their own representational claims most credible when the issue affecting the given group can be defined as a territorial interest 12 Richard Simeon says that this means the issues that receive attention in federal-provincial forums are those that 'focus primarily on the territorial dimension.' Moreover, issues of federal-provincial debate will be defined by provincial spokesmen so as 'to accentuate the degree of internal unity, and to exaggerate the extent of difference with Ottawa, and to divert political conflict on to an external enemy. They are likely to stress issues in such a way that internal divisions are minimized, and to stress most those issues on which there is least internal disagreement.' However, the groups whose concerns are likely to be ignored where federal-provincial diplomacy is the predominant mode of policy-making are those whose boundaries are not coterminous with provincial and jurisdictional lines. Lacking a governmental authority motivated to champion them, the groups themselves may be frozen out of federal-provincial decision-making or rendered ineffective. While provincially based organizations are likely to enter into a symbiotic relationship with provincial governments, federally organized groups are beset with problems of internal disunity, policy incoherence, and insufficient

10 Introduction financing, all of which lessen their influence with federal decision-makers. They are likely to be ineffective at both levels in securing action when jurisdictional lines blur. 13 The possibility that the interests of narrow, special-interest groups will be promoted over those of nationally based groups gives rise to a second perceived outcome of a federal system of activist governments. This is the fear that federalism undermines national economic integration. Fragmentation of the internal economic union will occur to the extent that provincial governments respond to pressure from local special-interest groups to pursue policies in their interest, unmindful of such policies' extra-provincial consequences for national goals of economic growth and efficient resource allocation. Thus, it is argued, 'the more decentralized the federalism and the more fiscally autonomous are the provincial governments, the greater is the potential that the provinces will engage in mounting barriers to free trade.' The evidence, however, tends not to substantiate any 'direct association between federalism and the fragmentation of the internal economic union.' Internal barriers to trade are found in unitary states, and central governments that enjoy considerable constitutional scope in federal systems tend to exploit the few constraints on them to implement 'geographically distorting policies.' The debate as to whether the government of Canada has been selective in its response to economic groups, promoting only those economic interests that further its 'bureaucratic, partisan and electoral interests,' or whether it has and does respond to those economic interests that further 'the national interest,' has figured large in discussions of agricultural policy in the past and, as subsequent chapters will show, continued to do so in the 1970s. Data presented here on the national and the provincial governments' records in devising agricultural policies that are non-discriminatory in their regional effects allow recommendations in the concluding chapter regarding what is an increasingly salient issue in the mid- l 980s: the institutional and constitutional reforms that are necessary to avoid balkanization of the Canadian agricultural economy. 14 The inquiry into Canadian agricultural policy-making that follows focuses principally on the politics of agricultural policy-making in the 1970s and early 1980s. Key to understanding agricultural policy-making and its outcomes are the constitutional and institutional arrangements of Canadian federalism, the political economy of agricultural activity in Canada, and the pre-1970 legacy of national agricultural policy. The constitutional framework sketched in this introductory chapter will be further detailed in subsequent chapters. Chapter 2 presents detailed descriptions of the place of agriculture in the political economies of individual provinces and of Canada as a whole in the 1970s, by way of documenting the appreciable environmental differences that contain the seeds of producer

11 Concurrent jurisdiction and shared responsibility and intergovernmental conflict. The third chapter takes a cursory glance backward at the origins of the three policy fields examined in detail later. The impact of political and economic factors on pre-1970 federal policy is gauged, and the varying influence of producers and provincial governments assessed. This historical background provides a bench-mark against which to assess the novelty of federal-provincial relations in, and philosophical approach toward agricultural matters in the 1970s. Chapters 4, 5, and 6 assess directly the relation between contemporary Canadian federalism and policy-making specific to agricultural policy. To what extent does the general pattern of policy-making in the Canadian federal system hold true of agricultural policy-making in the 1970s and 1980s? Are provincial and federal governments equally active in this area? Are they engaged in a variety of collaborative and interdependent activities? Or do they lock heads in a competitive struggle to represent farmers? Is the language of federal-provincial debate couched in terms of 'territorial interests' and 'territorial politics'? Where conflict occurs, is it the result of genuine differences in the political economies facing governments? Or is conflict less the result of substantive policy differences occasioned by different constituents' needs and rather more an 'intergovernmental jockeying for status and prestige?' 15 And what about the agricultural programs that result from this policy-making process? Do they favour territorially based groups at the expense of non-territorial interests? The answers to these questions, as summarized in individual chapters and in the conclusion, allow for more general conclusions in the final chapter on the inter-relationship between contemporary federalism and Canadian agricultural policy. In addition, the concluding chapter speculates about institutional and constitutional reforms to overcome perceived obstacles of inequities and inefficiencies in Canadian agricultural policy.

2

Canada's agricultural economy

Canada's agricultural economy is a series of regional economies. Agricultural sectors tend to be regionally concentrated: grain and oilseeds on the prairies, the dairy and poultry industries in central Canada, and potatoes in the two Maritime provinces of New Brunswick and Prince Edward Island. Sectoral concentration tends to lead to provincial or regional dependence on a few commodities. For example, Saskatchewan's agricultural industry is highly dependent on grains, Quebec's on dairy products. Despite this tendency, other structural features of Canada's agricultural industry create the potential for tension among producers in different provinces and regions. There are important differences of interest among producers across sectors and within sectors. Across sectors, there is a difference of orientation and interest between those sectors, like grain and livestock, that are export-oriented and those, like dairy and poultry products, that rely on the domestic market to absorb the bulk of their output. A second intersectoral difference is that between seed grain and livestock; competition arises, with the grower of feed grain seeking high feed prices for his crop and the livestock producer desiring low-cost feed for his animals. Within some sectors, like hogs and livestock, there is competition among producers who are seeking the same market outlets but who face differences in their comparative advantage. Such intraand intersectoral differences of interest among producers give rise to interprovincial and inter-regional tensions, owing to the regional concentration of commodity production or, where production is spread out nationally, because of regional differences in the relative competitiveness of producers. At the national level, these structural features of Canada's agricultural economy necessitate trade-offs and compromises in agricultural policy formulation. Federal-provincial tensions arise from producer and provincial government dissatisfaction with these tradeoffs. More often, however, they grow out of the differing priority placed on agriculture, and variations in the philosophical approach to it, by governments at two

16 Political economy and history levels. The discussion that follows documents the structural roots of conflict in agricultural policy, by presenting an overview of Canada's most important commodity sectors, describing the regional agricultural economies, and outlining the political environments within which provincial and federal agricultural policy is made. SECTORS

Grains Wheat is Canada's single most important agricultural commodity; it accounts for over one-quarter of farm cash receipts (Table 1) and returns around $2 billion annually in export sales to make it the number 1 agricultural export. 1 About 75 per cent of prairie wheat is exported. The remainder is disposed of domestically, in roughly equal proportions, to the flour and animal-feeding industries. The Canadian Wheat Board sets the price at which Canadian wheat, oats, and barley are sold in export markets. The United States is the world's largest wheat exporter, and Canada accounts for only 20 per cent of the world's wheat exports. Hence, the price of Canadian wheat is effectively set by the private grain traders who market most of the us and the world' s grain. Since 1973 there have been minimum and maximum price levels on Canadian domestic wheat sales to millers. Second only to and interchangeable with wheat in terms of its production requirements of land and machinery is barley, Canada's most important feed grain. In the mid-1970s, barley exports were about one-third the volume of wheat exports. Barley is the only feed grain that is exported extensively. 2 Ninety-five per cent of Canadian barley is produced on the prairies, 45 per cent in Alberta alone. Surplus prairie feed grains (barley, oats, and rye) find market outlets domestically as well as internationally. Unlike wheat, which is principally exported, over the 1970-4 period, the largest percentage of barley was used domestically, as animal feed (57 per cent), followed by export sales (35 per cent). About two-thirds of prairie-produced feed grains are fed to livestock on the prairies. 3 The surplus is transported at subsidized freight and storage rates to the deficit-feed-grains areas of Quebec, the Maritimes, and British Columbia, where it is fed to dairy cattle, swine, and poultry. While Canada enjoys a substantial comparative advantage in the production of barley, that advantage is dampened because the world demand for feed grains is principally for com. The United States, with a substantial comparative advantage in the production of com, dominates world production of this feed. Thus Canadian barley competes with us com for the markets of Japan, Italy, and the

17 Canada's agricultural economy United States. Since the price of us com (and soybeans, a nutritive substitute) influences all feed-grain prices around the world, both the export and domestic price of Canadian barley must be competitive with the price of American com on the Chicago Board of Trade. Feed grains have been marketed domestically since 1974 by both the Canadian Wheat Board and the private grain trade. Since 1976, the price at which the Wheat Board has offered barley for sale at Thunder Bay has been set to be equivalent to the landed price of com in Montreal. (This 'com formula price' is the price of the unit of corn and soybeans that would provide the same nutritive value as a bushel of barley.) When supplies of feed grains are plentiful, as they were between 1976 and 1979, the actual price is established on the basis of domestic supply and demand, with the Canadian Wheat Board price acting as a ceiling. The price of barley in both eastern and western Canada is then principally established by the ninety-day advance futures price on the Winnipeg Commodity Exchange, which in tum is affected by the export price that the Wheat Board quotes for feed grain, the domestic Chicago com formula price at Thunder Bay, and the relative local demand. Differences in transportation costs and in elevator, handling, and administrative charges will result in price discrepancies between eastern and western Canada. The fact that most feed grains (about 77 per cent) are used within the province of production as animal feed and seed creates an interdependence between the grains sector and the livestock, hog, poultry, and dairy sectors throughout the regions and provinces. High feed-grain prices create a potential conflict between the two sectors, creating higher costs (and hence lower incomes) for the farmer feeding that grain to livestock, swine, and poultry. Unless the farmer raises barley or oats to feed to his own livestock herd, the different needs of the two commodity sectors act as a constraint to the regional unity of the two groups of farmers. In addition, inter-regional dependence between prairie feed-grain growers and Quebec dairy, hog, poultry, and cattle producers can result in tensions between producers in these two regions. When supplies are plentiful, western Canadian feed-grain growers need eastern Canadian consumers. However, the opportunity for Quebec farmers to substitute American com for western barley acts as a price-setting mechanism for western barley and oats. And when feed-grain supplies are tight, the obligation to serve the domestic market first means that export outlets and possibly higher prices must be given second priority. The other major grains produced on the prairies are oilseeds, principally rapeseed and flaxseed. In 1978, exports of oilseeds and oilseed products placed third in importance (behind wheat and cattle) and comprised 13 per cent of the overall value of agricultural exports (Table 2). Oilseeds accounted for 1~11 per cent of total farm cash receipts in each of the three prairie provinces (Table 3).

18 Political economy and history

Canadian rapeseed and flaxseed account for 20.5 per cent and 18.6 per cent of world production, respectively. However, Canadian prices are effectively set by the price of the major American oilseed- soybean- which constitutes 56 per cent of total world oilseed and oilseed meal exports. 4

Cattle The cattle industry competes closely with grain in terms of importance. Almost as many farmers reported cattle as their principal product in the 1976 census as reported wheat, and in 1977 cattle sales actually accounted for a relatively larger share of total farm cash receipts (Table 1). Indeed, if one includes processing and merchandising, as well as production, then beef is Canada's most important agricultural product. 5 About 7~80 per cent of the beef-cow herd is found on the prairies: 37 per cent in Alberta and 28 per cent in Saskatchewan in 1975. While the prairies have over half the total slaughter of beef, they have only 16 per cent of the Canadian population. Western Canadian cattle and beef find their way to domestic consumers in Ontario and Quebec through two routes. First, feeder cattle (2~700 pounds) and yearlings move by rail to Ontario feedlots, where they are fed corn until heavy enough to slaughter. 'About two-thirds of the feeder cattle that go into Ontario feedlots originate in western Canada'; in 1976, this entailed between 300,000 and 500,000 cattle moving to Ontario feedlots from Alberta and the other two prairie provinces. Second, cattle between 700 and 1,000 pounds were slaughtered on the prairies and their carcasses shipped by rail or truck to Montreal. The Montreal market is the largest market for western Canadian slaughtered beef; 6~65 per cent of it is filled by carcasses from Alberta and 25 per cent from Manitoba and Saskatchewan. Weekly shipments from Alberta in 1976 amounted to about 40 per cent of Alberta's average weekly slaughter: 10.~12.000 carcasses.6 In addition to the Ontario outlet, the other major market for western feeder cattle is the United States. While Canada consistently exports more live cattle to the United States than it imports, live slaughter cattle and meat products enter Canada from the United States. Given low tariffs on imported beef and meat products, the price of Canadian beef is determined chiefly by the larger American market, although the grading system in Canada does tend to neutralize some of the effects of the us market 7 The Toronto price fluctuates around the price set at Omaha, plus or minus freight The major factor determining whether the Canadian beef producer will be competitive with the American rancher is the respective costs of their feed- barley in Canada and corn in the United States. Hogs

Pork production is primarily oriented to the domestic market, although exports to Japan have recently increased. Hogs are produced in all regions; however, over

19 Canada's agricultural economy the 1970s, production shifted from western Canada to eastern Canada, with a significant expansion occurring in Quebec. In 1971, 46 per cent of total production took place in western Canada, 30 per cent in Ontario, and 20 per cent in Quebec. By 1979, the west's share of total production had dropped to 29 per cent, while Ontario's had risen to 34 per cent and Quebec's to 34 per cent, as well. 8 There is little interprovincial trade in live hogs, but some in slaughtered pork. It is estimated that 10-15 per cent of the hogs produced in western Canada are shipped to eastern markets. 9 Quebec and Ontario are the centres of pork slaughter and processing; two-thirds of pork (by value) is consumed as processed products. While the prairies generally enjoy the advantage of local feed-grain supplies (the major input cost along with protein supplements), the fact that grain growers may concentrate on cereal production rather than feed grains tends to limit hog production in the prairie region and to inject instability into the industry. In addition to the advantage of proximity to Canadian and American consumer markets, hog producers in Ontario and Quebec benefit from federal assistance in procuring western feed grains and ready access to American and Ontario com. Hog production and prices tend to be characterized by a three- to four-year cycle. The cycle is the result of 'the lag in producer expectations concerning the performance of changes in hog prices and feed costs (or the hog-barley price ratio) and the biological lag between a decision to change production in line with the expected prices and the time that hogs are ready for market' 10 The volume of hog production varies during this cycle as western Canadian farmers move in and out of hog production, according to the relative attractiveness of cereal (wheat) production and the production of feed grains. (The latter is affected by fluctuations in the supply and price of feed grains.) Price swings inevitably result and are compounded by the fact that the prices of Canadian hogs are very much affected by the much larger American market and international variations in grain prices. The normally ready flow of fresh and processed pork across the Canadian-us border (tariffs are low) causes Canadian pork prices to track American prices closely. While most Canadian provinces have established hog marketing boards with varying powers to negotiate prices with buyers, the open border acts as a major constraint to price negotiations. Fluid and industrial milk In 1976, the dairy industry accounted for approximately 19 per cent of total farm income in Canada. Further, 'Milk processing ranks second in the food industry to slaughter and meat processing.' 11 Canadian dairy farmers produce for the Canadian market; the only exports are skim milk powder and cheese. The dairy industry is divided into two sectors: fluid milk and industrial (manufacturing) milk. The former sector is more technologically advanced, with larger herds and greater productivity. Smaller herds and more seasonal

20 Political economy and history production have returned lower incomes to manufacturing-milk producers, that is, to producers of milk for processing into cheese, butter, skim milk powder, and other dairy products. In Canada as a whole, about 50 per cent of milk production is for the fluid market; there is some excess production that goes to the industrial market Milk production is concentrated in central Canada: Quebec contributes 39 per cent and Ontario 36 per cent of total production. These two provinces, along with the Maritimes, have the land base best suited to dairy farming. Nonetheless, the Maritimes produce only 4 per cent of the total; this compares with 15 per cent for the prairies and 4 per cent for British Columbia. The fluid milk requirements of each province are generally filled by local producers. There are, however, significant provincial differences in the relative importance of the fluid and industrial milk sectors. While British Columbia and the Maritimes are primarily fluid markets, the industrial sector is slightly more significant than the fluid sector in Ontario, and appreciably more so in Quebec: 75 per cent of Quebec milk production is for industrial purposes. 12 Variations in the relative importance of the two dairy sectors create sharp cleavages in the industry from province to province. British Columbia dairy farms tend to have the largest herds and highest yields; Quebec dairy farms, the smallest herds and lowest average milk yields.13 There are thus appreciable interprovincial differences in the efficiency of dairy producers. Prices of both fluid and industrial milk are administered in Canada, the former by provincial milk boards, the latter by the federal agency, the Canadian Dairy Commission (CDC). The pricing of fluid and industrial milk is inter-related: fluid milk producers can market their excess milk as industrial milk. While fluid milk prices are generally $1 to $1.50 per hundredweight more than industrial milk prices, the margin tends to be consistent and rarely higher. The viability of the industry is dependent upon, first, restricting production to consumer demand at an administered price and, second {and less crucially), competing with lower-cost foreign cheese and skim milk powder. The ability to limit production has historically been difficult because of ample supplies of land suited to dairy production in eastern Ontario, Quebec, and the Maritimes. In addition, it is difficult to make marked short-term changes in milk production on an individual farm (and hence in the industry as a whole) because of the three-year cycle from the birth of a heifer calf to milk production and because a cow produces milk every day over a 300-day lactation period. This major problem of controlling supply has led to a national market-sharing quota system among Canadian provinces that attempts to balance the supply of milk with the demand for milk products. However, difficulties remain in estimating consumer demand: there were important changes in consumption patterns of dairy products in the 1970s, and demand for butter and cheese is especially price-elastic.

21 Canada's agricultural economy The CDC seeks to ensure dairy producers a reason ab le return on their operations by administering prices. None the less, rising feed costs, escalating land values in three major dairy producing provinces (Ontario, Quebec, and British Columbia), and increasing labour costs in the 1970sposed threats to income adequacy. While most developed countries have introduced measures to balance the national supply and demand for milk products, about 10 per cent of the world's production of cheese, 15 per cent of butter, and 30 per cent of skim milk powder are traded internationally. Cheese imports to Canada exceed the value of cheese exports by 3 to 1. In terms of major competitors, Canada has some advantages over western European countries (because of the relative price and availability of feed grains), but since Britain's entry into the European Community (EC), this market has diminished. Generally less favourable climatic conditions make cheese, butter, and skim milk powder more costly to produce in Canada than in Australia or New Zealand. The federal government has assisted dairy producers by restricting imports, subsidizing exports, and purchasing surplus dairy products. The limiting of imports is consistent with protective actions of the United Stales and EC countries to insulate local dairy products from the world market. Poultry and eggs

The distribution of poultry and egg production across Canada is in almost even proportion to population. The exceptions are a deficiency in eggs and turkeys in Quebec, a surplus in eggs in Manitoba, and a surplus in turkeys in the prairies and Ontario. Ontario and Quebec each produce over 35 per cent of total broiler production, and Ontario accounts for about 40 per cent of all turkey marketings, as compared with around 28 per cent for Quebec. 14 The poultry processing industry is not as widely dispersed, being concentrated in Ontario and Quebec. Regional differences in the costs of producing eggs and poultry meat occur among Canadian producers because of differences in the input costs of their land and feed ( 60--70 per cent of poultry production costs) and in transportation costs (especially for Manitoba farmers). The fact that the United States is the largest poultry producer in the world, with the ability to produce cheaper poultry products (owing to economies of scale, cheaper wages, and a better climate), subjects Canadian egg and poultry meat producers to lower-priced American imports. 15 In 1975, Canada was a slight net importer of processed and shell eggs but a significant importer of fresh and frozen poultry meat, with the value of imports of the latter being almost twice that of exports. The implementation of supply management schemes for poultry products in the 1970s provided a partial bulwark against American imports. Imports continue, however, since Canadian processors periodically need American supplies and multilateral tariff agreements require a phasing-in of import quotas over a period of time.

22 Political economy and history Fruit and vegetables Climatic conditions restrict the production of fruit and vegetables to Ontario, British Columbia, and Nova Scotia. The problems that beset the industry are those to which poultry producers are prone- the availability of lower-cost American products. Growers of fruits and vegetables are offered security from the distress selling of American fresh produce during the peak harvest season by seasonal duties. Canadian dependence on exports is appreciable; Canada produces only 30 per cent of its fruit and 60 per cent of its vegetable requirements. The increase in imports of fresh and processed fruit and vegetables in the 1970s did much to reduce Canada's favourable balance of trade in agricultural commodities. Thus, in 1974, imports of fresh fruit and vegetables were valued at $535 million, compared to $56 million for exports. Imports of processed fruit and vegetables cost $257 million, while exports yielded $37 million. 16

Thus, within and across regions, there are differences in each province's agricultural industry. These include the contribution of agriculture to each province's economic well-being, the extent of diversification or specialization of the agricultural industry, and the vulnerability of key crops and the agricultural sector as a whole. REGIONS

The prairies The prairie region constitutes the production core of the Canadian agricultural system. 17 Slightly less than one-half of all Canadian farms are located there, and the region's two most important commodities, grains and livestock (Table 3), are also the two most significant national commodities in their contribution to total farm cash receipts (Table 1) and value as exports (Table 2). Ninety-eight per cent of Canadian wheat is grown there. The region is highly dependent on external markets - other countries for wheat and both domestic and foreign consumers for livestock. With respect to the latter, in the absence of government subsidies western Canada enjoys an advantage, relative to other Canadian regions, in beef production. This advantage derives from its inexpensive grazing land and the abundance of forage and feed supplies. The importance of agriculture to the economy of Saskatchewan is clear. There, the farm population comprises a larger part of the total population (21 per cent in 1976) than in any other Canadian province. Appleton has estimated that in 1971 the agricultural and food system contributed 85 per cent of the province's gross national product (GPP). 18 While that figure declined over the 1970s as the value of potash and uranium increased, the Saskatchewan government none the

23 Canada's agricultural economy less continues to view agriculture as the mainstay of the provincial economy. Saskatchewan's agricultural industry is highly dependent on wheat, the province's most important commodity and the major source of income for twothirds of its farmers (Table 3). Just under three-fifths of total farm cash receipts are derived from wheat sales. The province's second most important commodity is livestock. Agriculture is Alberta's fourth-largest economic sector, after energy, construction, and manufacturing. One-quarter of the labour force is engaged in farming and agriculture-related (meat packaging and processing) industries. Food processing is the largest manufacturing sector. Thus, despite the vast wealth that accrues to the province from sales of oil and gas, the declining contribution of agriculture to the provincial economy (from 10.5 per cent in 1961 to less than 5 per cent in 1979) and the closing of meat-packing plants in the late 1970s and early 1980s were a source of concern to the province. 19 This was especially worrisome because the livestock industry is Alberta's largest agricultural sector. As Table 3 shows, barley is also key to Alberta's agricultural economy: it is the principal product of 28 per cent of Alberta farmers and the major crop input for the 38 per cent of Alberta farmers who raise cattle. The third prairie province, Manitoba, which lacks Alberta's oil and gas, and Saskatchewan's potash and uranium, is highly dependent on revenues from the sale of farm products. Grains (wheat, oilseeds, and barley) and cattle are the most important commodities. The province's agricultural industry is more diversified than that of its prairie neighbours, and dairy and poultry producers enjoy the price protection afforded by supply management. But the province's distance from consumer markets and the resulting input costs, higher than those in central Canada, tend to dampen that advantage. The fact that the non-agricultural resource sectors of the province (forestry, hydro, minerals) are not as lucrative sources of provincial revenues as are oil and gas means that the provincial government does not have the same capacity to spend on behalf of producers as do the other two prairie provincial governments. Central Canada The consumption core of the Canadian agricultural and food system is Ontario and Quebec. Proximity to markets helps to make these provinces the centre of dairy production and a key area of poultry production. In addition, 45 per cent of horticultural production (fruits and vegetables, ornamentals) and 60 per cent of processing takes place in Ontario. And, as previously noted, over two-thirds of pork production is concentrated in Ontario and Quebec. Ontario has more farms than any other province, and its agricultural system is the most diversified and self-sufficient in Canada. Fully one-quarter of all

24 Political economy and history Canadian farms are located there. The largest single source of farm cash receipts in Ontario is the sale of milk; in 1977 it accounted for one-fifth of the total, with cattle and calves together contributing slightly more (see Table 4). Sales of poultry and eggs contributed 10 per cent, as did hogs; horticultural crops, despite their large contribution to Canadian production, made up a smaller proportion of Ontario farm receipts. None the less, the total of all crops - including cattle, feed (com), and industrial crops like sugar beets and tobacco - made up more than one-quarter of the value of Ontario farm production. Livestock, dairy, and poultry producers in Ontario tend to have several advantages over their counterparts in other provinces. Besides having proximity to the market, they are blessed with more fertile soil, a relatively mild climate, and self-sufficiency in feed grains (including com). Quebec agriculture, in contrast with Ontario, is heavily reliant on a single sector. As Table 4 shows, for almost two-thirds of Quebec farmers milk is the principal product; almost one-half of total farm cash receipts come from sales of dairy products. Other principal commodities are hogs, poultry, and cattle. Quebec' s agricultural sector is vulnerable in a number of ways. First, its reliance on dairy products, at a time when demand for milk products appears to be falling throughout Canada, is worrisome. Quebec produces more industrial milk than it needs and therefore requires an external market to consume the surplus. Second, dairy, hog, and poultry producers depend on ' imported' feed grains to a considerable extent. Despite a massive increase in production of feed in the province, Quebec is now only about 35 per cent self-sufficient in this most important component of production costs for livestock, poultry, hogs, and dairy animals. And third, considerable vertical integration in the poultry, egg, and hog industries has made family farmers anxious about their lessening autonomy to make decisions regarding production and marketing.20 Throughout the 1970s, and with a concerted boost from the provincial government since 1976, Quebec's agricultural industry struggled to reverse the decline that began after 1941. The inferior climate and soil place producers at a general disadvantage vis-a-vis Canadian farmers as a whole. In addition, the capitalization and consolidation of farm units in the 1960s left Quebec farmers heavily in debt; when product prices fell over a series of years, so many farmers left farming that in 1976 Bernard Bernier described agricultural production in Quebec as 'endangered.' The dairy industry was salvaged by a federal dairy program of price supports after 1966, but even today incomes of Quebec farmers are highly reliant on non-farm cash sources and are, on average, the second lowest of any Canadian region. Quebec's share of the total value of Canadian agricultural production dropped from 13.9 per cent in 1970 to 10.3 per cent in 1976. Within the province, the importance of the industry, in terms of numbers employed and value added, declined over the period 1961-75.21

25 Canada's agricultural economy The Maritimes and Newfoundland The dairy and cattle sectors are important to all three Maritime provinces. Potatoes are a vital commodity in Prince Edward Island and New Brunswick, where they account for two-fifths and over one-third, respectively, of total farm cash receipts (see table 5). Fruit and vegetable products are the most important source of farm income for about 14 per cent of Nova Scotia farmers. The relatively greater health of Nova Scotia's agricultural economy, as compared to that of Prince Edward Island or New Brunswick, is attributable in part to the greater diversity of foodstuffs produced there. Also of key importance is the income protection afforded the largest sector, the dairy industry, by administered pricing and by the pricing of poultry and eggs by national marketing boards. Producers of fruits and vegetables, however, encounter problems similar to their Ontario counterparts, and in addition they must rely on consumers in foreign countries to absorb excess production, especially of apples. The agricultural economies of New Brunswick and Prince Edward Island are vulnerable in a number of ways. Potato producers are beset with marketing problems and fluctuations in production levels (arising from climatic factors). They depend on the international (us) market to absorb about one-third of production but find themselves at a competitive disadvantage relative to Maine producers. At the same time, the vertical integration in the industry, 22 plus the lack of a regional supply management scheme and/ or marketing board, has reduced their ability to bargain for higher prices. The high transportation costs incurred in shipping to distant consumer markets in Toronto and Montreal reduce the region' s competitiveness vis-a-vis producers in Ontario and Quebec, who were successful in expanding production in the late 1970s. This has further squeezed Maritime potato producers' profits. A second problem is that producers of other major commodities - cattle, hogs, poultry - are dependent on feed grain or corn imported from western Canada or Ontario. While cattle and hog production has been increasing, it is contingent upon the Federal Feed Freight Assistance program, since, without subsidized feed supplies, only a limited volume of livestock production is possible. As a result of the disadvantages experienced by Maritime producers, agriculture as a whole is relatively undeveloped compared to western Canada and Ontario. The land base is static in terms of total farm area, improved acreage is declining, and farms are smaller and less capitalized compared to those in Canada as a whole. The result is that farm incomes in all three provinces lag behind national averages and farmers are more dependent on income earned off the farm than elsewhere in Canada. Potato farmers in New Brunswick and Prince Edward Island are particularly plagued by low and unstable incomes. 23 The agricultural industry in Newfoundland is not a significant part of the provincial economy, representing less than 1 per cent of the GPP. Local farmers, who

26 Political economy and history comprise less than 2 per cent of the population, supply about 25 per cent of local consumer demand for agricultural products. A number of factors drive up costs of production and limit output: unsuitable soil and physical resources; a poor climate; and small marginal farms lacking the capital needed to become more efficient and viable, and operated by farmers without farm management skills and uninformed regarding modem production technology. In addition, the isolation of farms from local markets is a further constraint to expansion of Newfoundland agriculture. With no provincial stabilization program and little financial support forthcoming from the provincial government, Newfoundland farmers find their fortunes appreciably affected by two federal programs: the Feed Grain Freight Assistance policy and a Canada / Newfoundland Agriculture Development Subsidiary Agreement. British Columbia Milk production is the largest single source of farm income in British Columbia. It accounts for almost one-quarter of total farm cash receipts (see Table 6). Cattle and calves are next in importance, followed by poultry, fruits, hogs, and eggs. When farmers are classified by product type (according to the product whose sales make up 51 per cent or more of a particular farm's total sales in 1976), cattlemen were the largest single classification, followed by fruit and vegetable growers by a ratio of about 3 to 2. Thus agriculture as a whole is quite diversified, but individual farms are highly specialized, frequently relying on a single commodity as an income source. Those farms that are highly capitalized and that have a commodity that is administratively priced (dairy, eggs) return to their operators an income as large as that earned elsewhere in Canada. Specialization means also that the majority of BC farmers, who are producing commodities not protected by price guarantees (livestock, fruits), are highly dependent for their income on sources other than farm cash sales.24 Problems faced by BC producers as they attempt to achieve goals of stable and adequate incomes include: higher-than-average production costs as a result of transportation costs in moving cattle from the interior to other provinces to be finished and in transporting fruits from the Okanagan Valley to markets in other provinces; high land values (as a result of a limited agricultural base and speculation on agricultural land for residential and developmental purposes), which not only drive up production costs but also make it difficult for young farmers to enter farming; and competition from lower-priced American fruit and vegetables which hit the market earlier than BC produce. All these factors reduce the ability of BC farmers to compete in the Canadian and American markets. The industry is vulnerable to developments outside its borders: the poultry, egg, dairy, and hog sectors depend on feed grains from the

27 Canada's agricultural economy prairies; cattle producers ship most of their beef calves to Alberta for finishing; and the future of the tree fruit industry is in jeopardy because of 'the highly capitalized land and operating costs, together with the fact that since the fruit must be transported long distances to market it is subject to costly grading, packaging and storage services to preserve its quality until it reaches the consumer.' 25 In summary, provincial agricultural systems differ in terms of their importance to the provincial economy as a whole, significant commodities, viability, and dependence on domestic and foreign markets. Thus provincial governments respond to communities with differing needs and interests and with varying influence within each provincial society. Interprovincial tensions can be expected to develop to the extent that provincial governments' actions on behalf of their agricultural clientele harm producers in another province. At the level of federal-provincial relations, the structural differences in provincial agricultural economies mean that the federal government is confronted with varying needs and interests from province to province. In deciding which interest it will respond to and which it will promote in the event of a conflict, it may favour producers in one province at the expense of those in another. Should it fail to give agriculture the attention that producers and agriculturally reliant provinces believe it merits, it runs the risk of being charged with abdicating its responsibilities. Should it implement policies contrary to those requested, it will also incite producer complaints and possibly occasion federal-provincial conflict. THE POLITICIZATION OF AGRICULTURE IN THE l 970S

Several factors combined to raise the profile of agriculture in the 1970s and to politicize agricultural policy-making. The heightened public attention to agriculture, the resolution of issues in the political arena rather than in non-political bodies, and there, at upper decision-making echelons, 26 were consequences of the political mobilization of producers in the wake of the publication of Canadian Agriculture in the Seventies and the altered domestic and international economic context at the tum of the decade. Political challenges to federal and Liberal party predominance also played a role in politicizing agricultural issues.

The Task Force Report The publication in late 1969 of Canadian Agriculture in the Seventies, the report of the Task Force commissioned in 1967 to advise the federal minister of agriculture on problems confronting Canadian agriculture and to recommend policies to

28 Political economy and history improve its viability, set off a wave of protest on the part of Canadian farmers. Possibly because the Task Force had canvassed so widely and travelled across Canada to receive submissions from farm groups and other interested parties, its recommendations that government reduce its direct involvement in agriculture, phase out subsidies and price supports, and require the industry to become more self-sufficient met with considerable antagonism from producers accustomed to a measure of government protection. The Report's recommendation that the government take steps to reduce the number of farmers, by urging the younger nonviable farmers to leave farming, was interpreted as federal abandonment of the institutional backbone of Canadian agriculture, the family farm . Other proposals, including one to cut back wheat production, were interpreted as expressions of non-confidence in agriculture's future and a belittling of its contribution to Canada as a whole, and accordingly raised hackles. Grass roots' dissatisfaction with the Report, coming as it did on top of severe economic distress, led to the growth of the National Farmers Union in 1969 and the creation of the Palliser Wheat Growers Association one year later. These two factors - the altered economic context of Canadian agriculture in the 1970s, and the emergence of new commodity and farm groups - heightened the political significance of agriculture in the 1970s.

The domestic and international economic context

Beginning in the late 1960s and increasingly thereafter, farmers were confronted with an economic context that jeopardized net incomes to an extent not experienced since the Depression and that hinted that instability was to be a permanent hazard for them. Two features of the Canadian agricultural economy of the 1970s were significant: first, markets were unusually turbulent as the international demand for some products became extremely variable, and, second, many farmers experienced a serious cost-price squeeze, as the costs of purchased inputs increased rapidly. Both factors intensified the income vulnerability to which Canadian farmers were already prone owing to inevitable fluctuations in their volume of production and the prices of their commodities. Changes in the wheat economy came first Until the late 1960s, both Canada and the United States tended to hold large stocks of wheat; consequently its price fluctuated little in what was essentially a buyer' s market Between the late 1960s and 1971-2, however, world grain reserves declined drastically and, in 1973-4, reached their lowest level in twenty-five years. The depletion of reserves was the result of a number of factors, including a dramatic 40 per cent increase in world consumption of wheat throughout the 1960s and Canadian and us government policies that encouraged farmers to reduce their wheat acreage and/ or to shift to livestock production. This led exporting countries (mainly Canada and the United States) to reduce their carry-over stocks. When a crop failure in the Soviet

29 Canada's agricultural economy Union resulted in that country's purchasing unexpectedly large volumes of American grain in 1972, the shortage of grain supplies and the resurgence in export demand for grains sent the price of wheat and other grains skyrocketing. Between 1972 and 1973 the international market price of wheat tripled. 27 The problem of surplus production, which had plagued the grains industry for the past two decades and which the Report of the 1969 Task Force identified as generic to low farm incomes, had virtually vanished overnight. Policy-makers who had been preoccupied with devising schemes to shift farmers into non-grain areas of production now found themselves facing quite a different challenge. A second development, rising energy costs in the wake of the OPEC crisis, injected a hitherto unprecedented degree of instability and escalation in the costs of major supplies of fuel and fertilizers. All farmers - grain and non-grain producers - were subject to a rapid inflationary spiral in production costs. Between 1970 and 1975, costs of goods and services purchased by farmers rose by 64 per cent; the figure for the entire 1960s had been 40 per cent. Non-grain producers, unlike grain producers, could not hope to raise their prices enough to recover all these added costs. Cattle, dairy, and poultry producers bore the brunt of higher costs for feed and all other inputs. The economic context of the Canadian agricultural industry in the 1970s thus differed in two respects from that of the 1960s. First, the price squeeze was so severe that it could not be ignored, particularly since changes in the world monetary system, inflation rates, and the economic policies of Canada's major trading partners portended continuing instability for Canadian farmers. Rising international prices of fuel, fertilizer, and machinery and fluctuations in the price of foodstuffs were jeopardizing the livelihood of an increasing number of farmers. Second, the opportunity existed for expansion of grain production. The situation shifted from one in which the emphasis was on ' boosting sales to match a restrained production level to one in which the emphasis is on boosting production to match potential sales.' In short, Canadian agricultural policy-makers could not ignore the altered economic context, as severely distressed producers were demanding assistance. 28 Interest group mobilization In the late 1960s and early 1970s, new organizations emerged to challenge the authority of the Canadian Federation of Agriculture (CFA) to speak for all Canadian farmers. The most important were the National Farmers Union (NFU) and the Palliser Wheat Growers Association. Like the CFA, the NFU is nationally structured; unlike the CFA , its members have demonstrated a readiness to engage in highway blockages, mass rallies, food giveaway programs, and sit-ins in government buildings to advance their more radical proposals. In contrast to the national, all-inclusive orientation of the CFA and NFU, groups

30 Political economy and history on behalf of producers of a single commodity, and often on behalf of producers of only a single commodity in one province, became both more prolific and more forceful in their claims to represent particular producers. The more prominent of these groups are found in the cattle and grains industries of western Canada and include the Canadian Cattlemen's Association (and its provincial counterparts), the Western Stock Growers Association, the Palliser Wheat Growers Association, and prairie associations representing producers of oilseeds. 29 These organizations can be ideologically distinguished on a number of dimensions from the general farm organizations - the provincial and Canadian federations of agriculture- and the long-established provincial wheat pools. First, their members tend to be much more economically conservative, favouring reliance on the market economy to establish commodity prices. The cattlemen's associations are adamantly opposed to supply management in the livestock sector. 30 Members of the oilseeds and wheat commodity groups tend to be very critical of the Canadian Wheat Board's monopoly over export sales of oats, wheat, and barley and its role in domestic feed-grain marketing. Second, their antagonism to government intervention is accompanied by a distrust of government generally and of the federal government especially. This was largely a distrust of Eugene Whelan, the federal Liberal minister of agriculture between 1972 and 1984 (except for nine months in 1979-80), because of his unabashed support for regulated marketing and supply management, but it was also based on a perception that the federal Liberal government was too big and too intrusive. Third, as their specialized nature implies, groups like the Palliser Wheat Growers and the Canadian Cattlemen's Association tend to identify their interests as producers fairly narrowly, not perceiving a congruence of goals among producers of different commodities (or sometimes even among producers of the same commodity living in different parts of Canada.) In contrast to the CFA and the NFU, the specialist producer groups are less likely to emphasize the problems that Canadian farmers have in common and more likely to focus on the uniqueness of the commodity sectors. Indeed, in their belief that agriculture is a business (like any other), where efficiency is fostered and rewarded by the market economy, groups like the Canadian Cattlemen's Association and the Palliser Wheat Growers Association find a closer identity of interest with agri-business - with processors, distributors, and retailers - than with the many farmers who judge the market economy to be unjust in its treatment of producers and who are found in theCFA and theNFU. The proliferation of commodity groups in western Canada has politicized the agricultural policy process. Within the farm community, they have raised 'the temper of debate' by challenging traditional assumptions and institutions. Their presence, alongside the wheat pools and federations of agriculture, demonstrates

31 Canada's agricultural economy the heterogeneity of viewpoint that has accompanied the increasing diversification of the agricultural economy. Because there is no one set of homogeneous agrarian goals articulated by one farm organization, there is considerable debate as to who 'legitimately' represents farmers. Even within a single province the problem arises. In Alberta, does Unifarm (affiliated to the CFA) represent beef producers, or does the Alberta Cattle Commission? Does the Alberta Wheat Pool represent the Alberta wheat farmer, or does the Palliser Wheat Growers Association? The problem is compounded at the national level, particularly for theCFA, since it is a federation of commodity and provincial organizations, some of which oppose each other philosophically. The credibility of the CFA's claim to speak on behalf of beef producers across Canada has undoubtedly been undermined by the emergence of the rival Canadian Cattlemen's Association. 31 While agricultural matters generally became more politicized in the 1970s, significant variations in the goals and political strength of producers and the perspectives of governments in different provinces have resulted in differences in the priority assigned to agriculture and, accordingly, the policies undertaken on behalf of agriculture. A brief sketch of the political context of agricultural policy-making in each province and in Canada as a whole highlights these interprovincial discrepancies and provides a harbinger of the obstacles to national producer organization and governmental collaboration and consensus. POLICY-MAKING

The prairies Writing in 1980, Roger Gibbins expressed pessimism about the political clout of prairie farmers: 'While the agrarian community unquestionably constitutes an important and integral part of the contemporary prairie society, it no longer sits astride the broader prairie society as it did in the past As the agrarian community has fallen in numbers it has witnessed a steady decline in its electoral power. There are no longer enough farmers or rural residents to dominate provincial or federal politics on the Prairies. Although this is at least true of Saskatchewan even there the electoral power of the agrarian community has been sharply eroded.' 32 While agricultural interests must increasingly compete with non-agricultural concerns for the government's attention, the vulnerability of Saskatchewan's economy to cash receipts from wheat sales, combined with the fact that farmers here comprise a larger part of the population than elsewhere, has traditionally ensured provincial attention to producers' problems. The province spends a larger portion of its total budget on agriculture- 6 per cent- than does any other province or the federal government. Farmers have been well organized (the

32 Political economy and history one-crop economy creates a unity of interest, and there is a long tradition of agrarian organization), and provincial governments have tended to share the ideological viewpoint of the major farm unions. As a result, agricultural legislation has been extensive and innovative, and provincial premiers and ministers of agriculture have been forceful exponents of producers' concerns. However, the dependence on foreign markets for the major commodity, wheat, means that Saskatchewan producers are significantly affected by federal transportation and marketing policies. The relative distaste of Alberta farmers for marketing boards and any interference with the laissez-faire market system, as evidenced by their voluntary exclusion from one of the three national poultry-marketing agencies, symbolizes better than any other indicator the ideological 'climate' of the province, which is appreciably different from that in Saskatchewan. As in the other two prairie provinces, there are important class distinctions among Alberta farmers. The larger, specialized producers of wheat, oilseeds, and cattle, located in the southern part of the province, are represented by commodity groups like the Canadian Cattlemen's Association and the Palliser Wheat Growers Association. The more diversified family farms produce feed grains, hogs, and dairy products and run cow-calf herds in the central and northern part of the province. They tend to be represented by the broader-based farm unions. The commodity groups arc staunch supporters of the free market system, while the farm unions (particularly the NFU, but to a certain degree Unifarm as well) are more disposed toward government regulation and assistance programs. Although they withheld their support from the Progressive Conservatives in 1971 (retaining their loyalty to Social Credit), the former were generally more successful in gaining the ear of the provincial government in the 1970s, no doubt because both shared the view that the market should determine, as much as possible, commodity prices.33 In Manitoba, the over-representation of rural voters until 1977 gave rural ridings a decisive role in determining the winning political party. Shifts in the rural vote away from the incumbent government were instrumental in defeating the Conservatives in 1969 and the New Democrats in 1977.34 The electoral volatility of Manitoba farmers and their disproportionate electoral influence could be expected to lead to conciliatory policies on the part of the successful party (the NDP from 1969 to 1977, the Conservatives from 1977 to 1981, and the NDP since then). Manitoba farmers, like the province's two major political parties, are divided on the merits of a laissez-faire versus a regulated marketing system. Thus producers favouring government intervention will likely find an NDP government more responsive to their goals than they will a Conservative administration. However, with the majority of Manitoba farmers leaning toward conservatism, a

33 Canada's agricultural economy Conservative administration would appear to have a freer rein to pursue its philosophical principles than would an NDP government. Central Canada Although farmers comprised only 3.5 per cent of the Ontario population in 1976, the fact that one in five Ontario citizens earns his or her living in the food industry has been instrumental in drawing the province's attention to the agricultural sector. Also important in securing a response that has been more regulatory than financial (agriculture expenditures account for only 1 per cent of the provincial budget) has been the fairly high degree of organization of Ontario farmers, not just in farm unions (the Ontario Federation of Agriculture and the NFU) but in the market-place, through co-operatives and marketing boards. A further factor in the 1970s was the concentration of rural voting strength in southwestern Ontario in a province with a competitive party system. As the figures in Table 7 show, from September 1975 to March 1981, the Progressive Conservative administration was in a minority situation. The fall from majority to minority status in 1975, and the stay there in 1977, was marked by a Conservative drop from holding 24 of 31 rural ridings to maintaining 18 of 33 rural ridings. Generally, and especially in close contests, political parties will attempt to optimize their vote by directing their attention to those constituencies characterized by changing partisan loyalties rather than to the hopeless or safe seats. 35 In Ontario in the 1970s, a number of electorally variable seats were rural and agrarian; Frontenac-Addington, Haldimand-Norfolk, Huron, and Victoria-Haliburton all shifted from the Conservatives to the Liberals in 1975. The fact that the plurality of agrarian-based constituencies in southwestern Ontario and virtually all those in southeastern Ontario continued to support the Conservatives made it probable that Tory administrations would be inclined to build on this base by implementing favoured policies. At the same time, having made inroads into the agrarian heartland, the Liberal party could be expected to champion producers' goals in an effort to enhance its own fortunes. Quebec farmers have been well organized, and membership in the Union des Producteurs agricole (UPA) is mandatory. The provincial government has delegated considerable powers to producers to regulate the marketing of their products. Not only do producers decide by plebiscite when they want a marketing board established, but they also exercise powers that in most other provinces would be more closely controlled by the provincial marketing agency. The producers' boards or syndicates that administer the marketing plans are all affiliated with the UPA. The UPA perceives its relationship with the government as

34 Political economy and history syndicalist, and the Parti quebecois (PQ) administration showed a willingness to accept that role for the UPA, appointing UPA leaders to key positions in the agriculture ministry. Quebec producers' political clout provincially owed much to the philosophy of bapisme of the PQ administration. An element within the strategy of gradual progression to independence was increasing and diversifying production to realize provincial self-sufficiency in foodstuffs.

TheMaritimes Farmers in Nova Scotia are organized in one federation, the Nova Scotia Federation of Agriculture. It has historically enjoyed a close clientele relationship with the provincial Department of Agriculture, with the latter consulting with the federation on major matters affecting farmers. Producers in New Brunswick and Prince Edward Island are less well organized, and the farming community is ideologically divided over the best way to cope with its problems. While many farmers would welcome greater regulation of potato production and marketing, for example, others prefer to rely on the free market as a price-setter. A succession of years of low returns to potato producers in the late 1970s appears to have expanded the number advocating a more regulated agricultural industry. Farmers are handicapped in two further ways in their ability to elicit expenditure and regulatory programs at the provincial level that would allow them to overcome the problems of low and unstable incomes. The first obstacle is the limited provincial budgets; little can be expected by way of income support. The second is the presence of large processors in both provinces that are vertically integrated into the potato industry. This factor, especially in view of the ideological divisions among producers, limits the likelihood of regulatory legislation to strengthen farmers' market power. Accordingly, there are fewer marketing boards and co-operatives in the Maritime region than elsewhere. British Columbia While the diversity of commodities makes it difficult for any one farm organization to represent the interest of all producers, the BC Federation of Agriculture has generally succeeded in doing so. It has maintained a good working relationship with the Social Credit administration and had an even more influential one with the NDP government. But the degree of its influence cannot be expected to be large because of the relative unimportance of agriculture to the province' s economy - unless the partisan and ideological goals of the incumbent provincial government allows it to be. The intense competition of BC politics has probably given BC producers a clout beyond what their meagre 1.9 per cent of the population would warrant. While their staunch support for W.A.C. Bennett had carried

3S Canada's agricultural economy the risk of farmers being disregarded by a politically secure administration, in the 1970s the situation changed, as two rural areas, the Peace River and the Okanagan Valley, ceased to be Social Credit strongholds and proved fertile areas for NDP inroads. 36 With the two parties entering elections with approximately equal numbers of committed voters, it became imperative that they not only build on their core of support but also do nothing to alienate past supporters. The federal government These interprovincial variations in producer and governmental goals, and the multiplicity of producer organizations with diverse (and often contradictory) perspectives, are problematic for national agricultural decision-makers in particular. Since no one organization speaks for producers, the politician, faced with having to choose between opposing proposals, may incur the disfavour of the group(s) whose options he or she disregards. In the 1970s, an additional factor compounded national and provincial policy-makers' efforts: distortions in the make-up of Parliament which left the national government overly representative of and unduly dependent on one province (Quebec) and under-representative of the prairie region. As the data in Table 8 demonstrate, for most of the 1970s the agricultural heartland - the prairie region - was without significant representation in the federal government caucus and cabinet and hence lacked spokesmen to press its goals. The problem that western Canadian producers had in receiving a hearing in Ottawa was made more acute by the fact that national decision-makers were pressured and anxious to respond to the singular interests of producers in another region. Excluding the period 30 October 1972 to 8 July 1974, the Liberal party enjoyed a majority between 1968 and 1979. Two aspects of its partisan support during the period are noteworthy for this study of agriculture. First, the constant factor in Liberal electoral success (and in Progressive Conservative failure) was the Quebec voter. Even when other regions forsook the Liberals in 1972 and in 1979, Quebec stayed the course. Within that province, what opposition existed came from the Creditistes, whose base of support was rural and agrarian Quebec. But the Creditiste core was not impenetrable; a shift of three rural seats from the Creditistes to the Liberals helped secure the majority of 1974. Five years later, three further shifts in the same direction helped to deliver 67 of the province's 7S seats to the Liberals. The gain in Quebec gave the federal Liberal party the moral credibility it sought to counter the criticism of the PQ government that federal Liberals were out of touch with the aspirations of Quebecois. The presence of a separatist party in Quebec City was the additional factor that led the federal Liberal caucus, dominated by Quebec MPs, to be attentive to the needs of the Quebec dairy sector in particular.37

36 Political economy and history Second, Ontario voters were volatile in the 1970s. Ontario played a decisive role in denying the Liberals a majority in 1972, in restoring them to majority status in 1974, and in assisting in their defeat in 1979. And not only urban but also rural Ontario played a part in the oscillating Liberal fortunes. For example, in 1974, the Liberals gained seven agrarian seats from the Conservatives; in 1979, they lost seven to the Tories. 38 The theory of vote optimization, discussed earlier, implies that voters in such marginal seats are prime targets for government attention. In conclusion, the political context in the mid-1970s ensured heightened government sensitivity to the needs of the dominant producers in central Canada. Ottawa could be expected to be responsive, given the moral importance that the Liberal government placed on an overwhelming endorsation from a PQ-led Quebec and the electoral imperative to capture Ontario voters, since the party's chances on the prairies were so dismal. With the Ontario government itself in a minority position after 1975, and the Quebec government embarked on a course of agricultural development, agricultural issues were further politicized in these provinces. SUMMARY

The distribution of agricultural production and consumption in Canada creates an inherent basis for conflict between producers and consumers and among producers in different sectors and provinces. The agricultural community is heterogenous in its organization, its goals and the means it espouses to achieve those goals. In the 1970s the federal government, confronted with this diversity, was handicapped by its parliamentary make-up in its ability to assume a national outlook on agricultural issues. Whether that handicap stymied effective policymaking in the three areas of grain handling and transportation, stabilization, and marketing is one of the matters examined in later chapters.

3 Federal agricultural policy before 1970

Traditionally, the federal government has dominated agricultural policy-making. This has been the result of two factors: the federal government's strong jurisdictional base and its assumption, with the provincial governments' concurrence, of the greater responsibility in the area. However, the federal government's acknowledgment of its responsibility for agriculture 1 was often reluctant, and in farmers ' eyes, belated. Political pressure and economic dislocation, or its threat, were frequently requisite catalysts to the federal government using its legal authority to provide services and regulations for agriculture. Once it recognized its 'obligation' to use its jurisdictional powers, the division of responsibility between provincial and federal governments was such that the federal government tended to assume the greater financial burden, while the provincial governments restricted their agricultural programs and services to areas that did not overlap with federal programs and policies. Analysts of pre-1970 federal agricultural policy argue that the federal government accepted responsibility for agriculture under two conditions and for two motives. First, agriculture received attention when its expansion would promote nation-building goals. From Confederation until the late 1950s, regulatory policies and expenditures by the Canadian Department of Agriculture were designed to promote national development by populating western Canada, thereby confirming Canada's hegemony over that region, and providing a market for central Canadian industrial goods. Second, federal officials paid attention to agriculture in emergencies like depression and war. During the two world wars, controlling inflation and maximizing the production of foodstuffs were in the national interest. Even in these crises, pre-Keynesian economics led the Canadian government to define its role and responsibility fairly narrowly. The policies adopted to further national industrial development or to respond to emergencies were, according to Vernon Fowke, based on the assumption that 'production and

38 Political economy and history marketing ... ought normally to be guided by the search for profits within the system of free enterprise.' There is substantial agreement that there has not been any consistent agricultural policy that has addressed the problems of agricultural producers. Instead, what existed was a series of ' expedient measures to meet crises of depression, drought, war, inflation and surpluses.' In 1957, Fowke summarized the government's programs for agriculture as 'little more' than production assistance 'of a developmental nature, governmental activity of a regulatory nature, and state-financed research in the field of production.' In short, the federal government acknowledged its responsibility for agriculture when it was obligated to do so, and it defined that responsibility in a fairly restricted fashion. 2 GRAIN MARKETING AND TRANSPORTATION

The earliest and most manifest federal presence in agriculture was in the western grain industry - in regulations pertaining to the transportation and marketing of prairie-produced grain. In the late nineteenth and early twentieth centuries, the outstanding issues for the farmer were inequitably high railway freight rates and monopoly control in the transportation and grain marketing system. The Crow's Nest Pass Agreement {1897) dealt with the first grievance; the Canadian Wheat Board Act (1975) - in conjunction with federal provision of terminal elevator facilities, grading and inspection services, and other regulations governing the handling, storage, and processing of export grains and foodstuffs - addressed the second. The success of farmers in obtaining these favourable responses stemmed from the key role that the western wheat economy played in the National Policy, the voting strength of farmers, the efforts of provincial governments on their behalf, and, after 1935, a western spokesman in the federal cabinet. 3 The governments of the western provinces - in particular, that of Manitoba first championed the cause of prairie farmers and businessmen discontented with railway rates higher than those in central Canada. John A. Macdonald's government repeatedly used the federal power of disallowance to retain untrammelled legislative authority over transportation policy and then concluded an agreement with the Canadian Pacific Railway (CPR) in 1897 to establish 'lower' freight rates. In return for a federal subsidy of$3,404,720, and significant provincial land grants to build a rail line from Lethbridge, Alberta, through the Crow's Nest Pass to Nelson, BC, the CPR agreed to reduce freight rates, effective 1899, on 'settlers' effects' and grain and flour. 4 The Crow's Nest Agreement was honoured more in the breach than in the contract and was suspended between 1919 and 1922 under the authority of the War Measures Act. A combination of political and legal factors led to the restoration of the Crow's Nest rates in 1922 and their statutory enactment. In addition to

39 Federal agricultural policy before 1970

making the 1899 rates on flour and grain statutory, the 1925 legislation eliminated rate discrepancies between rail carriers, east- and west-bound traffic, and rail lines. The extreme displeasure of western Canada with the suspension of the rates in 1919 had contributed to the election of 38 Progressive MPs of the total of 43 western MPs and left the Liberal government in a minority position. Holding the balance of power at Ottawa, the Progressive MPs, in alliance with farm union governments elected in Manitoba in 1922 and in Alberta in 1921, were able to obtain decisive action from the ever-flexible Liberal prime minister, Mackenzie King, who was anxious to absorb or neutralize the western protest vote. 5 Also, in 1925 the Supreme Court of Canada ruled that the cancellation of the Crow's Nest Agreement rates by the federal Board of Railway Commissioners (in October 1924) was illegal. The government believed that making statutory the rates on grain and flour was consistent with national development goals, and it took this action 'in order to encourage the further development of the great grain growing provinces of the West, on which development the future of Canada in a large measure depends.' 6 The Crow's Nest rates survived two subsequent reviews of and modifications to national transportation policy. In announcing the MacPherson Royal Commission on Transportation in 1959, Prime Minister John Diefenbaker promised that export grain rates would not rise for western farmers, who had so enthusiastically helped to send him to Ottawa. When the commission none the less addressed the issue of grain rates, it 'proved to be the hottest issue at the public hearings,' as agricultural organizations resented the commission even debating the matter. Their influence on the western part of the Conservative caucus sufficed. Without any significant lobbying by prairie provincial governments, the divided commission refrained from recommending alterations in the Crow rates. In 1959-61, as in 1925, influence exerted on and by western members of the House of Commons produced a satisfactory policy outcome for western farmers. 7 The creation of the Canadian Wheat Board in 1935 culminated a long struggle by western farmers for order and equity in grain marketing. A compulsory national grain-marketing board was the antidote farmers sought to the arbitrary and monopoly pricing by private grain traders operating on the Winnipeg Grain Exchange. In that system, prices fluctuated daily in response to the buying and selling of future contracts. During the First World War, in an effort to curb price rises with the growing demand for Canadian wheat, the federal government closed the Winnipeg Grain Exchange (the open market) and authorized a government agency, the Board of Grain Supervisors, to acquire and sell Canadian wheat at fixed prices. It did so between 1917 and 1919. After the war, uncertain markets and inflationary prices led the government to create a Canadian Wheat Board to market the 1919 crop. The board, which fixed minimum prices and had a

40 Political economy and history monopoly over domestic and foreign sales, was strongly supported by farmers. However, once the economic situation that had made the board a necessity disappeared, the government quickly disbanded it and restored the open market in August 1920. The ensuing contrast between the higher prices experienced during the operation of a government marketing agency and their drastic decline with its abandonment fuelled the campaign of the major grain growers' associations, national agricultural groups, and the western legislatures for the restoration of the Wheat Board. The government's refusal to accede to grain farmers' wishes led to the creation of the farmer-owned prairie wheat pools. When these pools went bankrupt in the depression-ridden 1930s, the unpopular Bennett government, in its fifth year of office and disturbed by the defeat of Conservative governments in Saskatchewan and Ontario the preceding year, passed legislation in 1935 to create the Canadian Wheat Board. 8 But the board's scope and authority in 1935 fell short of farmers' objectives. They wanted a grain-marketing board; they got a wheat-marketing board. They sought an exclusive national marketing agency; they were given a board that coexisted with the private grain traders. And, finally, 'the compulsory features of the bill, which provided for the nationalization of the western elevator system as well[,] were never proclaimed.' The Conservative government had acquiesced to the appeal of Liberal opposition members, allied with the Winnipeg Grain Exchange, that a compulsory board not be created. 9 After 1935 the authority of the Canadian Wheat Board was expanded. In 1943, faced with conditions analogous to those of the First World War which jeopardized the system of price controls, the government resorted to the same solution. It gave the board a monopoly over the marketing of prairie wheat in order to maintain continuous grain supplies to allies and to 'arrest an advance rather than a decline' in the domestic price of wheal 10 In 1949, the board's monopoly was extended to oats and barley; between 1949 and 1973 it therefore was the exclusive agency for the domestic and export marketing of prairie wheat, oats, and barley. The political situation again was compelling in 1949. The King government faced an election and had reason to be worried about western support It had been returned with a bare majority in 1945. The agriculture minister, James Gardiner, had won his seat only on a recount It is Vernon Fowke's contention - and one supported by virtually all other analysts - that the monopoly given the Wheat Board in 1935 did not reflect a commitment by either federal Conservative or Liberal governments to interference with the open market It was instead a reaction to the emergencies of depression and war, as well as to the 'direct and indirect political pressure' of provincial legislatures and grain farmers. 11 In conclusion, it was with extreme reluctance that the federal government

41 Federal agricultural policy before 1970 assumed responsibility for grain marketing. The grain farmers' Magna Carta the Canadian Wheat Board and the Crow's Nest freight rates - was put in place by vulnerable federal governments at the height of agrarian political strength. In 1925, the Progressives, nipping at the Liberal party's heels, helped institutionalize grain export freight rates. In 1935, collapse of the wheat pools and the spectre of Social Credit and the CCF capitalizing on farmers' economic frustration provoked the Conservatives into establishing the Wheat Board. Whereas the coalition of producers and a third party had forced statutory enactment of grain rates, provincial premiers, especially Alberta premier Brownlee, were influential in persuading Prime Minister Bennett to create the Wheat Board. Wilson notes that the Depression years, preceding the board's establishment, were marked by a lack of producer organization and lobbying. However reluctant the federal government was to establish these institutions, their survival in the 1950s and 1960s demonstrated that national political institutions and agencies could be responsive to prairie grain farmers' interests. That responsiveness stemmed from the presence of respected prairie leaders in the two national political parties. Until 1957, J.G. Gardiner, minister of agriculture (1935-57), and C.D. Howe, the nonwesterner responsible for the Wheat Board, were conscientious articulators of grain growers' concerns. Thereafter Alvin Hamilton served the same role in the Diefenbaker government 12 REGULATED DOMESTIC MARKETING

Until the 1970s, except in grain marketing, provincial governments regulated the marketing of agricultural commodities. Provincial initiatives in this area were largely the consequence of judicial review. The impetus for collective marketing came from producers themselves, who recognized that pooling their commodity was a prerequisite to increasing their share of its selling price. Farmers first formed voluntary co-operatives, but when volunteerism proved inadequate owing to freeloaders who willingly benefited from the advantages of cooperative marketing but operated outside its confines in order to avoid the disadvantages of compulsion - farmers pressed for mandatory marketing legislation. Acceding to this demand, British Columbia took the initiative in 1927 and passed legislation to allow regulation of the terms and quantity of the marketing of produce. In 1931, the legislation was ruled to be ultra vires provincial jurisdiction, infringing on the federal authority to regulate interprovincial trade and levy indirect taxes. Thereafter producers turned to the federal government In the midst of the Depression, Bennett's government responded to producers' urgings by passing the Natural Products Marketing Act (1934). It enabled producers to request the

42 Political economy and history Dominion government to create a compulsory national marketing board that would regulate marketing on a national basis. Alternatively, the Dominion Marketing Board could delegate all or some of its powers (including control of interprovincial and export marketing) to local boards. Three years later, the act was struck down by the Judicial Committee of the Privy Council. Beginning with British Columbia (1936), and concluding with Quebec (1956), all provincial governments then passed legislation enabling marketing boards on a local and provincial basis. The federal government co-operated with these provincial boards and helped to enhance their powers. In 1949, with the passage of the Agricultural Products Marketing Act, it delegated them authority to exercise the same powers outside their provincial borders that the provincial government had authorized them to wield inside the province; provincial boards could then sell locally grown foodstuffs in other provinces and other countries. It further empowered provincial boards in 1957 with the ability to impose levies on producers and hence to raise money needed for the effective administration of marketing schemes. By 1970, approximately 80 provincial marketing boards existed.13 These were principally dairy and poultry boards but included, as well, a number of fruit and vegetable boards. Their powers varied enormously; except for the fluid milk marketing boards, most negotiated rather than determined prices. Having once been rapped on the knuckles by the courts, the federal government made no subsequent efforts until the 1970s to create nationwide marketing boards, the structures many argued were needed to manage commodity supplies - and hence determine prices- on a national basis. PRICE SUPPORTS AND INCOME MAINTENANCE

In a laissez-faire market, farmers compete with one another to sell their produce to a few buyers. As purchasers, they buy their supplies from a limited number of sellers. In the absence of regulations to restrict the monopolistic tendencies of the few non-competitive buyers, or to enhance the bargaining position of farmers for higher prices, farm incomes are extremely vulnerable. The oscillation of commodity prices in response to fluctuations in supply and demand brings the additional problem of unstable incomes. Rainfall and temperature variations may create crop failures one year and bumper crops the next. In addition, all major Canadian agricultural commodities experience price fluctuations, reflecting those in international commodity markets. Canadian farm products, 25-30 per cent of which are exported, constantly face the prospect of 'loss of export markets or sudden increases in export demand and sudden changes in imports.' 14 The Depression and the Second World War saw the federal government instigate price support schemes to help farmers cope with the dual problems of low

43 Federal agricultural policy before 1970 and unstable incomes. The Prairie Farm Assistance Act of 1939 was an income maintenance scheme that protected farmers against losses from total crop disaster through minimum acreage payments. The Agricultural Prices Support Board, set up in 1944, was empowered to support base prices on eleven farm commodities, either by directly buying farm products where there was a surplus or by underwriting the market with written guarantees to support the prices. Both floor and ceiling prices were placed on agricultural products: floor prices were an incentive to increased production of foodstuffs for the promotion of the war effort, and ceiling prices acted as a brake to domestic inflation. The ceiling prices were set low enough to cause farm organizations to complain that their prices were being frozen by the Agricultural Prices Support Board at a lower level than non-foodstuffs. The farmers' complaints lend credence to the claim that 'the level of support was set with the objective of protecting producers against serious loss in the short run but not to support prices above the normal supply-demand relationship.' This orientation was consistent with the government's approach to economic development generally and paralleled that of us agricultural policy. However, Canada lagged behind the United States and several European countries in its willingness to assume a financial obligation to shield producers from unfair competition and the vagaries of the market-place. 15 Demands from farmers led to the continuation of price supports in the postwar era. In 1958, in the aftermath of campaign promises by the Conservative party and its leader, John Diefenbaker, the Agricultural Stabilization Board replaced the Agricultural Prices Support Board. The new board made price support mandatory for nine key commodities: their prices would be supported at 80 per cent of the preceding ten-year average. However, these income support measures were ancillary to the government's major policy to bolster income levels. These were programs to stimulate production. The emphasis on improving the productive efficiency of the farmer was apparently based on the assumption that •if agricultural output could but be doubled the farmer would be twice as well off as before.' One major means used to assist the farmer to become more productive was credit assistance. As early as 1944, the Farm Improvement Loans Act made short- and intermediate-term loans available to farmers. In 1959 the Diefenbaker government established the Farm Credit Corporation to meet the medium- and long-term needs of farmers for capital. In the early 1960s credit aid was expanded to allow farmers to adjust to rapidly changing technology in agriculture.16 The other major federal endeavour that was perceived to contribute - albeit indirectly - to higher farm incomes was the extensive research program of the Department of Agriculture. Research that leads to 'improvements in cultural practices, in methods of controlling pests or obtaining greater variety of seeds or animals ... will consequently tend to reduce costs of production and selling prices

44 Political economy and history in equal measure.' This results in savings to the consumer on domestically marketed commodities. In the case of products like wheat, which are principally marketed internationally, to the extent that agricultural research results in larger volumes of more cheaply produced commodities, 'the agricultural producers of the country may be enabled to hold a larger share of the international market than they could otherwise have done.' While the federal government undertook a program of agricultural research as early as the 1920s, it intensified its program after 'a gentlemen's agreement' of the early 1940s left such research entirely a federal responsibility. The dissemination of research findings to farmers frequently fell to provincial district agriculturalists and extension workers, owing to provincial jurisdiction over education (section 93 of the BNA Act of 1867), property (section 92.13), and land use (section 92.5). 17 The foregoing federal initiatives regarding price supports and credit assistance accepted the logic of the laissez-faire market and held that farmers should be encouraged to become as competitive as possible within the market economy. But the programs of the 1950s and 1960s that were designed to boost production and shield producer incomes did reflect some shift in government thinking. Specifically, they represented an acceptance of the dominant Keynesian economic theory that the government had a role and responsibility with respect to the income security of Canadians. The three-fold growth in financial transfer to agricultural producers between 1957-8 and 1972-3 18 was consistent with the government's other income protection initiatives: the old age security and Canada Pension plans. That income support schemes were only stopgap measures that did not improve the farmer's position in the price system is attested to by evidence of widespread farm income problems and growing farmer unrest in the 1960s. Both had their roots in the fundamental changes in the structure of agriculture that had begun in the 1950s. During these two decades, the size of farm units increased and the number of farmers declined as smaller farms were bought out and consolidated to form larger units. Between 1946 and 1969, the farm labour force dropped by 55 per cent. As governments encouraged farmers to avail themselves of the low-cost credit assistance of the Farm Credit Corporation to expand the scale of their operations and to become more mechanized, individual farmers went into debt in order to increase the volume of their production. Their need for cash operating capital rose as they increasingly had to purchase such items as fertilizer and herbicides. The result was an agricultural sector that was debt-ridden and capital intensive. Moreover, as not all farmers chose to expand, agriculture became partitioned into many small and a few medium- and large-scale farms . Cleavages of income and living standards among farmers were 'greater than for any other occupational group.' By 1962, 30 per cent of all Canadian farms

45 Federal agricultural policy before 1970 produced 70 per cent of all farm products. 19 With the larger, more efficient farm units able to produce greater volumes of food, supply began to exceed the volumes needed by the domestic and export markets in which demand was relatively inelastic. Between 1950 and 1972 international markets for wheat were relatively stable, principally because of an international surplus of grain stocks and an international pricing agreement. Given the close relation between grain and other food prices (grain is not only consumed as flour, but is also an indirect component in the human diet through the feeding of livestock, etc.), the prices of most agricultural commodities remained relatively stable. Such price stability contrasted with the rising costs of fertilizer, labour, land, and machinery, which slowly but steadily increased over the period 1960-70 (see Figure 1). These rising costs, combined with low market growth, subjected almost all small-scale farms, as well as many medium-sized units, to a cost-price squeeze. The Canadian Annual Review noted 'new levels of prosperity and poverty' in Canadian agriculture in 1964: 'Farm cash income was higher than ever before, but increases in farm expenses and decreases in inventories left farm operators as a whole with a smaller net income than in either 1962 or 1963.' Hence, while ' about one-third of Canada's farmers had their most prosperous year,' for the remaining two-thirds incomes were below those of 1963.20 The income differential increasingly became a gap between western grain and livestock farmers, on the one hand, and small-scale dairy farmers in Ontario and Quebec, on the other. Problems of milk over-production and butter surpluses, dating back to the 1950s, had led the federal government to purchase butter at a guaranteed price since 1958 under the Agricultural Stabilization Act. But throughout the 1960s, Ontario and Quebec dairy farmers repeatedly served notice that they were unhappy with the level of government support and the depressed nature of their industry. Quebec farmers expressed their discontent at the polls, electing 26 and 20 Social Credit members, respectively, in the 1962 and 1963 general elections. Farmers in the two provinces engaged in more militant activities. In 1964, 10,000 members of the Union catholique des cultivateurs du Quebec marched on Quebec City. In April 1965 the Ontario Farmers Union led a march on Ottawa seeking parity prices, and the following year it waged a series of tractor demonstrations across the province. Finally 'the largest demonstration ever to take place on Parliament Hill,' and possibly the most militant to date, occurred in May 1967 when 15,000-20,000 farmers, led by the Ontario Farmers Union, the Ontario Federation of Agriculture, and the Union catholique des cultivateurs du Quebec assembled to present a list of demands, including the need for higher industrial milk prices. 21 The militant agrarian protest was a signal to the federal government that its traditional responses to economic distress were seen to be inadequate. Under

46 Political economy and history 300

Total, all farm inputs

300

250

Machinery replacement

250

200

300

Fertilizer

300

2W

2W

200

200

1W

1W

1961 63

65

67

69

71

73

75

1961 63

Hired farm labour

65

67 69

Figure 1 Trends in prices of selected farm inputs 1961-75 (1961 = 100) (source: Food Prices Review Board, Telling It Like It Is, Chart 2)

71

73

75

47 Federal agricultural policy before 1970 pressure from producer organizations and provincial governments, federal governments adopted two new approaches in the 1960s to chronically low and unstable incomes. The rationale of the first orientation, enacted in the Agricultural and Rural Development Act (ARDA) in 1961, was to attack the problem of low incomes at its roots. In a federal-provincial co-operative effort, regions of agricultural underdevelopment were targeted for special financial assistance. Programs under ARDA were designed not only to improve agricultural land and water resources but also 'to develop new opportunities for income and employment of people in rural agricultural areas' 22 - including opportunities outside agriculture. Like its 'son,' the Fund for Rural Economic Development (FRED) (1966), ARDA'S main aim was to secure a more equitable distribution of income within the farm sector. This focus on regional agricultural development in the 1960s was consistent with the federal government's increased attention to regional economic development, institutionalized in the creation of the Department of Regional Economic Expansion (OREE). The Canadian Dairy Commission (CDC), created in 1966, represented the second thrust. As noted earlier, federal support of dairy product prices and dairy producers' income dated back to the Second World War. Between 1958-9 and 1967-8, the troubled dairy industry was the major beneficiary of farm subsidies, receiving 80 per cent of federal expenditures on price and income maintenance schemes. In 1966, the CDC took over responsibility for administering dairy price supports from the Agricultural Stabilization Board and subsequently, with the introduction of a quota system, began to implement a nation-wide program of supply management in the dairy sector. This strategy of stabilizing prices by controlling production and/ or marketing on a national basis was to become an important pillar of federal agricultural policy in the 1970s. The initiatives taken with respect to producer income problems illustrate the dynamics of agricultural policy-making in the late 1950s and throughout the 1960s. They reiterate the agrarian experience of the 1920s - that is, that agriculture receives attention to the extent that it affects the political livelihood of the government. The partisanship that Canadian farmers demonstrated in the six general elections between 1957 and 1968 was directly linked to federal agricultural policy. On the prairies, while the Canadian Wheat Board enjoyed the goodwill of the farmers, its failure to sell the record crops of wheat in the mid-1950s became a criticism of the St Laurent government. The board was a government agency, but the minister responsible for it, C.D. Howe, disclaimed responsibility for either grain sales or, in lieu of that, advance payments to farmers to tide them over until the grain could be sold. David Smith argues that it was less the government's lack of action and more its refusal to accept responsibility that ultimately 'caused the

48 Political economy and history Liberals' defeat in 1957.' 23 In contrast, the Diefenbaker government readily accepted responsibility for grain producers. In its first session, it introduced a program of advance payments to grain producers and subsequently was aggressive in seeking and securing new export markets. That responsiveness earned the Conservatives the overwhelming support of prairie farmers, who gave them 74 per cent (211) of the 285 western seats contested in the six general elections between 1957 and 1968. In Quebec, the move away from the Conservatives, beginning in 1962, turned the Conservatives out of office but at the same time was sufficiently lukewarm to the Liberals to deny them a majority. Rural Quebec's endorsation of 26 Creditistes in 1962 and 20 the following year cost the Liberals first a minority government and subsequently a majority government. One does not have to be a cynic to recognize the partisan motives behind Liberal expenditures in support of dairy producers and other overtures to woo the volatile rural Quebec voter. Continuing Ontario and prairie farmer support for the Conservative party, such that they were 'the mainstay of the Conservative Party,' proved beneficial even under a Liberal minority government, since agriculture was 'the one policy area where the Opposition Conservatives would cooperate with the government. ' 24 However, the 'low-keyed' approach to agricultural policy, and the comparative dearth of comprehensive programs, in contrast to other major agricultural nations, signalled a limited federal responsibility to assist agricultural producers' income problems. Agriculture had a low priority in the urban-based Liberal governments. They were preoccupied with industrial development, and their provincial counterparts, with a few exceptions, with natural resource development. Both had committed appreciable expenditures to social welfare, education, and health. With their attention turned elsewhere, provincial administrations were themselves reluctant to assume any large responsibility for shoring up producer incomes, and therefore the issue became a matter of federal-provincial disagreement only in the sense of each government attempting to shift the blame elsewhere. Federal lack of attention to agriculture, relative to other policy matters, was a function of two further diversions: the constant spectre of defeat in the House of Commons and the necessity to appease an expansionist and critical government in Quebec City. By the late 1960s, these factors together had resulted in a vacuum of leadership and creative policies on the federal government's part. The failure of federal policies to provide producers with 'adequate levels of material welfare,' as Donald Smiley predicted, was leading the provinces increasingly into the policy void. In 1967, acknowledging its own limitations in addressing the complex problems confronting Canadian agriculture, the federal Liberal government struck a special task force on agriculture to recommend policies for the 1970s. The report of this task force was to prove a watershed in federal agricultural policy. 25

49 Federal agricultural policy before 1970 SUMMARY

Until the 1960s, despite agriculture being a shared jurisdiction, provincial governments had been content to let the federal government assume the major responsibility and incur the bulk of expenses associated with that responsibility. The 'normal' federal approach to agriculture prior to this decade had been to stress production. With the exception of the dairy industry, which received large sums of federal money by way of subsidy payments, major federal expenditures for agriculture went toward research and other programs whose objective was to increase production. The other significant area of federal activity was price supports, and here the concern was with stop-loss measures. Where regulation occurred, it was with respect to export and interprovincial trade and health and safety inspections. Provincial programs relating to production, marketing, and education / extension tended not to overlap with federal schemes. While the federal government's perspective was nationally oriented, concerned with the place of agriculture in the national economy, the provincial outlook was local. Farmers, excepting grain growers, were more aware of the provincial presence: dairy producers felt the regulatory hand of provincial sanitary inspectors, and all producers could avail themselves of the advisory services of provincial departments. Provincial departments of agriculture, like their federal counterpart, responded to problems of low and unstable incomes by introducing measures to improve the productive efficiency of farmers and increase their agricultural output. But their programs were of a different type. Their jurisdiction over public lands within their borders empowered them to implement land and water conservation programs (irrigation works, flood control) and to offer financial and engineering assistance to clear and improve farm land. In addition, provinces exercised predominant and almost exclusive roles in two areas: the regulating of local marketing of foodstuffs and the operation of extension and education services. Marketing boards were the chief instrument used by provinces to provide higher and more stable incomes. However, only in British Columbia and Ontario was the instrument widely used. 26 In the area of education and extension, provinces supported agricultural colleges and schools, relayed technical and managerial information to producers through the services of district agriculturalists, and provided veterinary services. The federal government respected provincial jurisdiction over education, confining itself to a minor role here, but in practice it shared responsibility for extension activities by financing experimental farms and research stations. Once the farm-based provincial governments ushered in in the 1920s had disappeared, only rarely did agricultural policy become a source of federalprovincial tension. True, tempers did occasionally flare. For example, when the federal government threatened to disallow Saskatchewan premier Douglas's

50 Political economy and history 1944 measures to suspend mortgage payments and eliminate interest payments on debts, Douglas appealed to the people of Saskatchewan to ward off the federal threat. Further, the Alberta Social Credit manifesto, A Case for the West (1938), contained a critique of federal agricultural policy. These examples aside, the most visible intergovernmental conflicts centred around other policy fields- like transportation and Social Credit monetary policy.27 The 1960s were a decade of transition in which the differentiation of federal and provincial roles began to disappear. The shared-cost Crop Insurance scheme, begun in 1959, and rehabilitative and conservation projects, such as ARDA, ushered in the present era of joint programming between provincial and federal governments. ARDA and FRED gained provincial acceptance because of their 'urgent necessity ... great flexibility and ... decentralized administration.' Both levels of government became involved in similar programs. For example, a number of provinces assisted farmers with low-interest credit. The rationale was that •the financing of farms is so closely tied in with management and extension - two of the fields in which provincial government are heavily engaged' that the provision of credit 'cannot be left entirely in the hands of the federal government. ' By 1969, the Task Force on Agriculture reported that the federally incorporated Farm Credit Corporation provided two-thirds of farmers' long-term credit, while provincial agencies were 'the next most important source of long-term credit.' Heightened provincial attention to agriculture during the 1960s was reflected in relative government expenditures on agriculture. Whereas in 1960-1 the federal share of every dollar spent on agriculture was 78 cents, by 1970-1 its share had dropped to 68 cents, with a corresponding rise in the provincial share.28 By the end of the 1960s, then, agricultural policy-making in Canada featured 'a complex mix of joint Provincial-Federal responsibilities' in which 'all eleven governments cooperated with cordiality and a real degree of success in attempting to work out mutually acceptable policies and solutions.' 29 When conflict or disharmony arose, it was because of provincial complaints that federal programs were inadequate. Provinces intermittently grumbled about the federal government reneging on its proper role as leader and as the agency primarily responsible for protecting farmers against chronically unstable and inadequate income and periodic crop disasters. At other times, they criticized the federal government for failing to fulfil its obligations to find sufficient export markets and to ensure that grain supplies were moved efficiently to those that existed.

4

Stabilization

This chapter focuses on the recent history of federal and provincial stabilization programs. A close examination of the topic is instructive in a study of federalprovincial policy-making for several reasons. First, federal price support and income maintenance programs constitute the biggest transfer of funds from the federal Department of Agriculture to Canadian farmers. In 1975-6, Agriculture Canada spent about $505 million (37 .5 per cent of its total expenditures) on direct payments to producers through commodity programs. From the producers' viewpoint, direct payments through provincial and federal commodity programs comprised from 8.8 per cent (in 1973) to 25.5 per cent (in 1977) of aggregate net farm income. 1 Stabilization expenditures are thus significant sources of income to many Canadian producers; establishing which producers, in what sectors and regions, are beneficiaries of these programs is a useful lesson in determining federal priorities. Second, federal predominance in this area springs from federal and provincial agreement that the responsibility for shoring up inadequate and unstable incomes is properly federal. The provincial purses have been, historically, too small, and the benefits of agriculture to Canada as a whole have justified the assumption of this obligation by Ottawa. However, this changed in the early 1970s, when some provinces redefined their own responsibilities. They implemented commodity stabilization programs either because they judged the federal government to be reneging on its obligation to shield producers from market instability or because they viewed the existing federal price support program to be detrimental to their producers. It was largely provincial economic goals rather than political motives of province-building that caused the policy field to change from one occupied virtually exclusively by the federal government to one where provincial activity vies with the federal, both in terms of expenditures and popularity with producers.

54 Shared responsibility: the 1970s and 1980s Third, and a natural offshoot from both the above, agricultural stabilization is a field in which the sharing of jurisdiction and responsibility by governments in the 1970s can be contrasted with the pre-1970 situation in which jurisdiction was shared, but responsibility was not. It is thus possible to contrast the two periods as to both the bases for, and relative degree of, harmony and conflict, and their differing policy consequences for producers and for Canada as a whole. Until the 1970s, the federal government assumed sole responsibility for commodity price stabilization. The federal price stabilization programs differed from the subsequent provincial income stabilization programs.2 Price stabilization programs attempt to even out the market returns for a given commodity. The basic objective is to reduce losses during years of low prices by assuring the producer a minimum price for a given commodity. A typical program would guarantee the farmer a proportion of the average market price of the commodity over the previous five or ten years (e.g. 90 per cent of the previous ten-year average). The guarantee could take the form of either an offer-to-purchase, whereby the government agrees to pay a particular price in order to maintain the price, or of a subsidy to the producer that covers the gap between the market price and the 'support price' (a percentage of the average market price in preceding years). In contrast, income stabilization programs attempt to even out the net incomes of producers. They recognize that producer incomes fluctuate as a result of variations not only in commodity prices (the focus of price stabilization programs) but, as well, in the cost of purchased labour, fuel, machinery, land, and feed. Thus an income stabilization plan seeks to guarantee the farmer that his or her net income in a given year will not fall (because of higher costs, lower market prices, or both) below a certain proportion of what it has averaged in previous years. As with price stabilization plans, the 'guarantee' can take the form of an offer-topurchase or of a deficiency payment. Where stabilization programs involve subsidy payments, they may be financed wholly by government(s) or jointly by government and producer. Income stabilization schemes are frequently contributory and voluntary and may be likened to an insurance scheme. The producer joins the government in paying annual premiums into a fund from which he or she is then eligible for a support payment when financial circumstances warrant The expectation is that contributions to the fund and compensations paid out will balance one another over a given (e.g. five-year) period. Prior to 1975, and with the important exception of the dairy sector, federal programs were designed to stabilize market prices. The provincial programs inaugurated after 1973 tended to be based on the principle of stabilizing producer income. In tum, the federal government amended its own stabilization program in 1975 to make it more analogous to provincial schemes. However, the proliferation of programs, and the repercussions of some provincial programs, worried the

55 Stabilization federal government and many provincial administrations. Accordingly, in the late 1970s and early 1980s, they sought ways to harmonize provincial and federal schemes. This chapter chronicles those efforts and attempts to explain why they have failed to date. FEDERAL STABILIZATION POLICY: PROGRAMS AND GOALS

The two major federal commodity stabilization programs until the 1970s were those created by the Agricultural Stabilization Act ( 1958) and the Canadian Dairy Commission Act (1966). In 1975, the Agricultural Stabilization Act was amended; a third piece of legislation, the Western Grain Stabilization Act, was passed; and a Mille Supply Management Committee was created to administer the federal dairy program, in conjunction with the Canadian Dairy Commission. Before examining these three stabilization measures, it is instructive to examine the purported objectives of the federal government, which were to provide a rationale for price stabilization rather than for income stabilization. The federal government identified the objectives of the Agricultural Stabilization and Western Grain Stabilization acts to be, first, the stability of producer returns and, second, viable farm units. The two goals are intertwined: by levelling out the lows in the price cycle, cash is kept flowing to farmers, and the number who leave farming during recessionary periods thereby diminished. The Agricultural Stabilization Act of 1958 and its 1975 amended version are intended to stabilize the price of agricultural commodities: they are not designed to guarantee producers a certain level of net income. A primary factor underlying the federal government's determination to stabilize gross returns rather than producer income has been its traditional ideological view that the market rather than the government should generally determine farm prices and hence returns to capital and labour. 'Federal policy-makers want to ensure that remuneration of capital and labour in agriculture is based only on the market. ' 3 The assumption is that the market can be relied on to be the most just and efficient arbiter of location of production and to send signals to individual farmers as to when to expand or cease production. The view that federal subsidies to producers should be related to market demand is compatible with the federal governments' obligations to honour international trading agreements without hampering national development goals; within the national perspective, to strive to balance consumer and producer interests; and, again within the national perspective, to attempt to meet the sometimes competing interests of different provinces and regions to ensure harmonious federal-provincial relations. In terms of the international context, federal authorities argue that gearing stabilization programs to market guidelines does not interfere with international

56 Shared responsibility: the 1970s and 1980s trade the way the alternative of stabilizing producers' incomes at generally higher support levels does. The latter, they argue, would make the agricultural community less competitive: 'the cost increases resulting from the capitalization of the program benefits (as farmers are guaranteed their costs of production and their production costs inevitably rise) will cause the affected sector of Canadian agriculture to become less competitive either in export markets or with imports in the Canadian market.' Further, stabilizing incomes would invite international retaliation in the form of trade barriers to limit imports of Canadian agricultural commodities.4 The federal government's obligation to keep food prices at reasonable levels for the consumer has been viewed by Ottawa officials as another reason for ruling out support levels that assure the cost of production. Such a policy would jeopardize the consumer interest: 'a high level of support will lead to capitalization of anticipated returns into the value of land and the price of quotas, and ... the impact will then be passed on to the consumer in the form of higher prices. ' 5 The stabilizing of producer returns rather than the guaranteeing of a net income has also been defended on the grounds that the federal government serves a national constituency. That is, it needs to respond to producers' problems in all parts of the country, as well as to balance the economic development of all regions. Ottawa, on paper at least, has committed itself to 'balanced economic development.' The easiest way to avoid blame for unduly restricting or otherwise interfering with a region's economic development is to point to the market as the arbiter of economic growth or stagnation. Moreover, stabilization programs that offer a support price based on the costs of production have been costly. Hence, expenditure considerations also make federal authorities leery of provincial schemes based on cost-of-production formulae. Thus a mixture of political and economic considerations lies behind the defence of comparative advantage as the best basis on which to organize the production of foodstuffs within the nation as a whole. The description 'price stabilization' applies more accurately to the pre-1975 federal stabilization measures than it does to post-1975 schemes. The Agricultural Stabilization Act of 1958 is properly labelled a price stabilization program. However, the Western Grain Stabilization Act and the federal dairy program, as well as the 1975 version of the Agricultural Stabilization Act - •ASA- 75' as it is popularly known - mark an appreciable step away from price stabilization in the direction of income stabilization. THE AGRICULTURAL STABILIZATION ACT

The 1958 Agricultural Stabilization Act made it mandatory for the government of Canada to make payments to keep the price of nine commodities at 80 per cent of

57 Stabilization their previous ten-year average market price. Automatically eligible were eggs; oats, barley, and wheat produced in Canada exclusive of Alberta, Saskatchewan, Manitoba, and the Peace River District of British Columbia; butter; cheese; hogs; and sheep. By 1975 the federal government was under intense pressure from provincial governments and producers to revise the act The latter urged wider federal responsibility for stabilization of farmers' incomes, both by naming more commodities as automatically eligible for stabilization and by increasing the level of support: 'with the rates of inflation that were being experienced, the minimum level of support for named commodities under the act no longer provided effective protection to agricultural producers.' Further, the act needed to be revised to remove wheat produced outside the area covered by the Canadian Wheat Board and eggs, butter, and cheese, the prices of which were supported by other programs or policies.6 Revisions to the Agricultural Stabilization Act in 1975 (ASA- 75) resulted in major changes in the calculation of support payments, in the commodities named as automatically eligible, and in the provision for 'provincial top-loading' (defined below), given certain conditions. Support payments would be calculated on the shorter base period of five years rather than ten. The support level would be 90 per cent rather than 80 per cent, and it would be 90 per cent of the five-year average price with an adjustment for changes in cash costs in the current year, as compared to costs in the five-year base period. A cost-of-production clause was thus built in, although non-cash costs of interest depreciation on capital items and family labour were not entered directly into the price support formula. The Agricultural Stabilization Board empowered to administer the act was to make recommendations to the minister of agriculture 'related to the indexing of prescribed prices so as to ensure that prescribed prices for agricultural commodities in a year bear a fair relationship to current production costs.' 7 Eggs and wheat were dropped from the list of named commodities; butter and cheese replaced with industrial milk and cream; and com and soybeans added. As a result, support is obligatory for nine named commodities: slaughter cattle, hogs, sheep, industrial milk and cream, oats and barley produced outside the Canadian Wheat Board area, com, and soybeans. Other commodities may be designated for support by order-in-council; the level of support may be less than 90 per cent of the previous five-year average. As a result of changes in the calculation of support payments and in the list of named commodities, eligible producers automatically receive a deficiency payment when the market price during a production-marketing period of a named commodity has fallen below the average of the past five years, adjusted for changes in production costs. Provinces and/ or producers could conclude an agreement with the federal government to increase support above the levels outlined in ASA- 75, providing

58 Shared responsibility: the 1970s and 1980s

they bore the cost of the additional support and that the agreement furnished neither an incentive to over-production of the given commodity nor a financial advantage to some producers that was denied others. In addition, regional stabilization programs were permitted 'where different market conditions make such programs necessary.' The practice of some provinces of supporting their producers at a higher price level than producers in other provinces are receiving (who, in the absence of a local stabilization scheme, are eligible only for federal payments) is referred to as 'top-loading.' The Western Grain Stabilization Act Legislation to establish a western grains stabilization plan was first introduced in the House of Commons in late October 1970. It was a response to: the breakdown in 1969 of the International Wheat Agreement and the subsequent severe slump in prices to prairie grain producers in 1969 and 1970; pressure from farm groups the Canadian Federation of Agriculture and the National Farmers Union - for such legislation; the federal government's desire to replace the Temporary Wheat Reserves Act (under which the federal government paid storage costs for surplus wheat and the program by which the government makes up deficits in Wheat Board payments) with a more comprehensive plan; and the severe lashing the federal government took on the LIFT (Lower Inventories for Tomorrow) program.8 The Western Grain Stabilization Act was given royal assent in February 1976, and the program made retroactive to January 1976. The act bore the heavy imprint of western provincial governments, farm groups, the House of Commons Standing Committee on Agriculture, and the Progressive Conservatives and the NDP and differed appreciably form the working paper for discussion first introduced in September 1974 and the earlier October 1970 proposal that had died on the Order Paper in Parliament in the spring of 1971. But the western governments and the affected producers never questioned the responsibility of the federal government in the area of grains stabilization. Alberta, Saskatchewan, and Manitoba have always supported the concept of federal responsibility in income stabilization. The primary criticism of the Stabilization Bill itself was that it provided an inadequately low level of support. These are inevitable complaints; the principle itself seems always to have had the whole-hearted approval of western grain growers and their governments. The act is more properly labelled an income stabilization measure than a price stabilization plan. It is a voluntary and contributory scheme administered by the Canadian Wheat Board, the purpose of which is 'to stabilize the "net profit" (cash receipts minus the cash costs associated with them) from the sale of six principal cereals produced on the prairies: wheat, oats, barley, rye, flaxseed,

59 Stabilization rapeseed. The net profit is stabilized at the level of the last five years for the six products combined.9 Until 1983 farmers contributed 2 per cent of their gross sales (to an annual maximum of $500) to a fund into which the federal government also paid a sum equivalent to 4 per cent of gross sales. Participating farmers receive indemnity payments in years when the net cash flow of the six grains in the prairie region falls below the average of the previous five years. The payment to the individual farmer is proportionate to his or her contribution to the total fund, the size of which is the amount needed to bring the net cash flow to the prairie region up to the five-year average. The act, then, does not necessarily stabilize an individual producer's income. It attempts to stabilize the net income of the total group of participating grain producers in the prairie region. (A given grain producer could suffer a drop in net income and not receive a deficiency payment. For example, he or she may have raised one of the six grain crops whose price had fallen while that of other grain crops had remained sufficiently high for no indemnity payment to be forthcoming to the region.) The 1977 Federal Task Force Report, Orientation of Canadian Agriculture, argues that the act 'does not alter the market influence on producer decisions to produce those crops which they deem most profitable' because 'the payments are based on the combined net cash flow from the major crops in Western Canada ... Therefore producers who choose the most profitable crops gain from that decision and receive their share of any indemnity payment as well.•1° The Canadian Dairy Commission The federal government's dairy program involves both stabilization and supply management of dairy products. The stabilization measures include an offer-topurchase program for butter and skim milk powder and subsidy payments to support the price of industrial milk. The supply management program involves production quotas to regulate the supply of milk, producer levies to cover the cost of exporting skim milk, and controls on dairy imports. The stabilization program has been administered since 1967-8 by the federal Canadian Dairy Commission (CDC). Provincial authorities, through the mechanism of the Milk Supply Management Committee, co-operate with the CDC in administering the supply management program and participate, as well, in decisions regarding the level of direct subsidization of dairy products. Discussion of the dairy supply management program is reserved for the following chapter; here, the focus is on the federal measures to stabilize the incomes of dairy producers. Federal support of the prices of manufactured milk products dates back to the Depression, when bonuses and quality premiums were introduced for cheese.

60 Shared responsibility: the 1970s and 1980s The prices of creamery butter and cheddar cheese were supported under the Agricultural Prices Support Act and later under the Agricultural Stabilization Act, from 1944 to 1966. The support was open-ended; there were no limits on quantities of butter and cheese eligible for support. In the 1970s the prices of butter and skim milk powder were supported by an offer-to-purchase program administered by the cDC.1 1 In 1967 the CDC was empowered to support the price not only of manufactured milk products (cheese, butter, and skim milk powder), but also of industrial milk. Since 1975-6, all shippers of industrial milk- that is, farmers who produce exclusively for the industrial milk market as well as those who ship milk in excess of their fluid quota to the industrial milk market - have been assured a 'target return' by both support prices and direct federal subsidies. The concept of the target return embodies the notion of guaranteeing dairy farmers a net income that covers costs of production. The CDC established a base target return at the beginning of the 1975-6 dairy year. In each subsequent dairy year, the target price has been adjusted on the basis of a 'returns adjustment formula' which includes the costs of cash inputs and the consumer price index. In addition, adjustment of the target price takes into account 'judgement factors ... under the direction of the government and ... set with regard to the accumulation or decumulation of stocks of dairy products, the prices of dairy products on world markets, and the domestic prices of manufactured dairy products.' 12 Between 1975-6 and 1 August 1979, an interim returns adjustment was made to producers when the target support level departed by more than 4 per cent from the returns adjustment formula. Since l August 1979, an adjustment to farmers' returns has been made whenever the cost formula shows a change of more than 2 per cent during the dairy year. The federal government, through the CDC, uses two instruments to realize the target return to industrial milk producers: a direct federal subsidy to producers and an offer to purchase skim milk powder and butter at a certain price. That price level then effectively sets the market price paid at the dairy plant for milk used in the manufacture of butter and skim milk powder. Since 1975-6, the direct subsidy for industrial milk has remained fixed at $6.03 per hectolitre of milk. The upward adjustment in the target price since 1975-6 - from $25 per hectolitre in 1975-6 to $34.61 per hectolitre in 1980-1 - therefore meant that a greater proportion of the target price was being met through the market. That is, consumers paid more for butter and skim milk powder, as dairy manufacturers passed on the increased cost of industrial milk set by increases in the CDC's offer-to-purchase prices for butter and skim milk powder. 13 Table 9 gives information on the CDC's purchases of butter and skim milk powder throughout the 1970s; Table 10 shows the net cost of the dairy industry price support program over this same period. Thus, in spite of federal reluctance - at least on paper - to inaugurate income

61 Stabilization stabilization schemes, the formula by which thecoc calculates support payments for industrial milk producers does take into account costs of production and to that extent does seek to stabilize producers' incomes. However, unlike those commodities covered by the Western Grain Stabilization and Agricultural Stabilization acts, the ceiling as well as the floor price of dairy products is fixed. In the cases of grains and 'named' commodities, only the floor prices are fixed; stabilization here means evening out the lows in the price cycle, but not the highs.

PROVINCIAL STABILIZATION PLANS

British Columbia's passage of the Farm Income Assurance Act in 1973 marked the introduction of the first major provincial stabilization scheme. Since then, both Ontario and Quebec have joined British Columbia in providing comprehensive income assurance schemes. Table 11 shows that a number of other provinces also have programs to stabilize the returns to producers of hogs, cow-calves, and other commodities important to the province's economy. Initially, provinces moved into the stabilization field when they were pressured to do so by producers demanding relief from economic distress. Unsuccessful in petitioning federal authorities for assistance, they turned to their provincial governments. As the inflationary spiral of the early 1970s caught more and more Canadian farmers in a severe cost-price squeeze, the deficiencies of the federal agricultural program became clear. First, 'the minimum level of support for named commodities under the Act [80 per cent of the previous ten-year average marketing price] no longer provided effective protection.' 14 Hog producers, for example, complained that the ten-year base period was unduly long for an industry that fluctuated annually, if not quarterly. Second, while slaughter cattle are a 'named' commodity, automatically eligible for support under the Agricultural Stabilization Act, feeder calves, steer calves, and the breeder beef cows that comprise the basis of the western Canadian cow-calf industry were not. Producers in the cow-calf sector were severely squeezed by rising feed costs between 1973 and 1978, coupled with a leveling off of consumer demand and large imports. The federal government's failure to respond readily to this economic distress was one reason why British Columbia introduced a comprehensive stabilization scheme. But there was a second motive: to use the scheme to underpin an agricultural development strategy. Because the first motive, reaction to pressure from economically squeezed producers, figured in all the other provinces' later stabilization legislation, and the second, the goal of economic development, is an especially significant feature of Quebec policy, it is instructive to examine British Columbia's action in detail.

62 Shared responsibility: the 1970s and 1980s British Columbia When British Columbia's NDP government implemented a comprehensive Farm Income Assurance Act in October 1973, it broke new ground in the area of stabilization, not only because it was the first province to move into the area but also because it established a new standard and concept of stabilization, appreciably different from the federal one. First, the formula used to determine stabilization payments was unique in Canada, based as it was on total production costs of a model farm. Second, the determination of those production costs was to be by negotiation between government and the provincial farm organization, the BC Federation of Agriculture. Third, not only had producer groups had a paramount role in devising the individual commodity schemes, but they were to be entrusted, as well, with a large degree of responsibility for administering the schemes eventually established for twelve different commodities. And, fourth, unlike the wholly government-financed federal Agricultural Stabilization Act, the provincial schemes were to be jointly funded by producers and government at the ratio of one-third to two-thirds. Each individual insurance scheme (for dairy producers, cow-calf farmers, tree fruit growers, hog producers, and so on) ran for five years and assured a support payment based on 75 per cent of the difference between the market price and cost of production. Unquestionably, the BC Farm Income Assurance Act was the most generous of its kind in North America in terms of raising and stabilizing farm prices. Over the four-year period from 1974 to September 1977, it cost the government approximately $88 million in total indemnity payments. Most of this sum - $74 million went to the three largest programs: dairy, cow-calf, and tree fruits. Of these, the beef income plan was the most costly; cattlemen selling calves in 1975 got almost as much from the provincial government as from the market. Direct payments to cow-calf beef producers added an average 74 per cent to market returns, while tree fruit growers obtained a supplementary 34 per cent. Net farm income in British Columbia over the 1975-8 period climbed 44 per cent, compared with a nationalrise of 1 per cent. 15 In entering the farm income assurance field the NDP government adopted a radically new approach that was designed, not as the federal program was, to lessen the hardships associated with slumps in markets, but rather geared more to raising and stabilizing farmers' incomes. Three important reasons behind the move were the economic context and place of agriculture in the provincial economy, the ideology of Agriculture Minister Dave Stupich, and the political relationship between the BC Federation of Agriculture (BCFA) and the provincial Department of Agriculture. The agricultural economy of British Columbia generally faces higher production costs than those that prevail in other western provinces and Ontario, as well

63 Stabilization as in the American states with which BC fruit tree and vegetable growers compete. Transportation costs are high; feed must be imported for the dairy, poultry, and swine sectors. As a result, farmers in the province had generally suffered, not from cyclically low incomes but from continuously low incomes. Rapidly rising feed costs in early 1973, on top of rising wage rates for labour and other such increases in costs, hit hard first the dairy industry and later the beef industry. In the dairy sector, the pricing formula designed to support incomes was based on a ten-year moving average period and could not be adjusted sufficiently quickly to raise milk prices in the short run. In the face of runaway inflation, the federal formula was too slow to react. In 1973, milk production in British Columbia declined for the first time; the provincial minister of agriculture felt that time was of the essence in finding a solution to the problem. Dave Stupich, agriculture minister in the NDP government (1972-5), brought to that portfolio the ambition to preserve agricultural land in the province and to keep farmers on the land. In December 1972, zoning regulations to preserve agricultural land were inaugurated with the implementation of the Land Conservation Act. A series of pieces of legislation was put forward to accomplish the second goal, the viability of the farmer himself. These included measures to ease the rate and flow of credit to farmers and processors, as well as the Farm Income Assurance Act For Stupich, the two goals were always inextricably linked; had he not seen it that way, the producers in the province would certainly have forced him todoso. When the provincial government placed restrictions on the sale of agricultural land for non-agricultural purposes, many farmers, particularly dairy farmers in the lower mainland of the province, feared an immediate decrease in their land values and felt deprived of the major source of their retirement income: the proceeds of their farm land. As Jack Wessel, general manager of the BCFA, said in an address on 21 March 1979 to the Ontario Federation of Agriculture: 'We [the Federation] went to the government and told them that through the Land Commission Act they were withdrawing an important option which the marketplace had been providing to farmers. We told them that in the past farmers had been prepared to accept low incomes because the sale of land for non-farm uses at increased values had supplemented that income. We told the government that the commitment to the preservation of agricultural land in BC must carry with it a commitment to the viability of farming in BC. And they agreed with us.• The political influence of the BCFA was enhanced for two further reasons. 16 First, the government did not have its own proposal for an income assurance program. It furnished the federation with funds and opportunities to bring its ideas to the government. The Select Standing Committee on Agriculture travelled the province for almost six months, inviting suggestions from farmers themselves on

64 Shared responsibility: the 1970s and 1980s how to solve problems facing them. When the federation came to the government with a proposal that entailed ensuring such production costs as management fees, land value increases, and so on, and presented calculations pertaining to each of several commodity groups, civil servants found themselves without the specific detailed information needed to assess the federation's figures. In short, they were forced to react to the farmers who, hard-pressed economically, were making demands that were not modest. Second, there was an 'open clientele' relationship between the minister of agriculture and the farmers. Like many of his counterparts in other provinces, David Stupich enjoyed close relations with the federation which rested on regular consultation and close contact in the formulation of policy. This traditional concept, that the ministry is there to serve and help the farmers, was initially responsible for Stupich giving the federation wide influence in framing an income assurance policy. As well, the traditional belief that the needs of agriculture are 'different' and that the farmers themselves, along with the minister, have a monopoly of the expertise on matters agricultural made it easy to keep to a minimum the influence of other departments. Indeed, this applied even to civil servants in the Department of Agriculture itself, who backed off from antagonizing the minister, a man with a degree from the University of British Columbia and an attentive ear for the federation. This open clientele relationship, in the absence of policy-making structures that would have resulted in a civil service capable of devising alternate schemes and pinpointing problems in the proposal made to them, 17 undoubtedly augmented the influence of the federation and, as a consequence, the generosity of the Farm Income Assurance Act. Raising farm incomes and stabilizing them was the first priority of the scheme. Stupich also felt that the scheme would be a tool to encourage the province to produce more of its own foodstuffs and help to undercut the competition of more cheaply produced fruits and vegetables from the state of Washington that came to market earlier than local produce and hence depressed local prices when they eventually arrived on the market. According to one prominent civil servant, a major goal of BC agriculture since 1973 has been to raise the province's production of beef and hogs to 65 per cent, in each case, up from 14 and 10 per cent respectively. The minister of agriculture in the subsequent Social Credit government agreed. 18 The BC Farm Income Assurance scheme has had some success in furthering the agricultural development of the province. The BC agricultural economy did expand between 1975 and 1978: the number of farms increased 3 per cent against a nation-wide decline of 5 per cent; cultivated acreage increased by 5 per cent, while it remained constant in Canada as a whole; egg production rose 7 per cent versus a national drop of 1 per cent. Milk production increased by 4 per cent,

65 Stabilization yielding, in the opinion of Rick Barichello, an industry 'stronger' than that in Canada as a whole. 19 After it defeated the NDP and formed the government in late 1975, the Social Credit party sought ways to reduce the government's financial obligations for Farm Income Assurance and to lessen the bargaining role of the Federation of Agriculture in negotiating the cost of production and hence level of support. The different stance of the more conservative political party highlights the importance of an agriculture minister's own personal ideology regarding his portfolio and the willingness of his cabinet and party colleagues to support his philosophy. In a provincial setting, that personal and party ideology is highlighted by the absence of formal policy-making structures that permit cabinet ministers from other departments the opportunity to scrutinize and possibly constrain the goals and programs of the agriculture minister. The greater ease of producerministerial contact at the provincial, as compared with the national, level seems therefore to increase producer influence. Other Provinces' Reactions The provincial governments of Alberta, Saskatchewan, and Ontario turned repeatedly to the federal government between 1974 and 1976 to demand that it assume responsibility for the beef crisis, arguing that the importance of the beef industry to the Canadian economy necessitated federal action. It will be recalled that sales of beef cattle and calves are the major source of farm cash receipts in Alberta and Ontario and the second most important income source in the remaining western Canadian provinces, which collectively produce about 80 per cent of the beef cow population. The premiers of both Alberta and Saskatchewan were harsh in their criticism of the federal government's failure to introduce a stabilization plan. Said Saskatchewan premier Allan Blakeney, 'Our cattle industry is important to all of Canada because we provide a significant part of Canada's beef. But instead of all Canadians, through their government helping to save this key food industry, the burden has fallen entirely on the people in producing provinces such as Saskatchewan.' 20 When pressure exerted by producers and provincial governments alike failed to result in federal action to remedy the distress, those provincial governments whose overall economies were being particularly damaged by severely depressed markets for beef themselves took action. But they did so with a great deal of resentment, the Saskatchewan premier, for instance, calling his province's program of support 'a subsidy to beef consumers in central and eastern Canada.' 21 And a communique issued at the Western Premiers' Conference earlier that year (1976) declared: ' The fact that provincial governments have had to develop individual and provincial support programs ... is in the view of the

66 Shared responsibility: the 1970s and 1980s Western Premiers a reflection of an obvious abdication by the federal government of their national responsibility.' The same factors that constrained the nature of the programs that provincial governments were to implement were important in the delayed and limited federal response. These were the costliness of a relief program and the discord in the cattle industry regarding the appropriate remedies for the slump in prices. Purporting to represent the cattle industry were specific commodity groups as well as broader-based farm organizations. Among the former were the Canadian Cattlemen's Association (CCA), the Western Cow-Calf Association, and the newly formed Canadian Agricultural Movement. Among the latter were the National Farmers Union (NFU), the Saskatchewan Federation of Agriculture, and the Canadian Federation of Agriculture. The remedies they sought varied enormously: the CCA wanted the government to keep 'its hands off'; the Canadian Agricultural Movement wanted eased credit; and the NFU called for a National Meat Authority and supply management in the beef industry. When the federal government imposed quotas on beef imports in the summer of 1976, it chose the one remedy that was unanimously sought. Agriculture minister Eugene Whelan defended the failure not to impose quotas sooner (in 1976 when domestic supply was at its highest ever and there were no quotas on imports), on the grounds that cattlemen were inconsistent and divided in the remedies they proposed. 22 Provincial governments in Saskatchewan and Alberta were subject to the same plethora of conflicting demands as was the federal government. Unlike the situation in Manitoba and Ontario, where cattle spokesmen were more united in seeking government assistance, cattle commodity groups and farm organizations in Alberta and Saskatchewan were so seriously at odds regarding government's 'proper' role in the crisis that the provincial governments there ran a risk of alienating large numbers of their constituents. The Alberta government chose the route that was most consistent with its own laissez-faire philosophy; it stopped short of stabilizing either returns or incomes and instead made short-term loans available at favourable interest rates. In 1976 it offered a one-shot outright grant for a portion of the farmer's cow herd. Saskatchewan followed suit. While it was philosophically committed to guaranteeing farmers a reasonable income, the sheer financial cost involved, coupled with the conviction that the responsibility should be federal, 23 limited the Saskatchewan government's action to this more modest program. As it was, Alberta's grant program for 1976 cost the province $40 million; Saskatchewan's cost was $32 million. Both Manitoba and Ontario embarked in 1975 on programs to stabilize the incomes of cow-calf producers, ensuring coverage of the major portion of their costs of production. The Ontario program, for example, sought to guarantee

67 Stabilization producers their cash and a percentage of other costs and necessitated that the producer himself or herself contribute one-third of the payments to the stabilization fund. It was voluntary and to be in effect for five years. The stated goals of the program were 'to stabilize the income of recognized beef calf producers in Ontario' and 'to encourage a continuing steady supply of Ontario produced beef.' The program, said the news release, 'is designed to interfere as little as possible with an individual farmer's decision-making in managing his own farm.' 24 With provincial schemes in place in the major beef-producing provinces, farmers' pressure for federal assistance eased somewhat. It was not until January 1977 that Eugene Whelan announced 'cow-calves' as a designated commodity for 1977. Producers in those provinces where a provincial stabilization plan operated (British Columbia, Manitoba, and Ontario) would receive up to 50 per cent of the federal stabilization payment. The provinces would supply the remainder, up to 100 per cent of the total federal stabilization level. The federal program was criticized on two grounds. First, the federal attempt to discourage provincial top-loading by paying farmers enrolled in provincial plans one-half as much money as those living in provinces without local price support schemes was naturally viewed as discriminatory. Second, despite the fact that the federal government estimated the cost of the program to be $70 million, the reaction of the Ontario minister was that the program was 'too little, too late.' The absence of the federal scheme (and hence the need for the provincial plan) cost Ontario $55 million over the three years of the program. Resentment over the federal delay was typical. Ontario, like other provinces, made forays into the support of farm incomes only because it felt the federal government had dragged its feet in implementing a stabilization program for the beef industry. 25 Stabilization measures to assist the hog industry were introduced prior to 1976 by the Maritime provinces and Saskatchewan. The costs of these programs were shared by producers and governments. The Saskatchewan program included cash and non-cash costs and thus tried to stabilize income, while the programs in Prince Edward Island, Nova Scotia, and New Brunswick supported 95 per cent of cash costs and therefore were intended to stabilize market retums.26 These programs, like those provincial measures described earlier, were responses to the economic distress experienced by producers of commodities important to the provinces' overall economic health. Ontario A year after passing the Cow-Calf Stabilization Act in 1975, the government of Ontario extended the principle embodied in the act to a host of other commodities. The general stabilization plan, introduced in December 1976, was meant as a

68 Shared responsibility: the 1970s and 1980s supplement to the recently amended federal Stabilization Act: it offered stabilization for producers of commodities not 'named' for federal support and provided a higher level of support: 95 per cent of the average five-year price (plus adjustments for changes in cash costs), as compared to the 90 per cent level provided by federal programs for named commodities. That is, the Ontario program provided an extra 5 per cent of the average five-year price. It also embraced aspects of another federal stabilization program, the Western Grain Stabilization Act: each commodity industry would choose whether or not to set up a plan and individual producers would be free to participate or not; there would be joint government-producer contributions at the rates of $2 government to $1 producer; an adjustment factor would incorporate changes in the costs of production when calculating support payments, a feature also of the federal Agricultural Stabilization Act; and the plan was to be run by a crown commission, made up predominantly of representatives of farmers. The final plan differed quite dramatically from that originally proposed by the minister of food and agriculture. First, the original bill was 'essentially a stoploss program,' geared at stabilizing prices, rather than producer income. This was the kind of scheme that the laissez-faire market-oriented beef producer preferred; however, 'the majority of farmers wanted a plan based on current costs of production.' Both the Ontario Federation of Agriculture (OFA) and the Ontario Farmers Union (OFU)) pointed to the BC Farm Income Assurance scheme and urged that current full costs of production, rather than partial costs, be taken into account when calculating stabilization payments. Only the smaller Christian Farmers Federation opposed a formula based on the costs of production.27 Second, the original proposal would have been completely government financed but offered less protection. Third, the original proposal would not have extended coverage to those commodities covered by the federal Stabilization Act. Under pressure from the OFA and the NDP, the minority Conservative government agreed in the final bill to enable producers of all commodities to apply to the administrative commission to set up a stabilization plan. Fourth, while the original bill offered Ottawa-style protection, at the rate of 90 per cent of the fiveyear average price, the final protection was at the level of 95 per cent. And, fifth, the administration of the final plan offered greater farmer participation in the establishment and running of the programs. The policy process surrounding the passage of the General Farm Income Act in Ontario perhaps best exemplifies the combined impact of political pressure brought to bear on a minority government. The scheme was a response to pressure from the farmers themselves- theOFA and theoFU -who raised the example of British Columbia's comprehensive scheme; the two opposition parties who were prepared to defeat the government on the issue; and the examples of the BC

69 Stabilization program and the administered pricing system in the dairy industry. Producers of other commodities demanded the same treatment that allowed milk and cream producers to escape the worst vagaries of the cost-price squeeze. Political pressure from the two opposition parties in the provincial assembly combined with extensive lobbying of farm groups to result in changes to the bill. When the government introduced the income stabilization plan in June 1976, the bill was refused second reading by the two opposition parties. Only the Liberal party's decision to support the minority government on a vote of confidence allowed the government to survive. But the Liberal party insisted, as a condition of its support, that the bill go back for further study; that farm groups be consulted; that the plan be contributory, open to all commodities, and funded jointly by farmers and government; and that it be returned (with appropriate amendments) to the legislature by the end of October. Meetings in the fall of 1976 throughout the province furnished the farm community and representatives of commodity boards and provincial agricultural organizations with the chance to make their views known. The government was vulnerable; farmers were distressed and most of them had examples of another government (Quebec or British Columbia) to point to; the farm lobby itself was almost unanimous in what it thought that the government should do; and all three political parties accepted the legitimacy of the concept of supporting producers' incomes. Accordingly, the government of Ontario acted not to dislodge the federal government from responsibility for agricultural stabilization but to supplement federal support and to compensate for its inadequacies. Quebec Quebec's stabilization schemes, like those in British Columbia, represent an agricultural development strategy. Quebec's legislation was designed to stabilize farm incomes at a level high enough to ensure continued agricultural production and, potentially, to bolster it as well. High and stable incomes act as a deterrent to farmers abandoning farming in periods of deflated returns, and viable farm operations will have the capital to expand their size and output. In June 1975, the National Assembly passed the Farm Income Stabilization Insurance Act. It guaranteed producers of individual commodities, entering into five-year agreements with the government, the receipt of compensatory payment when 'cash receipts are insufficient to cover cash costs and depreciation plus an amount representing a certain percentage of the equivalent of the salary of a skilled worker.' 28 The program bore many similarities to the ec Farm Income Assurance Act already in effect: the compensation took into account total cash, plus some non-cash, costs, and the calculation was made in consultation with the farmers' union (Union des producteurs agricoles, or UPA). (For beef, the Quebec

70 Shared responsibility: the 1970s and 1980s Beef Cattle Producers' Federation was also involved.) It was a contributory scheme, with producers sharing one-third of the costs of the program and the provincial government bearing the remaining two-thirds. The details of the Quebec and BC schemes were alike partly because the rationale for, and the policy process surrounding, both programs were similar. Quebec's agricultural economy, like British Columbia's, is underdeveloped; however, it is much less diversified than British Columbia's. The dairy industry in 1978 generated 51 per cent of all cash receipts for Quebec farmers. The productivity of individual family farm units has lagged behind the Canadian average. The same slump that beef (cow-calf) producers elsewhere in the country were experiencing was a major incentive for the government to establish programs for feeder calves, steer calves, and slaughter cattle. After 1976, the Parti quebecois (PQ) government took a broader view than its Liberal predecessor of the utility of the Farm Income Act in realizing the agricultural development goals of the province. It extended coverage of the act to include beef, com, and pork, as well as the potatoes, wheat, oats, and barley previously eligible. The provincial stabilization scheme was but one of a series of measures that the PQ took to diversify Quebec' s agricultural economy and to expand production sufficiently to allow the province to become 'self-sufficient.' Other programs included credit assistance, financial assistance to expand grain production and storage, livestock transportation subsidies, and land improvement assistance. The agriculture minister, Jean Garon, described the province's strategy: 'We understand by self-sufficiency in agriculture that we will try to export as much as we import, so there will be a balance in the agricultural trade ... a medium or long-term objective ... because ... 80 percent of the beef consumed in Quebec is imported, 65 percent of cereals for animal consumption and almost 80 percent of the cereals ... for human consumption.' As in British Columbia, the overall package for agricultural development includes an act to zone agricultural land for agricultural purposes alone. The land zoning act was passed in early 1980 with farmers' (UPA) support contingent on better stabilization programs. 29 The high priority that the PQ government gave to agriculture involved the UPA in the formulation as well as the administration of relevant programs. Prior to its election, the PQ met in the spring of 1976 with 500 farmers to devise ideas for policy; at this time the major concepts behind the forthcoming legislation were devised. The UPA negotiates with the government the indemnity payments forthcoming under the Stabilization Act; indeed,the commission that administers the agricultural zoning act was run for a period by a former legal adviser to the UPA. The relationship between the PQ government and the farmers' union has been described as •an unofficial alliance.' 30 The impact of the UPA on the PQ government's long-term goals for agriculture

71 Stabilization would seem to have made the government anxious to consult and invite farmers to participate in schemes. But the goals themselves were part of the strategy of etapisme - or at least of preparing the province for eventual political sovereignty. The PQ has been exceedingly critical of what it regards as the federal government's policy of regional specialization in agriculture, which saw Quebec's dairy industry stimulated but other parts of the agricultural industry left to lag behind the Canadian average. They claim that federal policies made Quebec unduly reliant on the dairy sector and kept the province dependent on western-produced beef and feed grains. The thrust of the PQ government was to reduce dependence on the one sector and to expand production in beef, feed grains, and small fruits and vegetables. The Farm Income Stabilization Act was the first measure to try to achieve this objective. The act, explained Gaetan Lussier, then deputy minister of agriculture, should, 'by giving added incentives to long term planning, ... increase agricultural production, particularly in those commodities which we now have to import in huge quantities from other provinces and from other countries.' 31 THE PUSH FOR HARMONIZATION: DEADLOCK

The differences in provincial and federal stabilization programs are seen by federal officials and some of their provincial counterparts to be significant enough to create distortions in the national agricultural economy. Specifically, it is feared that the proliferation of programs, with their varying levels of support, eligibility limits, and producer contributions, 'will interfere with the comparative natural production advantages of the provinces and that this will lead to mounting claims on the part of the producers and to the interprovincial competition over guaranteed income levels.' 32 The federal government has been and remains concerned that agricultural production will tend to shift among regions of Canada in ways that diminish the overall efficiency of Canadian agriculture and is worried as well about the generosity of the provincial support levels. The federal position is that only a federal program that provides the same level of support and conditions for all Canadian producers can ensure that the comparative advantage that certain regions enjoy in the production of certain foodstuffs will not be disrupted. Accordingly, the federal role must be paramount The federal Liberal government sought to harmonize stabilization programs by having the provinces vacate the field of stabilization of national commodities (hogs, slaughter cattle, and so on) and assuming complete responsibility itself. 33 From the federal standpoint, there are three economic and political benefits to this way of harmonizing provincial and federal stabilization programs. First, the federal government avoids the costly expenditures needed to placate the

72 Shared responsibility: the 1970s and 1980s producers, who because their advantage has been reduced by theexistenceof a program in another province, petition it for a higher level of support. Second, Lhc scheme eliminates the need for the federal government to arbitrate the interprovincial conflict that has arisen as some provinces cry 'foul' when their counterparts' expenditures to stimulate production undermine their own previous advantage. And, third, the federal government's proposal furthered the goal of then Agriculture Minister Whelan to secure a paramount federal presence in agriculture. Provincial pressure for harmonization of federal and provincial schemes arose from those provinces (the prairie provinces and Ontario) that felt that the federal government's failure to assume more financial responsibility for severely depressed cow-calf producers discriminated against them. Their concern was that the actions of those provinces (British Columbia and Quebec) whose cowcalf operators were small enough in number to allow them to bear the expense of some support program would distort the natural advantages they had previously enjoyed. Some provinces believed that the federal Agricultural Stabilization Act 'discriminated against farmers whose enterprises entailed high cash costs, such as beef feedlot operators, and favoured lower-cost operations such as corn and grain growers.' 34 The charge arose because it was gross market returns, not net income, that were stabilized. Thus the search for harmonization was propelled by the mutual fear that the entry of provincial governments into the area of stabilization, especially when provinces attempt to stabilize incomes by guaranteeing the farmer his or her costs of production, would upset 'natural' market forces. Provincial top-loading of federal programs and unilateral provincial income assurance plans give artificial advantages that raise barriers to trade in agricultural products and diminish the scope of the customs union in Canada by balkanizing markets. 35 Concern that this is not only a consequence but the intention of the Quebec Farm Income Assurance Act can be found, in the fact that the PQ pre-referendum statement, Equal to Equal, proposed that the government of Quebec be able 'to control the movement of farm products' and 'to impose import restrictions at the provincial borders.' Such provincial authority would rule out free trade in agricultural products. The federal government responded to provincial pressure by seeking, in conjunction with them, ways to harmonize federal and provincial schemes. Intensive federal-provincial discussions began in 1973 between technical personnel of the two levels and were influential in amendments to the Agricultural Stabilization Act in 1975. The talks resumed almost as soon as the amended act was in effect and were fairly continuous between 1975 and the spring of 1980. At the Federal-Provincial Agriculture Ministers' Conference in Victoria in June 1977, a majority of the provinces agreed to withdraw from stabilization provided that the federal stabilization program assured high levels of support for all

73 Stabilization commodities with the level of support suggested ranging from 90 per cent to 100 per cent; provided for provincial and farmer involvement; paid attention to regional considerations; entailed one support level for all of Canada; was a tripartite plan, whereby provincial governments, the federal government, and producers jointly shared the cost of stabilization; and was jointly administered by the federal and provincial governments. 36 In the fall of 1977, a technical committee of personnel from provincial and federal agriculture departments began meeting to find ways to accommodate British Columbia and Quebec, both of which had serious reservations about a paramount federal presence in national stabilization. In the summer of 1978, the federal government announced its own plans for harmonization. It proposed one comprehensive federal stabilization plan to replace the existing federal and provincial programs. Provincial and producer resistance to withdrawal of provincial stabilization programs in order to qualify for federal coverage, as well as dissatisfaction with other aspects of the federal proposal, led to a succession of federalprovincial meetings on the subject. In 1980, following two years of discussions on ways to achieve ' harmonization' of federal and provincial plans, Ottawa tabled a new proposal, with four main features. 1. Harmonization would be achieved, as in the 1978 proposal, by provincial withdrawal from the stabilization of national commodities (they would agree not to top-load federal schemes) and by provinces confining their stabilization role to support for minor/ regional crops. Financial responsibility would be shared onethird by the producer and two-thirds by the federal government. 2. While the federal government had consulted the provinces in formulating a new plan, the 1980 federal proposal did not allow for provincial involvement in the administration of the plan. 3. The level of support revealed the pressure of provincial schemes. The federal government would apply the current Agricultural Stabilization Act formula at a higher level - possibly 100 per cent - or alternatively would include current cash costs of production in the formula plus 100 per cent of the average margin over the previous five-year period.37 Farmers across the country would be treated alike; all would be assumed to be receiving the same market price and experiencing the same average costs and would, in tum, receive the same payment per unit of commodity. 4. Cow-calves would be added to the list of named commodities. Producer participation would be voluntary. Provincial governments and producers reacted more favourably to the 1980 proposal than to its 1978 predecessor. Nevertheless, no agreement was forthcoming. The major stumbling blocks in 1978 again prevented a compromise in 1980. These included the role of the provinces and of producers in the formulation and administration of the federal plan and the provinces' right to augment or

74 Shared responsibility: the 1970s and 1980s independently execute their own schemes. Neither British Columbia nor Quebec would relinquish this right. In addition, all provinces had specific complaints about the details of the federal scheme, including the higher level of support and the naming of more commodities; the establishment of criteria for determining levels of support for 'designated' commodities; advance announcement of support levels; public and consistent application of price and cost calculation methods; and other aspects of administration. 38 The most adamant opponents of the federal harmonization proposal were Quebec and British Columbia. Quebec would not agree to the federal insistence that provinces withdraw from supporting commodities to be covered under the federal scheme and that regional differences in production costs and market returns of national commodities not be taken into account in calculating the indemnity payments. Quebec argued that it could not let the federal government control such an important 'development tool of the agricultural and food sector.' Because Quebec's producers experience higher costs and lower market returns in certain commodities, it asked that the formula in the national scheme be based on costs of production in each province and, within the province, on costs on the family farm. Any other formula would not accelerate agricultural development in the province to the degree desired by Quebec producers and their government. Thus, unless the federal government used such a formula in its scheme, the province could not withdraw from stabilization and had to reserve the right to enrich any federal program to ensure a reasonable return for the family farmer. Even with a formula that recognized regional differences in production costs, the Quebec government's political competition with the federal government meant that it would demand minimally joint, and preferably provincial, administration of the federally funded program. Committed to greater political and economic sovereignty, the PQ government was unwilling to sanction any federal programs that lessened its capacity to steer the province in that direction. British Columbia took issue with the federal argument that only a comprehensive federal scheme could avoid the disruption in the national agricultural economy that provincial income assurance schemes, with their varying levels of support, cause. It claimed that other provincial schemes for crop insurance or credit are in effect also top-loading schemes, altering as they do the costs of production and market returns and hence potentially disrupting the natural advantages that some regions enjoy in the production of certain products. BC producers, for their part, were conscious that they face higher operating costs than 'producers elsewhere. They calculated that in 1975 they would have received about $8.5 million less under the proposed federal scheme than under the BC Farm Income Assurance Act. Given the traditional relationship that prevails between the provincial department and the producers, it was difficult for the BC government to 'abandon' willingly its plan and jeopardize its producers at the expense of those in other

75 Stabilization parts of the country. Nor was it politically wise, given the competitiveness of electoral politics in the province. So British Columbia, too, refused to give the federal government a free hand in stabilization. With one comprehensive stabilization program appearing unattainable, provincial and federal officials thereafter attempted to reach stabilization agreements on a commodity-by-commodity basis. High interest rates and depressed prices in the red meat (pork and beef) industry after 1981 made the quest more urgent. Provincial agriculture ministers, and groups representing the red meat sector, together sought to resolve the differences among the provinces and producers that stood in the way of a national stabilization plan and simultaneously to put pressure on the federal government to assume responsibility to implement a national stabilization scheme for the cow-calf and hog sectors. The agriculture ministers of Saskatchewan, Gordon MacMurchy (June 1979-April 1982), and Ontario, Dennis Timbrell (February 1982-March 1985), led the campaign for national stabilization. Chapter 2 has documented the considerable significance of the cattle industries to these provinces' economies. Ontario and western cattlemen grew militant as bankruptcies increased. While the Ontario government made a 'one-shot' payment to shield its producers in the face of federal inaction, Saskatchewan introduced its own, rather innovative cow-calf stabilization plan in September 1981 (which became effective 1 January 1982). When producers and provincial politicians' individual pleas for a national plan remained unanswered, representatives of all provincial governments but Quebec met with the provincial cattle groups affiliated with the Canadian Federation of Agriculture in January 1982 to press jointly for national action. The meeting established a committee to develop the details of a compromise plan and to determine how to harmonize federal and provincial plans. That same month, a separate meeting in Regina of western agricultural groups (the Western Agricultural Conference) reiterated the call. 39 The failure of provincial agriculture ministers to reach agreement on stabilization at their annual meeting in Halifax later that year demonstrated the difficulty of their task. In November 1982, a meeting of provincial agriculture ministers and producer organizations repeated the call for federal action and requested a meeting with Eugene Whelan. When that meeting was not forthcoming, the provincial agriculture ministers took the initiative and in March 1983 established a task force composed of provincial representatives and spokesmen of the red meat industry. The federal government subsequently accepted an invitation to partake in the work of the task force to draw up the details of stabilization plans for the hog and beef sectors. Despite this relentless pursuit of a plan acceptable to all eleven governments, the proposal that the task force submitted to the federal-provincial agriculture ministers' meeting in Brudenell, PEI, in mid-July 1983, secured the agreement of only four provinces. Moreover, it did not

76 Shared responsibility: the 1970s and 1980s have the unequivocal support of the two bodies representing cattlemen, the Canadian Cattlemen's Association (CCA) and the Canadian Federation of Agriculture (CFA).40

While it resisted provinces' and producers' urgings to assume its proper national role, the federal government did none the less take some actions in response to producer distress. The Senate Committee on Agriculture commissioned a report to propose alternative beef marketing strategies and held hearings to solicit cattlemen's reactions to four alternate marketing strategies. In December 1981, the Meat Import Act was passed, allowing quotas to be placed on meat imports in periods of large domestic supplies and/or declining demand. But the latter affected only meat imports, not live cattle, and it was the price of live cattle that was especially troublesome.41 There were at least four reasons for Eugene Whelan' s seeming deafness to provincial and producer pleas that the federal government take responsibility for national red meat stabilization. First, Whelan believed that a program to stabilize prices did not address the fundamental problem of the beef industry - fluctuating levels of production. His preferred solution was supply management for the beef industry and, failing his cabinet colleagues' endorsement of that, a stabilization program that included production targets. Whelan's resistance to amending the federal Stabilization Act to include the beef and hog producers currently not automatically eligible for assistance undoubtedly stemmed in part from his hope that producers, given sufficient time and experiencing deep enough distress, would be persuaded of the merits of supply management. His inability to convert a majority of them to his viewpoint was one reason for provinces refusing to endorse the supply management option. Second, a national stabilization plan would have been costly. Faced with a federal deficit in excess of $20 billion, the federal cabinet was undoubtedly reluctant to endorse a transfer of $450 million the estimated cost of a wholly federally financed plan and a sum greater than the cost of the dairy program - to one small segment of the Canadian population. Third, while the cost of a joint federal-provincial program would be lower, Whelan preferred a program that excluded provinces because it would leave no doubt as to who should get political credit for producer assistance. Like some of his colleagues, Whelan was annoyed that provincial governments had in the past advertised shared-cost schemes, like Crop Insurance, as provincial programs. This 'jockeying for prestige' was a constraint to federal willingness to endorse the provincial stabilization proposals.42 Fourth, there was still no consensus among either the provinces or the cattlemen. And the very principle that had led to deadlock in 1980 was one reason why there was none. Quebec and British Columbia continued to refuse to abandon top-loading, and other provinces joined them in resisting giving up their analo-

77 Stabilization gous 'bottom-loading' programs - loans, subsidies, and other farm assistance. The 'best-efforts' consensus for hog stabilization included limited rights to toploading. Top-loading would be allowed in provinces that did not export pork (all except British Columbia, Ontario, and Quebec) and where the costs of production were above the national average. If it resulted in production shifting to the top-loading province, it would be disallowed. 43 While most provinces agreed to this, Quebec remained adamant about retaining unlimited rights to top- and bottom-loading. The divisions that prevented provincial and producer agreement on a beef stabilization proposal were greater in number than for hogs and, in addition to the issue of top-loading, related to appropriate levels of support. Among producers, a cleavage developed between the CCA and the CFA; the former opposed any toploading and sought to stabilize prices at historical levels; the latter accepted 'some' top-loading and wanted returns stabilized at a level that covered costs of production. 44 In spite of having the support of only four provinces (Alberta, Saskatchewan, Manitoba, and Ontario), the federal government, spurred by continuing low beef and hog prices, introduced amendments in 1984 to the Agriculture Stabilization Act (ASA) that would establish separate, voluntary, tripartite plans for beef, cowcalf, hog, and lamb producers. When the defeat of the Liberal government in September 1984 brought an end to these amendments, Conservative Agriculture Minister John Wise introduced similar legislation. It, too, would prohibit provincial enrichment of a federal-provincial-producer-financed plan. Pressure for passage of this legislation mounted over the winter and spring of 1984-5. The United States imposed countervailing duties on pork and hog exports, on the grounds that the ASA and provincial hog stabilization plans were unfair export subsidies and so subject to trade retaliation. The federal and Alberta agriculture ministers, and the Alberta and Saskatchewan pork producer associations, called for speedy passage of the proposed ASA amendments as the solution to end American retaliation. Unlike existing stabilization plans, the contemplated tripartite plans, insofar as they would be partially producer-financed, were more akin to an insurance policy than a government subsidy and so would be more tolerable to the Americans. In addition, the American export tariffs were an added pressure, because they squeezed further the already hard-pressed hog producers in Alberta, for whom the American export market was important and who, alone of Canadian producers, lacked a provincial support plan. Provinces like Manitoba and Saskatchewan, with stabilization schemes facing mounting deficits, were anxious for federal financial assistance. Further pressure came from threats by Ontario's and Alberta's agriculture ministers, who announced their intentions to bring in their own schemes if Ottawa did not act quickly. The possibility that

78 Shared responsibility: the 1970s and 1980s Alberta would unleash its extensive treasury to subsidize local producers raised fears of intensified interprovincial hostilities as Alberta sought to recover its former market share of hog production and provinces like Quebec struggled to hold on to newly acquired markets. 45 But the campaign waged by opponents of the ASA's proposed elimination of provincial top-loading proved too strong. The amendments approved by the House of Commons at the end of June 1985 represented an important concession to livestock and hog producers, the governments of Quebec, British Columbia, and the Maritimes, and to the NDP caucus and the CFA and the National Farmers Union. The legislation will allow for the negotiation of tripartite plans that enable top-loading. At the discretion of the federal minister of agriculture, toploading will be allowed in a province provided that it does not give producers there an advantage over those in another province and does not encourage production. Viewed from one light, the concession may be seen as an example of 'the art of the possible' and an effort by the federal minister to make the compromises necessary to balance the conflicting needs and goals of producers in various regions. From another light, it can be seen as a highly political act consistent with the partisan interests of the Conservative government. Having finally broken the umbilical cord between Quebec voters and the national Liberal party, the Conservative party is anxious to keep onside this province, whose voters' change of heart in September 1984 was vital to its huge majority. Quebec's sixty Conservative MPs heard the message forcibly presented by the Quebec agri-food lobby. But the amendment constitutes at least a partial retreat from one of the basic principles of the ASA: that is, that commodity support payments should not interfere with the allocation of production according to natural advantages. It negates the long-avowed policy of Wise's predecessors that a federal minister of agriculture, responsible for agriculture across all regions, cannot sanction a policy that allows different levels of stabilization in different parts of the country and treats producers differently according to where they live. Like most compromises, this one did not satisfy either the opponents or advocates of provincial top-loading. The latter remained unhappy that the amended ASA did not meet their objective that payments take into account differences in regional costs of production. Quebec resented Ottawa's interference in the form of the federal minister having the right to determine the appropriateness of provincial income support measures. SUMMARY AND ANALYSIS The deadlock in the drive for an amended ASA has been broken by the federal government retreating from its requirement that provinces meet its conditions in

79 Stabilization

return for a higher level of federal support Whether harmonization of federal and provincial stabilization measures will result remains to be seen. The division between provinces whose producers enjoy a comparative advantage in red meat production and whose advantageous position is being eroded by other provinces' income assistance schemes (the prairie provinces and Ontario), and those whose producers' competitiveness is contingent upon subsidization (Quebec, British Columbia, and the Maritimes), still remains. And it is likely to remain, because the division also includes an ideological element Those provinces which deny the legitimacy of top-loading, like Alberta, tend to adhere to a conservative, market-oriented perspective, while those like Quebec which justify the need for top-loading tend to a protectionist view, whereby the government's role is to assist farmers in realizing an adequate standard of living. The importance of philosophy in affecting provincial policies on stabilization is demonstrated by the contrasting actions of the Conservative governments of Alberta (first elected 1971} and Manitoba (1977-81} and the NDP governments of Saskatchewan (1971-82} and Manitoba (elected November 1981}. While all three provinces hold the federal government responsible for income stabilization, the NDP governments in Saskatchewan and Manitoba did none the less introduce their own income support schemes when it became apparent that the federal government would not amend the ASA. However, Alberta's minister of agriculture refused hog and cattlemen's solicitations for assistance - other than to offer one-time loans - and criticized Saskatchewan's action. As noted in the earlier description of the BC Income Assurance Plan, provincial NDP governments have endorsed more protectionist agricultural policies. In this area, the PQ government also showed its social democratic proclivities.46 The importance of the philosophical perspective of the minister of agriculture (and his cabinet colleagues) is further demonstrated by the fact that a conservative market-oriented approach tends to supersede the factor of the economic significance of the agricultural sector. The policy actions of provinces to breach the void created by federal inaction have clearly not been exclusively determined by the significance to their province of the red meat sector. Alberta, with an economy highly dependent on its livestock sector, introduced no stabilization scheme; British Columbia, a province where livestock is of far less significance to the economy, did. The contrast is explained by differences of philosophy of both governments and local producers. In short, in a policy field where they exercise concurrent jurisdiction, the provinces have shown both the scope and limitations of shared jurisdiction. Initially, by demonstrating their unilateral willingness to open their own coffers to economically distressed producers, and by aligning with producer groups to wage a relentless campaign for more adequate federal income stabilization, provincial ministers of agriculture were able to secure significant amendments to the ASA in

80 Shared responsibility: the 1970s and 1980s 1975. Producer and provincial lobbying activity proved equally effective in securing grain stabilization. At a time of relatively unrestrained government expenditure, provincial unity secured federal responsiveness. Until recently, in spite of several provincial and federal-provincial first ministers' meetings, and of threats to 'go it alone,' 47 the provinces failed to convince a debt-ridden majority federal government of the need to take action to stabilize the red meat industry. Their lack of success in the second half of the 1970s and early 1980s was linked to disunity among themselves and producers that they were unable to heal. That split demonstrates the peril of shared jurisdiction. Provincial governments, distinguished by their philosophies and political economies, will define their jurisdictional responsibilities in different ways. While some provinces have chosen to exercise their jurisdictional levers with respect to agriculture, others have not, and these opposing views of governmental responsibility for producer income assistance divide provinces and prohibit a unified and more effective bargaining stance vis-a-vis Ottawa. While their jurisdictional authority for agriculture always meant that the provinces were free to spend in support of producer incomes, the federal government must accept some degree of responsibility for the fact that a number have chosen to do so in the 1970s and 1980s. Most provincial programs (which have undermined domestic free trade in red meats, the problem that lies behind the impetus for a revamped national stabilization act) were instituted reluctantly and only after repeated failure to provoke federal action. The transition of commodity stabilization from a policy field occupied virtually exclusively by the federal government to one where governments at both levels are actively involved was initially the result of provincial governments moving into a policy void created by federal 'slackness.' Rather than being 'pre-emptive strikes,' the income stabilization schemes of British Columbia, Quebec, Saskatchewan, and Manitoba were taken in response to producer pressure and to minimize the negative economic and political repercussions of ignoring producer distress. Ontario's hog stabilization scheme, dovetailing with the federal ASA, would appear to be a deliberate attempt not to compete with the federal government to occupy a policy field and/ or to secure producer loyalties. So would Saskatchewan's 1981 combined stabilization marketing scheme, judged by an agricultural economist to be not 'rich enough to increase calf production in Saskatchewan or to create a national surplus but generous enough to allow the provincial cattlemen to reach their production potential. ' 48 However, having exercised responsibility in this area of joint jurisdiction, provinces are now unwilling to retreat and allow income stabilization to revert to being an exclusively federal field. While those provinces that concurred with the concept of a tripartite-financed scheme undoubtedly did so in part out of their

81 Stabilization need for federal sharing of the financial burden of stabilization, their willingness to shoulder part of the costs themselves is likely related to their desire to have greater input into commodity stabilization and to realize the political credit that accompanies it. In the 1970S and 1980S commodity stabilization thus became a field not just of shared jurisdiction but of shared responsibility as well. What is the impact of this development on policy? To determine this, it is useful to examine the beneficiaries and losers, first, of federal stabilization schemes and, subsequently, of the current situation of joint but unco-ordinated federal and provincial plans. The question is whether some producers and some provincial governments benefit more than others as a result of the federal government having assumed unilateral responsibility for the stabilization of industrial milk and cream, the primary obligation for stabilizing returns for 'national' commodities, and, along with grain growers, responsibility for stabilizing grain returns in the prairie region. The cost of all programs to the Agricultural Stabilization Board, between 1 April 1958 and 31 March 1979, was $3 billion. As Table 12 indicates, 73 per cent of these funds went to the Canadian Dairy Commission. Table 13 shows that Quebec, as the province producing the highest proportion of industrial milk, receives slightly under one-half of all these payments. They are crucial to the province's producers, who in 1974 received 51 per cent of their total farm receipts from dairy receipts. Ontario dairy farmers receive about one-third (32.2 per cent) the Dairy Commission's payments, a figure very close to their share of total production of manufacturing milk (31.7 per cent in 1975). Ontario's agricultural economy, being more diversified than Quebec's, is less dependent on milk production: in 1974, total dairy receipts comprised 22.5 per cent of total farm receipts in Ontario. While dairy receipts constitute the most important source of farm cash receipts in British Columbia and Nova Scotia, the higher use of fluid milk there (as in Ontario) reduces the size of federal transfers through the Dairy Commission. Table 14 presents Wood's breakdown of federal expenditures in the dairy industry and substantiates the claims above. Information regarding commodity producers and provinces that receive payments from the Agricultural Stabilization Board is provided in Tables 13, 14, and 15. Ontario producers receive a larger share of federal stabilization payments than do producers elsewhere, and a share (one-third) larger than their relative proportion (one-quarter) of the total Canadian farms (see Table 3). Of the western Canadian provinces, Alberta seems to benefit most from federal commodity support; payments for hogs, sheep, and sugar beets (a named commodity) have been important As Table 15 shows, British Columbia, New Brunswick, and Prince Edward Island appear to 'suffer' most: some of their most important

82 Shared responsibility: the 1970s and 1980s commodities are not automatically eligible for federal support. And, of course, the cow-calf operator, important to the Alberta, Saskatchewan, and Ontario economies, was not automatically covered. The other federal stabilization program is the Western Grain Stabilization Act. For the first three calendar years of the program, 1976, 1977, and 1978, the federal contribution amounted to $105 million, $115 million, and $253 million, respectively. There were no payments in 1979, 1980, and 1981. The payment for the 1983-4 crop year was $223 million and for the 1984-5 crop year a record high of $450 million.49 Because federal expenditures to 'stabilize' the grain industry go far beyond the act, to include the costs of the guaranteed initial payment for wheat, the expenses associated with grain-handling subsidies, and so on, it is useful to try to compile these assorted expenses together to arrive at some summary figure of support for the grain industry. Wood had done this. Table 16 presents his data on the net federal transfers (including expenses for grain, dairy products, and so on) from the federal government to the prairies and Quebec. According to his figures, Quebec has benefited more than any other province or region: its producers received just under one-half of their net income from the federal government in 1975. The major beneficiaries of the current situation of joint but unco-ordinated federal and provincial stabilization plans are clearly producers whose provinces have implemented their own schemes and who would be uncompetitive in their absence. The major losers are the producers who would otherwise enjoy a comparative advantage. The surplus western pork-producing provinces blame their loss of markets to Quebec on that province's various assistance programs. A further cost is that, as a result of their greater dependence on export markets, western producers bear more fully the brunt of international retaliation to the nontariff obstacle of commodity support.50 CONCLUSION

In evaluating the federal record in commodity stabilization, the question of the fairness of federal policy arises. Has the federal government acted as a national policy-maker, serving the national interest rather than paying undue attention to particular territories or regions? With respect to commodity stabilization, the charge of regional favouritism/ discrimination can take at least two forms. First, regions will be perceived to be discriminated against if commodities of significance to them are exempt from coverage. The above categorization of the beneficiaries and losers of federal plans shows the first charge to have some validity. As long as red meats were not automatically eligible under the ASA, the red meat-producing provinces (Saskatchewan, Alberta, Manitoba, and Ontario)

83 Stabilization quite legitimately felt discriminated against. Because Ontario's other major commodities are covered by the ASA, perceived discrimination may not be great. On the prairies, coverage of grains also weakens the charge of regional discrimination. None the less, the exclusion of cow-calf producers from automatic coverage gave a basis to the perception of discriminatory treatment. The additional failure of the federal government to assume the financial responsibility and leadership necessary to curtail the unilateral and unco-ordinated provincial commodity programs that are eroding the western comparative advantage in red meat production is seen to be a further example of discriminatory treatment. Second, charges of discrimination relate also to individual stabilization programs. While a national program that offers producers coverage regardless of where they reside theoretically excludes the possibility of discrimination against producers in different provinces, the formula calculating the level of support can be seen to be discriminatory. For example, it may underestimate the production costs of producers in less competitive regions. This is the complaint of Quebec, British Columbia, and the hog-producing Maritime provinces, which argue that basing federal support on national production costs discriminates against their producers (who face higher input costs). Prohibiting provinces from offsetting that disadvantage with provincial support is viewed as discrimination. Another lesson of the experience recounted here is that federal stabilization programs show the imperative of politics in federal policy-making. Evidence that the most important commodity groups in Ontario and Quebec are well protected by federal legislation is not surprising, given the electoral data presented in chapter 2. Not only have federal Liberal governments been largely drawn from these provinces, but the shifting allegiances of Ontario voters spelled the difference between minorities and majorities, victory and defeat in the 1970s. The lessons of the 1976 Quebec and the 1979 federal elections aided the Quebec Liberal caucus in maintaining the appreciable degree of government support for the dairy sector. The PQ success in rural Quebec in 1976 was partly attributed to the fact that the Canadian Dairy Commission had earlier cut production quotas in that province - as it had throughout Canada. And the continuing thorny presence of the Creditistes, which helped to deny the Liberals re-election in 1979, only augmented the Quebec caucus's influence. Conversely, federal insensitivity to western cow-calf operators and Maritime potato growers reflected the lesser relevance of these two regions to the Liberal government. And, finally, the most recent development in national stabilization policy, the amendments to the ASA approved in June 1985, are likely to be interpreted by some western Canadian cattle and hog producers as continuing evidence of their relative lack of influence in national decision-making circles.

5 National marketing and supply management

The continual struggle to maintain, stabilize, and if possible increase farm incomes led Canadian producers to appeal to governments in the depressionstricken 1930s for legislation to require the collective marketing of farm produce. The judicial rulings that complicated the establishment and operation of marketing boards have previously been noted, as have the co-operative efforts of federal and provincial governments to come to producers' assistance in overcoming constitutional obstacles. Very briefly, at the beginning of the 1970s a number of provincial boards were in operation. All provinces had marketing boards for fluid milk, eggs, and broilers; the major pork-producing provinces had hog marketing boards or commissions; and provincial boards existed for fruits, vegetables, and other locally significant commodities. The objectives of provincial boards were essentially the same: to maintain or increase producers' incomes, stabilize incomes from sales, and create equity among producers in terms of sales opportunities and prices. Some marketing boards, such as the Alberta Cattle Commission, restricted their efforts to promoting a product and seeking markets for it. Others, such as provincial hog boards, negotiated prices with major buyers. And still others, such as the fluid milk and poultry boards, attempted to fix the price of the commodity by regulating the quantity that individual producers could market. By managing supplies at the provincial level, poultry and milk boards attempted to gear supply to demand. With output no greater than demand for a particular commodity, the problem of surpluses flooding the market and thus driving down the price of all such supplies would be avoided. 1 Stable and higher prices for the producer would thereby result. To enhance their effectiveness, the federal government had empowered provincial marketing boards to sell locally grown or processed produce to other provinces or foreign countries (the Agricultural Products Marketing Act, 1949) and to collect levies and so to finance their administrative costs (1957).

85 National marketing and supply management In the early 1970s, the limitations of supply management on a provincial basis became apparent. Provincial boards (as opposed to federal ones) were generally adequate for those commodities, such as fluid milk, that are produced and consumed in the province or for those produced almost exclusively in a single province (tobacco, soybeans). Such commodities need no protection from the produce of other provinces. This 'natural protection,' however, exists for relatively few commodities. The stimulus to regulate marketing on a national basis arises when producers in different provinces find themselves competing for the same domestic market. Those with surplus production, seeking markets outside their borders, compete for the consumer market in another province by dropping their prices. Undercut by cheaper imports, local producers are likely to lobby for regulations to restrict this interprovincial competition for markets. The mechanism resorted to to prevent interprovincial 'wars' for markets is the national marketing agency. Its central feature is supply management: that is, regulating either the production or (more frequently) the marketing of a given commodity on a national basis. Individual producers are controlled as to the quantity of a commodity they may produce or sell through the issuance of licences that restrict their marketing to a fixed amount (quota). Four national agencies are especially significant: the three that market eggs, chickens, and turkeys; 2 and the Canadian Dairy Commission. THE NATIONAL POULTRY AGENCIES

The Farm Products Marketing Agencies Act, given royal assent in early January 1972, in conjunction with provincial legislation, enables producers of poultry products to establish national marketing agencies to manage the supplies of poultry products being marketed by Canadian producers. Eggs, turkeys, and chickens now are produced and marketed within national supply management plans. The Canadian Egg Marketing Agency (CEMA) was established in December 1972 and began operation in June 1973; the Canadian Turkey Marketing Agency (CTMA) was established in December 1973; and an order-in-council proclaimed the Canadian Chicken Marketing Agency (CCMA) in December 1978. Judicial review has determined that the creation and operation of national marketing agencies will be an arena of federal-provincial interaction. As early as 1937, the Natural Products Marketing Reference case had limited the federal government's right to interfere with marketing within a province. Two cases in the 1970s further spelled out the federal and provincial jurisdiction over marketing. Both cases confirmed that regulation of marketing on a national basis requires joint federal and provincial co-operation and legislation. The Manitoba Egg Reference case (1971) and the Ontario Egg Reference case (1978) defined the constitutional context within which national marketing

86 Shared responsibility: the 1970s and 1980s agencies operate. The general principle is that the provinces control marketing within their borders, while the federal government has authority to regulate interprovincial and export marketing. But, as one lawyer asks, 'Where does the regulation of intraprovincial trade stop and that of interprovincial and export trade begin?' 3 The Ontario Egg Reference case established that provinces have authority to do the following. First, they may impose controls on production extending to both pricing and quantity in the province 'even if the whole production has been going into extraprovincial trade,' because this is 'prima facie a local matter, a matter of provincial jurisdiction' and falls within section 92.10. Second, they may operate a program of surplus removal in the province and impose and collect levies to finance such a program. However, there are limits to the province's ability to control local production 'irrespective of the destination of ... output.' The Manitoba Egg Reference case established that provincial regulations to prohibit the free flow of goods across provincial borders were unconstitutional. 4 Supreme Court Justice Bora Laskin further defined the limits to provincial production controls in the Ontario Egg Reference case. A provincial regulation was valid only if it were not aimed at controlling extraprovincial trade and, where it did affect interprovincial trade, were complementary to the regulations established under federal authority. Referring to paragraphs 148 and 149 of the Manitoba Egg Reference case.Justice Laskin argued that the intent of production controls established by the province must not be to limit the entry of goods into the province, but to regulate marketing in intraprovincial trade. How could one establish the intent of production controls? Laskin suggested that the Ontario controls on egg production were intended 'to mesh federal and provincial regulations control' for intra- and extraprovincial egg producers because the province had adopted the share of eggs fixed for it by the federal authorities and, in so doing, gave implicit recognition to the federal authority over interprovincial trade. Using the federally prescribed share as set out in the Canadian Egg Marketing Agency Proclamation as the basis for provincial production quotas 'envisages that there will be interprovincial and export marketing by producers in Ontario. ' 5 The Ontario Egg Reference case reaffirmed the federal role in marketing. Federal authorities may validly fix respective provincial shares so as to regulate interprovincial and export trade in eggs. A federal ' price fixing scheme, designed to stabilize the marketing of products in interprovincial trade ... paying due regard to provincial production experience' could establish quotas without being in violation of section 121 of the BNA Act of 1867. The Supreme Court as a whole agreed that 'the proper federal purpose' can validate a federal marketing plan that touches on trade within the province. 6 The conclusion is that provincial controls on the production of commodities

87 National marketing and supply management of which the bulk passes into export markets are valid, provided that such controls are complementary to federal guidelines as laid out in federal legislation. The Ontario Egg Reference case reiterated the principle enunciated in PEI Potato Marketing Board v H.B . Willis, 1952, that federal and provincial governments needed to act jointly in delegating their authority to an agency empowered by the other level of government7 Accordingly, the federal government delegates its power in interprovincial and export trade to the national agency which, in tum, delegates provincial boards to act as its agents. The provincial boards are delegated such federal powers in interprovincial and export trade as are necessary to implement the national supply management plan. These include collecting levies from producers on behalf of the national agency to finance the agency's operations in interprovincial and export trade. In tum, provinces delegate their powers with respect to intraprovincial trade to the national agency. The practice of delegated authority means that, other than at the time of creation of national marketing schemes, the actors directly involved in national marketing are not governments but their designated agents. Governmentappointed supervisory marketing councils and producer-elected marketing boards have been delegated considerable authority with respect to the daily operation of agricultural marketing. Governments have largely removed themselves as active participants. Hence, federal-provincial relations in national marketing involve federal and provincial governments initially in devising marketing plans and, subsequently, federal and provincial regulatory boards in administering these plans. The subsequent inquiry into the national poultry marketing agencies therefore focuses predominantly on relations between provincial and federal marketing agencies and boards. The legislation that establishes the framework of that relationship is the Farm Products Marketing Agencies (FPMA) Act (1972). An understanding of federal-provincial relations in domestic marketing presupposes an inquiry into the context that led to the FPMA Act Political and economic factors were as significant inducements to passage of the FPMA Act in 1972 as were constitutional barriers. Agricultural marketing regulation was a pragmatic response to economic distress in the broiler and egg industry in the early 1970s. Low poultry prices in the late 1960s and early 1970s had led the federal government to transfer large sums of money to producers. Payments to support poultry prices exceeded $14 million between 1958-9 and 1969-70. In 1972-3 alone, $2 million was spent to support fowl prices. 8 An oversupply of eggs and broilers in the early 1970s led producers to seek outlets in other provinces and to cut prices below local prices in order to capture those markets. The 'war' began in 1970 when Quebec egg producers established a

88 Shared responsibility: the 1970s and 1980s

marketing board (FEDCO) as the exclusive agency to handle all eggs sold in Quebec and to set uniform prices throughout the province. (The move was taken to halt the growing number of Quebec egg farmers going out of business.) Provinces, like Ontario and Manitoba, that produced eggs surplus to their local requirements and desired access to the Montreal market refused to co-operate with FEDCO. When they attempted to bypass it, Quebec provincial police seized out-of-province eggs. Ontario retaliated by creating a chicken marketing board with authority to curtail Quebec's access to the Ontario chicken market (a market needed by Quebec, a surplus producer of chickens). The Ontario-Quebec skirmish spread across the country. Several provinces passed legislation that restricted the entry of eggs or broilers from another province, by means of permits and fines. 9 The 'war' ended when Manitoba, whose eggs had been seized by the BC Egg Marketing Board in 1971, challenged the legality of interprovincial restrictions by passing legislation similar to Quebec's and referring it to the courts. The Manitoba Egg Reference case of 1971 ruled that provincial boards could not restrict the entry of products from another province. Provincial limitations (in the form of permits and fines) on products originating outside the province were held to infringe on the federal government's power to regulate 'Trade and Commerce.' Even before the Manitoba Egg Reference decision had rendered illegal provincial restrictions on interprovincial trade, the federal government had taken steps to discourage the economic balkanization threatened by the chicken and egg wars. It responded to a suggestion of the Canadian Task Force on Agriculture, a request from Canada's largest farm organization (the Canadian Federation of Agriculture), and distress calls from poultry producers concentrated in electorally influential blocs in Quebec and Ontario by introducing legislation in March 1970 to create national marketing agencies and ensure a prominent federal role and presence in agriculture. Bill c-197 would permit a national marketing agency to restrict the quantity of the commodity being marketed to consumer demand and then allocate, by a system of production or marketing quotas, a share of the market to each province (and, within the province, to licensed individual producers). Market sharing would replace market competition. Prohibiting the dumping of surplus products in another province, and allowing the marketing agency to set the selling price of the commodity at a level that met most producers' costs of production and returned a small profit, would remove the opportunity and the incentive for producers to undercut one another. Giving producers a regulatory mechanism to allow them to secure a reasonable income from the market-place would mean an end to governmental expenditures and exhortation as a means of dealing with economic dislocation. 10 Since the story of the passage of the FPMA Act has been told elsewhere, 11 it is necessary only to summarize the roles of producer groups, provincial govern-

89 National marketing and supply management ments, and federal MPs in its passage. Bill c-197 envisioned implementation by order-in-council of marketing schemes with supply management powers for a wide range of farm commodities. Opposition to the bill came from two sides and for two different reasons. First, there were those who agreed with the principle of supply management but felt that the legislation failed to provide sufficient guarantees of producer representation and control. The Canadian Federation of Agriculture (CFA), the National Farmers Union (NFU), the NDP, the Ontario and Saskatchewan federations of agriculture, and the provincial agriculture ministers of Ontario and Quebec wanted the boards run by the producers and not the government. Second, there were those who disagreed fundamentally with the concept of regulated marketing, viewing intervention in the market-place as government interference with the farmer's freedom . These included the federal Conservative party and several spokesmen for cattle and hog producers: the Canadian Cattlemen's Association, the Saskatchewan Stock Growers Association, and provincial hog marketing boards in Alberta, Saskatchewan, and British Columbia. The concerted opposition to Billc-197 led the government to allow it to die on the order paper and to reintroduce it in October 1970 as Bill c-176. In the debate that followed and that culminated in the bill's passage by the House of Commons in late December 1971, provincial governments, producer groups, and the federal Standing Committee on Agriculture all had a significant role. Provincial premiers and ministers of agriculture initially collectively endorsed the bill at federal-provincial conferences in September 1970 and February 1971. However, solidarity was broken when Saskatchewan's Liberal premier, Ross Thatcher, and Alberta's Social Credit premier, Harry Strom, broke away to espouse the antagonism to the legislation of local red meat commodity groups which were demanding their exemption from it. The western cattle commodity groups found additional allies in the federal Conservative caucus. It was at the urging of PC member Jack Horner that the federal agriculture minister, Bud Olson, agreed to a two-week nation-wide tour by the House of Commons Agriculture Committee to hear the views of producers and provinces with respect to Bill C-176. The federal Conservative caucus lent its support to the campaign launched in May 1971 by nine prairie cattle, hog, and farm associations to delay the bill's passage until such time as farmers endorsed it in a democratic plebiscite or the Supreme Court delivered its ruling on the Manitoba test legislation. To demonstrate their opposition to the bill, farmers were encouraged to mail 'ballots' printed in western newspapers to either Jack Horner or Robert Stanfield, the PC party leader. Producers opposed to the bill used two other forums: public meetings through Saskatchewan and Manitoba in the spring of 1971 and appearances before the Agriculture Committee of the House of Commons to demand that the bill be amended to eliminate the possibility of a cattle marketing board. Both the Commons Agriculture Committee and the provincial ministers of

90 Shared responsibility: the 1970s and 1980s agriculture must be credited with formally proposing the amendments that met producers' - and, in some cases, their own - concerns. In March 1971, the committee proposed amendments to meet the request of the CFA and the NFU that farmers' approval be a prerequisite to the creation of a marketing scheme and that farmers, not the government, be in control and run the marketing board and the supervisory council. A further proposed amendment provided for the supervisory council to be regionally representative. For their part, the provincial agriculture ministers precipitated a break in the deadlock by demonstrating their willingness and capacity for co-operation in sharing the Canadian market. Meeting with the federal agriculture minister in Edmonton in July 1971, provincial officials agreed in principle on a scheme to co-ordinate provincial marketing boards under an umbrella federal board. The next month the premiers consented to a formula for distributing quotas and designating marketing areas for each province's poultry products. This show of cooperation was followed up with an indictment of federal agricultural policy. In November 1971, provincial ministers, meeting in Toronto, reminded the federal government that provincial sharing of the Canadian market was an essential prerequisite to federal marketing legislation regulating interprovincial trade and then recommended major changes in the federal legislation. The message was not lost on Bud Olson. He subsequently introduced the desired amendments - to strengthen the role of the provinces in creating national boards and to limit national supply management schemes to poultry and poultry products. The earlier proposals of the Agriculture Committee were also accepted. Marketing plans for other commodities - cattle and potatoes, for example - would require an amendment to the FPMA Act. With the provinces holding a trump card, and producer groups pressuring their provincial governments to champion their cause, the resulting act was a compromise made to secure the alliance of the major farm groups and their provincial governments and opposition party spokesmen. The compromises undermined the government's authority over marketing boards and augmented that of producers in a number of ways. The federal government lost both unilateral discretion to create national marketing schemes and freedom of selection of the directors of the marketing agency itself. 12 The FPMA Act required, first, that a majority of producers indicate their approval in provincially run plebiscites or public hearings conducted prior to an agency's creation; second, that a majority of primary producers comprise the government-appointed supervisory National Farm Products Marketing Council and the marketing agency; third, that a producer be appointed as either chairman or vice-chairman of the National Council; and, fourth, that rather than cabinet appointment being the exclusive means of selecting Agency members, the proclamation establishing the agency could provide for another method of selection.

91 National marketing and supply management With enactment of the FPMA Act in early 1972, the legislative framework existed for the creation of national agencies to manage poultry supplies across the country. The FPMA Act empowers the National Farm Products Marketing Council (National Council) to recommend establishment of a marketing agency and the terms of the marketing plan to the minister of agriculture. In rendering its advice, the National Council must satisfy the minister that a majority of producers favours the agency. This requirement, plus the fact that provincial agreement to share a national market is a prerequisite to effective national supply management, ensures that the council's recommendation regarding the type of marketing plan and agency is guided largely by the wishes of the producers and provinces that want to enter into a national marketing scheme. In practice this means that a federal-provincial agreement precedes creation of a national marketing agency. This agreement signifies a commitment to abide by the marketing plan by federal authorities- the minister of agriculture and the National Council- and of provincial ministers of agriculture, provincial marketing councils, and provincial marketing boards. Thirty-five individuals assented to the agreement that led to the proclamation of the Canadian Egg Marketing Agency. The signatories to the federal-provincial agreement determine such crucial features of the marketing plan as the size of the global (national) poultry quota, the nature of the pricing scheme under which the agency will operate, the distribution of the initial quota allocation among provinces, and the guidelines for altering quota allocations. They also agree to abide by other regulations, such as those pertaining to interprovincial trade, surplus removal, and anti-dumping. The necessity to secure agreement on these matters by so many individuals, representing potentially conflicting interests, makes it highly likely that the negotiation of a marketing plan will be a political process, the outcome of which will probably represent the lowest common denominator of consensus. The conflicts that surface in the deliberations preceding the creation of a marketing plan and a national marketing agency tend less to be federal-provincial disagreements and more to be interprovincial disputes. Even given the latter, there is a surprising degree of consensus among the provincial and federal ministers of agriculture on the appropriateness of the marketing board mechanism. The Liberal federal agriculture minister, Eugene Whelan, was a most vociferous proponent The 'Agricultural Sectoral Paper' released by the federal and provincial ministers in early 1978 noted provincial and federal support for the concept. Marketing and supply management were not identified as an issue of immediate priority but as one requiring attention over the 'mid-term.' Why this consensus? All agriculture departments welcome policies that farmers want and that simultaneously do not cost the government anything. What cheaper way, from a government's point of view, to support viable farm units than to give producers the mechanism with which to assure themselves an

92 Shared responsibility: the 1970s and 1980s adequate return? A regulatory policy, exemplified in a marketing board concept, lightens the load on both provincial and federal coffers by erasing the need for the more costly commitments to ensure adequate farm incomes that stabilization schemes entail. 13 Under the terms of the General Agreement on Tariffs and Trade (GATT), imports can be restricted if a national supply management plan is in place. Thus the desire to preserve the Canadian market for domestic broiler producers by restricting American imports was a major incentive to transforming the voluntary co-operation of provinces in a national marketing scheme under the Canadian Broiler Council into one enforced by provincial and federal legislation. When producers seek a marketing board with supply management authority, few governments will refuse this alternative to a stabilization program. Those that do, like Alberta, do so with their producers' concurrence. However, intergovernmental conflict arises because some provinces are attempting to use the same instrument to achieve conflicting goals. The interests of 'exporting' provinces are inevitably somewhat at odds with those of 'importing' provinces. For a province whose producers were in a domestic exporting position prior to establishment of the marketing plan (and so presumably enjoyed a comparative advantage in production), the benefits of the national supply management plan are both protection from lower-priced American produce and increased and stable returns. The latter is an even more important consideration for producers in importing provinces and presumably, therefore, not able to produce as cheaply as farmers in neighbouring provinces. They fear internal competition. Conflict develops in the allocation of a more or less fixed pie - the national market - as some provinces seek to preserve their current share of the market and others try to allow for expansion of their share in the future. Thus the goals behind entry into marketing boards for importing and exporting provinces are potentially in conflict. The importing province desires to use the marketing board mechanism to bring the stability and rise in producer prices that will allow for future expansion of the agricultural industry; hence, it is predisposed to a method of future quota allocation that relies less on the status quo and more on criteria that allow imports to be replaced with local produce. But this is anathema to the exporting province. It fears exclusion from other provincial markets and the denial of' an appropriate share in growing markets in other provinces.' 14 Thus the desire to preserve the status quo (current shares) in the future is as 'protectionist' as the desire to allow room for provincial agricultural expansion. Because of the relative inelasticity of demand for most agricultural produce, it is unlikely that consumption will grow so rapidly as to satisfy the expansionist goals of all regions. Provincialism in the form of market protectionism not only

93 National marketing and supply management potentially pits provinces against one another but is in conflict with the federal government's intentions in creating national marketing agencies. To a significant extent, the objective of the federal government in passing the FPMA Act and its continued goal in monitoring the three national agencies established under its auspices are to thwart the possibility of provinces pursuing their provincial economic interests at the expense of the Canadian common market. It has been noted that a primary concern in the early 1970s was to stop the provinces from erecting barriers to the interprovincial trade in poultry and eggs and to head off provincial efforts to retain provincial consumer markets for local producers. The federal government's commitment to the distribution of production within the national market on the basis of a competitive outcome in resource allocations is stated in the FPMA Act. Section 24 stipulates that the initial allocation of production and marketing quotas among provinces shall be 'on the basis of the production from that area in relation to the total production of Canada over a period of five years immediately preceding the effective date of the marketing plan.' As demand for the regulated product grows, and additional quotas are allocated, 'the marketing agency shall consider the principle of comparative advantage of production.' Professor Wood has argued that the only principle of quota allocation that is not inherently provincialist-protectionist is that of comparative advantage: he favours the distribution of quotas to regions that can serve the additional market at the least overall cost of production and transportation. 15 An alternative formula that allocated the newly created market to the area that has traditionally filled it (the pro-rata - status-quo principle) would perpetuate historical production ratios. Yet another formula, which allocated quotas to the province in which the expansion in consumption occurs, would also further provincial selfsufficiency. Both these alternatives could violate the principle of efficient allocation of resources in the national common market. Wood argues that such a situation 'is not market sharing; it is market isolation; it is market exclusion; it leads to balkanization of the country.' While comparative advantage may be the fairest principle in allocating market shares, this criterion is difficult to understand and measure. While the costs of production and transportation are the major components, production costs can be distorted by provincial subsidies. 16 Conflict over the adjudication of marketing quotas has troubled the national marketing agencies. Arising from the clash among provinces' goals - economic expansion of the provincial agricultural sector, protection of historical markets, and possibly even attainment of self-sufficiency in foodstuffs - provincialism first expresses itself in the federal-provincial agreement to create a national marketing agency. It does so in three ways: first, in provincial efforts to playdown the factor of comparative advantage in the formula for allocating additional (over-

94 Shared responsibility: the 1970s and 1980s base) quotas; second, in provinces' refusing to enter into the national supply management scheme; and, third, in provincial efforts to decentralize the implementation of the marketing plan to provincial boards and away from the national agency and supervisory council. Examining the formulae for future allocation in the three poultry marketing plans shows a progression away from the principle of comparative advantage, outlined in the Canadian Egg Marketing Agency (CEMA) Proclamation, to criteria that include attention to provincial growth capacities. Section 4.1 of the CEMA Proclamation identifies the following factors as ones to be taken into account in altering egg quota allocations: a) any variation in the size of market for eggs b) any failures by egg producers in any province or provinces to market the number of dozens of eggs authorized to be marketed c) the feasibility of increased production in each province to be marketed d) the principle of comparative advantage of production e) comparative transportation costs to market areas from alternative sources of production

Alterations in turkey quotas shall take into account: a) any variation in the size of market for turkeys b) any failures by turkey producers in any province or provinces to market the number of pounds of turkey meat authorized to be marketed c) the feasibility of increased production in each province available to be marketed d) the existing production and storage facilities in each province e) the principle of comparative advantage of production f) the comparative transportation costs to market areas from alternative sources of production

Section 7 of the CCMA Proclamation identifies the following factors as ones to take into account in adjusting provincial broiler quotas: a) any significant change in consumer demands b) the ability of any province to meet its allocated production c) total market requirement within each market area d) the proportion of market demand in a province that is met by production in that province e) the comparative advantage of production and marketing of chickens

The inclusion of criteria like ' the existing production and storage facilities in each province' has led Art Wood to conclude that while none of the six criteria in the turkey over-base formula 'can be reasonably or logically interpreted as supporting the principle of self-sufficiency ... it is evident that those involved in

95 National marketing and supply management administering the turkey plan favor this principle.' The chicken plan shows even more 'favoring' of self-sufficiency, stipulating that ' total market requirement within each market area' and •the proportion of market demand in a province that is met by production in that province' shall figure into over-base allocations. The inclusion of such criteria, potentially in conflict, indicates an effort to satisfy all parties. The hearings preceding the chicken agency's creation showed evidence of provincial protectionism. Perhaps the most direct statement of the view that marketing regulation should serve the purpose of provincial expansion came from the department of agriculture of Prince Edward Island, which insisted that any national program for chicken marketing should be flexible enough to allow for 'the special needs of PEI,' including the need to expand production and 'the need of a new expanding processing plant in PEI.' 17 Alberta served a withdrawal notice to the turkey marketing agency in January 1980 (which it subsequently withdrew) and did not enter the national chicken marketing agency.18 Its reasons were both economic and ideological. Alberta is currently a net importer of poultry products. At the same time, its population has been rapidly expanding. The opportunity to reserve the right for Alberta farmers to fill that gap between consumption and production is an important stimulus to Alberta producers' rejection of the national plan. Such a scheme, which apportions the national and provincial marketing quota according to what producers in each province have historically been able to fill, would militate against the expansionary interest of Alberta's producers. By not entering an agreement that allows other provinces' farmers to fill the local market. Alberta hopes to stimulate expansion of local production to the level to meet local demand. The laissez-faire philosophy of the Alberta government reinforces its economic goals. It is committed to a competitive market, free of government interference. Alberta's fear, according to a former chairman of the province's Agricultural Products Marketing Council, Clark Ferries, is that under the protection of a national plan and a cost-of-production formula, not only producers but entire provinces will lose their initiative and competitiveness. 19 Bearing in mind that the federal government has no legal authority over provincial marketing boards, the degree of centralization of authority in the national marketing agency gives some indication of producers' and provinces' relative willingness to accept federal control over marketing. Attempts to decentralize decisions regarding pricing to provincial boards and to restrict the national agency's powers regarding surplus removal reflect the reluctance of the participating provinces and producers to subject themselves to either, or both, federal interference through the National Council or control by other provinces that are represented on the national agency. The national agency will be predominant over producer boards (and more effective in supply management and price setting on a national basis) to the

96 Shared responsibility: the 1970s and 1980s extent that it engages in a purchasing and surplus removal program and to the extent that prices set within the province follow agency-established guidelines, based on national costs of production, calculated according to a formula. Provincial agencies and boards will exercise greater autonomy (and hence may undercut effective national supply management) to the extent that the national agency is only an administrative body that does not engage in the purchase and removal of surplus supplies of the natural product and provincial boards set prices without following national formula guidelines. In the schemes relating to eggs, turkeys, and chickens, the national agency has the authority to set both national and provincial quotas. The latter are then redistributed by the provincial boards to individual producers. But the chicken agency differs from the egg and turkey agencies in not having the power to purchase and remove surplus supplies. (The federal-provincial agreement under which the national turkey agency operates allows it to purchase turkeys for further processing.) Moreover, unlike the egg agency, neither the chicken nor the turkey agency sets prices; provincial chicken and turkey boards (subject to the approval of the provincial council) do this. In doing so, they are not bound by an explicit pricesetting formula. Provincial egg boards use the nationally recommended price to set grade A large egg prices within the province, according to a formula using national costs of production. Provincial turkey boards negotiate with processors to arrive at a price. An independent firm of consultants establishes different costing models based on each province's costs of production, and these guide negotiations. The price each province sets for chickens is based on local costs of production. 20 Thus provincial chicken boards are more autonomous of the national agency than are provincial egg and turkey boards. This was the express desire of spokesmen from Ontario, Quebec, British Columbia, and Alberta in their submissions to the National Council hearings into the creation of the national marketing plan. Only spokesmen in Saskatchewan and Manitoba argued for a stronger national agency. They were unable to prevail over the arguments made by provinces with a more significant share of national production. The extent of federal influence on a national marketing plan is indeterminate. The National Council recommended against empowering a potato marketing agency with pricing authority, but this recommendation was consistent with a number of presentations made at the hearings into the advisability of the potato agency. The minister of agriculture, Eugene Whelan, delayed the effective implementation of the national chicken agency until the provinces agreed to a quota-sharing and pricing system that met with his approval. Notwithstanding these examples, the obvious preference of Whelan for supply management over stabilization programs, combined with the fact that producers themselves have to consent to a supply management plan before it can be implemented, meant that

97 National marketing and supply management

Whelan was not likely to refuse producers' requests for a national marketing scheme, even if it fell short of his ideal. THE IMPLEMENTATION OF THE MARKETING PLAN: ADMINISTRATION AND SUPERVISION

The marketing plan endorsed by the federal-provincial agreement and stated in the proclamation to create the national marketing agency is implemented by the co-ordinated efforts of the national agency and provincial marketing boards. The board of directors of the national agency is composed of representatives of each member provincial commodity board. Provincial members of the Canadian Chicken Marketing Agency (CCMA) and the Canadian Turkey Marketing Agency (CTMA) are appointed by provincial boards (and, in the case of the CTMA, subsequently formally appointed by order-in-council). The provincial boards themselves are usually composed of elected producers, although some may include representatives of processors. The boards of directors of the Canadian Egg Marketing Agency (CEMA) and the CCMA also include two federal appointees, one of whom is CEMA's chairman. The agreement to establish the turkey agency did not provide for a federal representative. The very composition of the agency builds in interprovincial conflict, providing as it does an institutional basis for the articulation of provincial interests. Conscious that they are there to represent producers in their province, directors will understandably find it difficult to set aside provincialist tendencies when they participate in making agency policy. The thorniest issues in terms of securing a consensus among agency directors are the appropriate division among provinces of over-base quota and the relative weight to be attached to the multiple criteria outlined in the proclamation for allocating additional market shares as consumer demand grows. All three agencies have had difficulty reconciling the disparate interests of provincial board spokesmen. At times this has incapacitated an agency to the point of its being unable to make a policy. Examples include the CTMA's delay in setting a national turkey production target for 1979-80 and its chronic incapacity to secure agreement on a formula for overbase allocation, and theCCMA's difficulty in 1980 and 1982 in securing provincial agreement on allocation of the global quota. Dissatisfaction with provincial shares has sometimes led provincial boards to contravene agency orders by issuing quota to local producers in excess of provincial allocation or failing to fine producers who have exceeded allotted provincial production quotas. And, finally, unhappiness with its share of the national turkey and chicken markets led British Columbia to serve withdrawal notices, both of which have been retracted, and Alberta to remain outside the chicken agency. 21 The internal agency wrangling over market shares spills over into the

98 Shared responsibility: the 1970s and 1980s federal-provincial arena when the National Council exercises its authority to investigate complaints from individuals directly affected by the agency's activities and act as it deems fit to resolve those complaints. The council has intervened almost annually to arbitrate disputes between CEMA and provincial egg marketing boards. When it has been unable to effect a quick resolution, or when it has judged the dispute to be of sufficient seriousness to warrant it, the council has requested signatory meetings. There is evidence that this latter forum has been effective in settling outstanding disputes in the past. 22 In addition to its adjudicative role with respect to national marketing agencies, the National Council exercises a number of supervisory powers over the marketing agencies. These include overseeing implementation of the marketing plan by way of approving various orders and regulations, reviewing amendments to the agency's marketing plan, and reviewing its fiscal and overall operation annually. Further, the council can recommend termination of an agency. The National Council's authority with respect to agency orders and regulations is laid down in the FPMA Act. Section 7.1 (d) stipulates that agency proposals for certain orders and regulations must be submitted to the council in advance. The council itself determines what particular class of orders this includes. It has determined that section 7.1 {d) applies to orders and regulations regarding levels of and changes in the yearly national production quota allocation system, producer or marketing levies, and the interprovincial price of the regulated commodity. If the council fails to approve the proposed quota, levy, or interprovincial pricing order, the agency may find itself without the regulatory authority to implement the marketing plan - that is, until it drafts regulations that meet with the council's approval. The National Council cannot substitute its own regulations for those proposed by the agency. Once it approves regulations of these types, the council is thereafter powerless to set them aside. All other orders and regulations made by the agency must be subsequently approved by the council, or they are 'of no force or effect' - 7.1 (e) and (f) (i). In giving its prior or subsequent approval for agency regulations, the council must be 'satisfied that such orders and regulations are necessary for the implementation' or, respectively, 'the administration of the marketing plan.' It is the council's supervision of agency regulations regarding production quotas and, in the case of CEMA, the cost-of-production pricing formula that has generated chronic tensions between the council and agencies. These conflicts have primarily arisen from the National Council's obligation to fulfil the potentially conflicting mandate of section 22 of the FPMA Act: to 'promote a strong, efficient and competitive production and marketing industry' and 'have due regard to the interests of producers and consumers of the regulated product.' The first mandate, to ensure efficiency in the poultry sector and to promote the public interest, requires the council to ensure that agencies do not become unduly

99 National marketing and supply management preoccupied with producer goals to the detriment of those of the consumer and do not become a mechanism behind which inefficient producers and regions can shield themselves from the need to be competitive or isolate a provincial market from the national one. Consumer advocates have been the most persistent in their insistence that the council (and the marketing agencies) keep this mandate uppermost. The Consumers Association of Canada and the Food Prices Review Board (May 1973-December 1975) were the most vocal early critics of supply management. They focused on the lack of mandatory consumer representation on the National Farm Products Marketing Council (NFPMC) and the marketing agencies and charged that supply management resulted in higher consumer food costs. This criticism reached a high point in the so-called Rotten Egg Scandal of 1974. The Final Report of the Food Prices Review Board, Telling It Like It ls, notes its success in focusing media and public attention on marketing boards: 'On controversial issues between 1973-75, like marketing boards, egg prices and sugar prices, ... the Board's work increasingly became the basis for media questioning and analysis.' 23 The second mandate, to recognize the producers' interest-which is foremost in obtaining a reasonable (and profitable) return through high prices as opposed to the consumer's interest in low-cost food - is, of course, pressed upon the council by the producers through marketing agencies and, at times, by provincial agricultural ministers. Harmony with the agencies will be furthered by the council sanctioning agency requests for orders and regulations and ignoring agency non-compliance with council decisions and guidelines. But such behaviour renders the council highly vulnerable to external criticism that it is reneging on its mandate to the public and allowing the agencies to do so as well. The need and desire to refute publicly unrelenting criticism by academics and consumer advocates - the credibility of which is enhanced by the fact of a producer majority on the council (a political compromise legislated into the FPMA Act) - have generated conflict with the agencies, with the latter alleging council intrusion in agency affairs and, sometimes, in provincial matters. Until recently, the National Council appeared inclined to avoid public controversy with the marketing agencies and loathe to exercise its authority to set aside producer board decisions. There were several reasons for the council's lack of aggressiveness as a supervisor: its perception of its limited legal authority; its belief that as a signatory to the marketing plan, it is 'under an obligation to make the plan workable' to the point of having to go 'against its better judgement' to approve orders that are essential to 'the continuance and workability of a plan,' the lack of 'legal or commercial precedents to guide' all parties to national marketing plans (including the council); and the council's relative lack of professional and technical support to counter the agencies' expertise and data regarding

100 Shared responsibility: the 1970s and 1980s technical details of production, marketing, and the problems of producers. All these factors help to explain the council's failure to follow cabinet guidelines issued in January 1979 requiring agencies to be more cognizant of efficiency criteria. In turn, the council's apparent 'soft stick' approach likely did nothing to deter the agencies from defying the council, for example, by implementing pricing schemes without its approval. And it fuelled criticisms that the council had fallen captive to the agencies.24 Since 1981 a number of factors have conspired to politicize the issues of supervision and operation of national marketing agencies. In the process, relations between the council and the national agencies have become more strife-ridden. In 1981, the first of the reports on economic regulation prepared for the Economic Council of Canada and the Institute for Research on Public Policy began appearing. Reports by Arcus on the broiler and egg boards and Forbes, Hughes, and Warley on supply management generally were severe in their indictment of both the marketing agencies and the supervisory council. The agencies, said the agricultural economists, 'are perceived as having been permitted to use their considerable market power in ways that are not in the public interest ... They have unduly enhanced consumer prices and provided excessive returns to farmers' resources; ... they shelter the inefficient and ... [lead to] erosion of competitiveness ... [and] negate the very essence of Canada as a common market by economic balkanization of the country into a set of provincial sub markets.• And for having 'failed to balance the public interest and the specific interests of other participants in the food system against those of producers,' the council itself was culpable. 25 The public debate touched off by the regulation reports coincided with evidence of 'numerous stresses' within the marketing systems. The National Council was having difficulty resolving a dispute with CEMA over its egg pricing formula. In March 1981, the council issued guidelines regarding items to be excluded from the cost-of-production formula used in pricing grade A large eggs. CEMA defied the council by ignoring the guidelines, alleging that to follow them would damage producers and the industry's future. The dispute entered a more public stage when the council acted on authority given it in the FPMA Act to hold public hearings across Canada to determine the appropriateness and adequacy of CEMA's pricing formula. 26 The following year, Ontario called on the council to hold a private hearing of signatories to consider its complaint with CEMA's over-base allocation policy. Ontario was dissatisfied because CEMA's scheme assigned it a smaller market share than it sought and deserved and angry that 'CEMA attempted to impose its policy against the wishes of the two largest egg producing and consuming provinces (Ontario and Quebec), a particularly odious manoeuver. ' 27

101 National marketing and supply management Ontario's complaint with over-base allocation policies extended beyond CEMA to the CCMA. In 1982-3, growth in chicken consumption had presented the CCMA with the opportunity of allocating a significant volume (240 million pounds) of over-base quota. The size of the over-base quota - an increase of one-third of base quota - meant that the dilemma of how to assign weight to the alternative criteria in CCMA's over-base formula was no longer hypothetical, as it essentially remained for CEMA and the CTMA. Once again, dissatisfaction with the manner in which the CCMA balanced the factors to be considered in allocating over-base quota led Ontario to appeal to the council to overturn the CCMA decision. 28 Other problems plagued the CCMA, especially the issue of illegal chicken production in eastern Ontario. 29 Eastern Ontario producers who had shipped into Quebec before the creation of the Quebec chicken board and theCCMA continued to do so after the latters' creation. While the Ontario chicken board authorized producers' interprovincial marketing into Quebec, it did not license them to produce and market in Ontario. When the Quebec chicken marketing board forbade Quebec processors from accepting the Ontario producers' chickens, two problems resulted. The unregulated Ontario producers were without a market for their produce, and the Ontario chicken board was under pressure from regulated producers who resisted any reduction in their own quotas to free up room for the illegal producers. Ontario resisted penalties assigned it for overproduction (the production of the unregulated farmers was included in its provincial figures), and the National Council pointed to the illegal production as evidence that theCCMA was unable to operate an effective supply management system. The issues hindering effective operation of the national marketing agencies became further politicized in 1982 and 1983 as the federal minister of agriculture, Eugene Whelan, and the newly appointed Ontario agriculture minister, Dennis Timbrell, served public notice of their unhappiness with the agencies' operations. Endorsing his producers' complaints, Timbrell called for an unprecedented meeting in early 1983 of all signatories to the three poultry plans. Alleging that the poultry agencies had 'distorted or ignored comparative advantage in their overbase policies,' he called for signatory co-operation in 'decisive, positive action' to 'silence the critics of supply management, and strengthen public support for the national marketing plans.' 30 Timbrell's warning that the agencies were in danger of losing public support, accompanied with a previous threat that the largest chicken-producing province would leave the CCMA, was taken seriously by the federal minister. He, too, had reasons to welcome Ontario's request and accede to an early meeting. Having established the national marketing agencies to avoid the balkanization of the national agricultural economy, the federal government was understandably

102 Shared responsibility: the 1970s and 1980s disturbed by evidence that the national marketing mechanism was being used to achieve the end it was intended to subvert Reacting to criticism from the media and consumer advocates, Eugene Whelan publicly warned marketing agencies in 1982 and 1983 to be more accountable or risk being dismantled. 31 The federal minister's uncharacteristic behaviour lent support to allegations of serious problems relating to supply management and furthered the public debate concerning its merits. Marketing agency operations have thus become politicized, as responsible provincial and federal officials have reacted to internal stresses and external pressures confronting marketing co-operation. Provincial agriculture ministers departed from their normal habit of not attending signatory meetings (generally leaving the task of provincial representation to their province's supervisory council or producer board) and participated in the March 1983 meeting of signatories. They followed up their agreement to co-operate on ways to ensure greater accountability and efficiency of marketing agencies at the agriculture ministers' meeting in Brudenell, PEI, in July 1983. For its part, the National Council served notice of a 'more demanding and objective approach' to the agencies, which will include more intensive monitoring of agency activities and more detailed documentation by the agencies of proposed regulations. The decision to hold a public hearing to resolve the dispute with CEMA over its egg pricing formula was also part of this strategy to make greater use of powers given it by the FPMA Act to supervise agencies. 32 The politicization of national marketing agencies does not appear to date to have led to federal-provincial ministerial conflict. Even as he declared that the poultry marketing system had 'fallen out of "sync" with market forces and economic realities,' the Ontario minister reiterated his province's 'unswerving' support for the concept and institution of supply management. 33 The fact that the federal minister's endorsation in the past has been equally unabashed suggests that provinces are interpreting his threat to put marketing agencies into trusteeship more as a persuasive inducement to provincial co-operation than as an ultimatum. And provinces have outwardly shown co-operation in their readiness to meet and in agreeing to put pressure on their provincial boards to set aside protectionist-self-sufficiency tendencies. Generally speaking, first ministers have refrained publicly from attempting to shift blame onto one another, and in not doing so they have implicitly accepted a measure of responsibility for ensuring effective and efficient operation of marketing agencies. However, the politicization of national agencies that has seen a more aggressive supervisory stance being struck by the council has harmed agency-council relations- from the agencies' perspective. Complaints of the agencies about the

103 National marketing and supply management council concerned its intrusion into and undue interference with agencies' operations; delay and unpredictability in ratification of proposed agency orders and regulations (costly to the agency when they involve ratification of cost-ofproduction formulae); lack of consultation with agencies in advance of issuing guidelines; 'attacks' by the council on agencies in the media; and, finally, an unduly theoretical bias by the council and a lack of practical understanding of the industry. The study of the CCMA commissioned by the NFPMC in 1982 concluded that chicken producers were 'particularly distrustful of ''bureaucrats.'' ' The 'rampant' distrust that consultants found includes a suspicion that the council's new stance represents a desire to run the agencies, rather than monitor them. 34 NATIONAL DAIRY MARKETING POLICY

In 1969, the Dairy Farmers of Canada (with which provincial milk boards are affiliated) implemented a market-sharing quota plan, which placed quotas on shipments of industrial milk and cream. 35 Market-sharing quotas went hand in hand with federal subsidy quotas (introduced in 1967-8) following the passage of the Canadian Dairy Commission Act in 1966. A farmer was eligible for a subsidy only on that portion of his or her total production within the quota alloted by the provincial milk board and insured by the Dairy Farmers of Canada. The effectiveness of the program, in terms of its restricting milk supply to market demand, was hampered by the lack of controls on shipments to the industrial milk market by fluid milk producers who had produced in excess of their quotas. The latter quotas were imposed by provincial boards. To meet this problem, the Ontario and Quebec milk marketing agencies, in conjunction with the Canadian Dairy Commission (CDC), established a more comprehensive plan. Effective 1 January 1971, all shipments of both industrial milk produced for the industrial market and that produced for the fluid milk market but in excess of the producers' quota were brought under a market-sharing quota system. By 1 April 1974, all provinces had entered the plan. The fluid milk shippers whose excess production was channelled to the industrial market (but who previously had not been eligible for federal subsidies) were now eligible. Thus, since 1974, the CDC has implemented a national comprehensive market-sharing quota system, in conjunction with federal subsidy quotas for all those who ship milk to the industrial market. Since 1975, the CDC has done this jointly with the Canadian Milk Supply Management Committee (CMSMC), a federal-provincial advisory board, which includes representatives of the CDC and of each provincial milk board and ex officio delegates of industry spokesmen from the Dairy Farmers of Canada and the National Dairy Council. The CMSMC estimates total domestic and export

104 Shared responsibility: the 1970s and 1980s demand for industrial milk and recommends to the federal cabinet how that global quota shall be allocated among the provinces. It also recommends what portion of the total quota shared by producers - known as the market-sharing quota (MSQ) - shall be eligible for direct federal subsidy. The CDC administers the pricing system and purchases surplus processed products. The CMSMC calculates the aggregate amount of the quota (MSQ) and divides it among the provinces. Within each province, the provincial milk board distributes its share of the quota among individual producers. The CMSMC and the CDC are forums of federal-provincial interaction in which provincial unanimity and cooperation are needed on such crucial matters as national production targets and interprovincial quota distribution. The problems associated with market sharing that beset the poultry agencies also surface in national dairy marketing. Provincial boards, unhappy with market shares allotted by the CMSMC, have defied levy regulations and threatened to withdraw from the national supply management plan. The committee itself has had difficulty securing agreement on interprovincial quota transfers. 36 And occasionally provincial milk board discontent has spilled over into intergovernmental conflict. The size of the industrial market-sharing quota (MSQ) has remained virtually fixed and its distribution among provinces almost unchanged from year to year. As Table 17 shows, the quota distribution in 1979-80 was the same as it was in 1977-8: Quebec accounts for 48 per cent and Ontario for 31 per cent of the total. Despite a decline in the number of dairy farmers in Quebec, and possibilities for expansion of the sector in provinces like Alberta, British Columbia, and Ontario, quotas remain unadjusted. Not unnaturally, Alberta and Ontario have been unhappy with their share of the MSQ and have criticized the CDC and the CMSMC for undermining the future growth of their local dairy industries. The appearance of Quebec favouritism in the allotment of MSQ ( especially in the failure to redistribute market shares away from Quebec) gives rise to the charge that the CDC is an instrument by which Canadian producers subsidize an inefficient Quebec dairy industry. So does the CDC policy with respect to levies for the disposal of excess production (skim milk powder surpluses).37 In 1977, provinces whose producers are largely fluid milk producers resisted the federal dairy policy announcement of increased levies on all (fluid and industrial) producers to finance the deficit incurred in the export of powdered milk (a surplus built up largely because of industrial milk overproduction in Quebec and to a lesser degree in Manitoba and Prince Edward Island). Western provinces felt that they should not have to share the costs of excess production when they themselves had not contributed to the problem, and they did not believe that fluid milk shippers should share the financial burden of surplus disposal, when, again, they

105 National marketing and supply management had not created the problem. Saskatchewan's agriculture minister, Edgar Keading, was conscious of the sensitivity of the issue, acknowledging that the situation could be construed as the western provinces 'ganging up' on Quebec. But the Alberta milk marketing chairman disliked the levy policy for another reason; he viewed it as an intrusion into provincial jurisdiction. (The provincial milk marketing authorities collect levies.) The four western premiers supported this observation; the Third Report of the Western Premiers' Task Force on Constitutional Trends later that year described the proposed federal levy on milk as 'an intrusion into a market that traditionally has been under provincial jurisdiction.' 38 In resolving the dispute, the federal government had an important bargaining tool. When provinces like Alberta refused to collect the levy, 39 the federal agriculture minister reduced the federal subsidy to dairy producers by the amount of the levy needed to finance the skim milk disposal deficit That sanction, and Whelan's concession to allow provinces to collect the levy in any way they chose, ended the dispute. Conflict over how to share future increases in market has not hindered execution of the milk plan the way it has threatened to hamper the chicken agency, because dairy consumption remains stable. With no quota increases likely, tension between the provinces experiencing population growth (the three westernmost provinces especially) and Quebec has prevented consensus on an over-base allocation formula, but the lack of consensus itself does not impede execution of the milk supply management plan. While producers' complaints about federal dairy policy occasionally surface - revolving around themes like inadequate consultation with the Dairy Farmers of Canada, low support and target prices, high levy charges, and high cheese import quotas - such criticisms appeared to dissipate in the late 1970s and early 1980s, with the dairy industry claiming to be 'fundamentally pleased,' for example, with the 1978-9 and 1979-80 dairy policies. A 1981 review of federal dairy policy by representatives of producer, processing, retailing, and consumer groups reached the same conclusion. 40 The federal government has a greater influence over dairy policy than it does over poultry marketing agency policies. This is the result of the structure of the CDC and of the CMSMC and the leverage that federal subsidization of dairy returns gives the federal government over dairy policy. The CDC chairs the CMSMC and therefore is involved in formulating market-sharing and levy policies in a way that the NFPMC is not. As a crown corporation, the CDC reports regularly to the federal minister of agriculture and to Parliament through the Agriculture Standing Committee. In the latter, Quebec MPs can be expected to support strongly CDC policy, given the benefits that accrue to their voters from such policy. Whether the watchful eye of the Quebec Liberal caucus in the 1970s indeed led to a national dairy policy biased toward the needs of Quebec and away from more

106 Shared responsibility: the 1970s and 1980s efficient provinces like Alberta, British Columbia, and Ontario is difficult to determine. The example of the poultry agencies (on which the federal government does not sit) demonstrates the inherent provincial resistance to giving up quota and transferring it to more 'efficient' provinces. Finally, there is some evidence that individual provinces feel that their viewpoint is considered equally with that of the dominant producing provinces, Quebec and Ontario. 41 A REGIONAL POTATO MARKETING BOARD

In September 1980, the National Council held hearings into the desirability of establishing a Potato Marketing Agency for eastern Canada, comprising Ontario, Quebec, Nova Scotia, New Brunswick, and Prince Edward Island. An inquiry into the circumstances precipitating the proposal for a regional potato agency, the process of drafting a marketing plan, and the factors that have thus far impeded interprovincial consensus are useful in emphasizing points made earlier about national marketing plans. The move followed the tabling of a marketing agency proposal by the Eastern Canada Potato Producers Council (ECPPC). The ECPPC, provisionally created in mid-1977 and incorporated in April 1979, 'served as a medium' for 'provincial potato producers' organizations, potato marketing organizations and individual producers.' 42 Its recommendation was supported in March 1980 by a federally appointed task force comprised of representatives of the five provincial governments involved as well as five Producer Council representatives. For several years, potato producers in New Brunswick and, to a lesser extent, in Prince Edward Island have urged their governments to co-operate in a regional marketing plan. The National Farmers Union in the two provinces had proposed such a board, even before 1972, when Agriculture Minister Whelan established a Potato Action Committee, comprised of federal and provincial civil servants, to hold hearings into creating a marketing agency. In years when potato prices slumped, farmers resorted to highway blockades and give-away programs to draw public and government attention to their plight. Yet the governments of New Brunswick and Prince Edward Island were reluctant to support a single regional board. Despite producer referenda indicating that local and provincial boards were considered inadequate,43 the government of New Brunswick created two local boards in 1977 to organize marketing on a county basis in the province. After the task force recommended a regional potato marketing agency, the New Brunswick Potato Agency was formed in May 1980. It was given power to set quotas and prices for table stock potatoes, but has not done so. In Prince Edward

107 National marketing and supply management

Island, the provincial marketing board did not have the power to impose production quotas and tended not to use what supply management powers it legally had. In the fall and winter of 1979-80, when it attempted to fix the price at which the processor had to buy its potatoes, it found itself quite ineffective, as it lacked monopoly purchasing powers and processors simply circumvented the board, contracting directly with individual producers. In spite of the apparent need for regional co-operation in potato marketing, marketing agencies and governments had very little mutual discussion until recent years. This was partly because the industry itself believed it undesirable. The two Maritime provinces involved are competitors for export markets. While Prince Edward Island traditionally fills more of the Toronto market, and New Brunswick the Montreal area, both provinces sell large amounts of potatoes in both markets and compete for foreign markets. In addition, the ideological bias of Conservative governments in the two Maritime provinces - a predisposition to favour the laissez-faire system and to disapprove of price regulation - made them reluctant to allow regulated marketing. In both provinces, a third constraint to supply management schemes had been the opposition of local potato processors. McCain• s in New Brunswick and MacLean' s in Prince Edward Island have pressured their respective governments not to allow supply management boards. Their influence has been considerable because of the importance of potato processing in the two provinces. At the council hearings, all processor organizations opposed the proposed plan: 'Their opposition ranged from a desire merely to have the processing sector exempted, to a total opposition ... by the McCain Produce Company, Limited, and others. As a general rule, processors preferre.d potato production and marketing to remain firmly based on the law of supply and demand, though they wished to retain the freedom of regulating the quantities they purchased from producers. ' 44 The major stimulus for the potato agency was three years of low prices (see Figure 2). Potatoes are the leading cash crop in both Prince Edward Island and New Brunswick, representing about 75 per cent of total farm cash receipts from all crops. It has been estimated that ' between 97 and 98%' of potato farmers in the two provinces lost money in the 1979-80 crop year. Continental overproduction of potatoes, combined with a complete lack of bargaining power for producers in a marketing system characterized by a handful of brokers, accounted for the depressed prices. Provincial marketing boards in New Brunswick and Prince Edward Island have been unable to curb production and, increasingly, to compete with expanding potato production in Ontario and Quebec. Potato producers found themselves undercutting one another as they competed for the central Canadian markets (see Table 18).45

108 Shared responsibility: the 1970s and 1980s million cwt

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40

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-

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---- average farm prices 0 1964 65 66

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Figure 2 Potatoes: Canadian production and average farm price 1964-79 (source: Robert W. Anderson, 'Canadian Potato Industry - Situation and Outlook.' a background paper for public hearings on the proposal to establish an Eastern Canada potato marketing plan)

While potatoes are far less important to the Ontario agricultural economy, the bankruptcy in 1979-80 of a number of very large producers was a cause for concern. In addition, anxious to expand their potato production, both Quebec and Ontario wanted to be in on the ground-floor negotiations where they would be able to influence the nature of the marketing plan, including its quota allocation policies. And for the federal agriculture minister, having spent $47 million in deficiency payments to potato producers for the 1974, 1976, 1977, and 1978 crop years, and almost $20 million in 1978-9 alone, the opportunity to replace this drain on the federal treasury with a program that allowed farmers to draw their income from the market-place was welcome indeed. 46 In addition to farmers having almost no protection from the recurrent 'boombust' cycles, there was a second reason for the federal government and producers wanting a potato marketing agency: producer equity in the market-place. The task force struck to examine the problems of the industry in late 1979 reported to the minister of agriculture that the hearings had convinced it that 'questionable marketing practices were occurring, and were, in fact, quite widespread' and

109 National marketing and supply management 'had the effect of creating unequal access to market for a significant number of producers. ' 47 The proposal of the Eastern Canada Potato Producers Council (ECPPC), representing the consensus of the potato agencies in the region and endorsed by the government of Prince Edward Island, formed the basis of discussion at the hearings of the National Farm Products Marketing Council in the fall of 1980. Evidence presented at the hearings led the National Council subsequently to recommend to the federal minister of agriculture that an Eastern Canada Potato Marketing Agency be established for Ontario, Quebec, New Brunswick, Nova Scotia, and Prince Edward Island. It recommended that the agency be given all powers contained in section 23 of the Farm Products Marketing Agency Act, except fixing and determining the quantity of potatoes marketed in interprovincial and export trade. In advising against the ECPPC's request to give the agency authority to fix the annual global quota, as well as allocate it among provinces, and to manage supplies moving interprovincially, the National Council pointed to the relative inexperience of the industry with a marketing agency and with regional cooperation and expressed its concern that potato producers in New Brunswick and Prince Edward Island had not been adequately consulted on details of the proposal.48 With this exception, the National Council endorsed the ECPPC's proposal, which subsequently became the basis for negotiations leading to a federalprovincial agreement to authorize creation of the Canadian Potato Marketing Agency. The seventh draft of the marketing plan provided for a Canadian Potato Agency to be composed of two federal representatives and two producers appointed by each member provincial marketing board. Prince Edward Island's representatives would be chosen jointly by the PEI Marketing Board and the PEI Potato Producers Association. The Potato Agency would license persons engaged in interprovincial and export trade and be authorized to set and collect levies and purchase, store, and market potatoes in interprovincial and export markets. There is ample evidence of provincialism in the proposed marketing plan and in the continuing failure to procure unanimous provincial consent for the plan. First, while the agency would be authorized to develop a regional pricing system, any system it devised would need the consent of a meeting of all signatories. (This includes provincial and federal agriculture ministers, provincial potato boards, provincial marketing councils, the PEI Potato Producers Association, and the Potato Agency.) Second, until the agency adopted a pricing system, prices would be set by provincial boards. Even when the agency secured approval to fix prices, provincial boards could continue to exercise intraprovincial pricing

110 Shared responsibility: the 1970s and 1980s powers with the agency's concurrence. Again, even when given pricing authority, the agency would not have responsibility for setting seed potato prices; their price in domestic and export markets would be set by the 'existing system.' And the prices of processing potatoes would be set by provincial boards in negotiations with processors. Third, any agency interim system for pricing table potatoes in intraprovincial and interprovincial trade must 'ensure that the pricing policy adopted is not designed to change traditional market shares' (section 3.c.iii, Schedule D). Fourth, the agency would not have powers of surplus removal at the outset, and any subsequent policy devised would need unanimous signatory consent The foregoing provisions reveal the intent to use the agency to preserve the status quo and avoid any loss of provincial marketing board autonomy to the regional marketing agency. Prince Edward Island, the largest potato-producing province, has been particularly concerned to protect its traditional markets. It currently fills about 75 per cent of the Toronto market and counts on Toronto buyers to absorb about 25 per cent of its total sales and the Quebec market for about 17 per cent New Brunswick, also dependent on central Canadian markets, is equally anxious to preserve the status quo. But defensive provincialism alone does not explain Prince Edward Island's failure to endorse the seventh draft of the marketing plan and to allow the Potato Agency to be proclaimed. The seventh draft provided for at least one of the two producer members for each province to approve an agency interim pricing policy before it came into effect. Prince Edward Island is internally divided between the Potato Marketing Board, which is dominated by the vertically integrated potato processors, and the PEI Potato Producers Association, the spokesman for the individual potato growers. 49 The marketing board's support for the Potato Agency has always been lukewarm, while the Producers have traditionally endorsed it Conscious that its separate interests as processors may not always be congruent with those of producers, the PEI Marketing Board had been able to persuade PEI Agriculture Minister Horace Chappell not to sign the federal-provincial agreement. It had refused to sign the proclamation until the marketing plan was amended to make unanimous producer approval necessary for any agency interim pricing agreement. This will ensure the PEI Marketing Board's veto over interim pricing policy. Without the support of the largest potato-producing province, the Canadian Potato Marketing Agency remains still-born. THE IMPACT OF MARKETING POLICY

Who has benefited and who has lost as a result of national agricultural marketing policy? The question has recently been addressed in a series of studies for the

111 National marketing and supply management

Economic Council of Canada and the Institute for Research on Public Policy. Their conclusions are presented here, as are considerations that suggest the limitations of the regulation reports• findings. Where producers and provincial authorities have been able to agree to use the national marketing board legislation, there have been sizeable benefits for producers and provincial economies alike. Benefits include producer equity in access to markets and on returns on investment, as well as greater bargaining power in the market-place. Egg and broiler production 'is now a profitable venture where once returns were chronically inadequate for many and sporadically depressed for all.• Owing to differences in their models, economists differ in their calculations as to the benefits to producers of supply management. Barichello calculates that the annual gains to egg producers are $55 million, Arcus puts the figure at $45 million, while Harling and Thompson put the figure for 1975-7 at $74 million. Broiler producers are alleged to have benefited annually in the order of $57 million (Barichello), $71 million (Arcus), and between 1975 and 1977 by $94 million (Harling and Thompson). Dairy farmers are the greatest beneficiaries; Barichello estimates that supply management has transferred $955 million to dairy producers from consumers and taxpayers. The consumer and the taxpayer have paid the cost of supply management However, for $11.34 per annum for broiler regulation and $8.26 for egg regulation, the consumer has gained stable prices. Dairy, poultry, and egg prices are more stable than most other agricultural commodities' prices. Further, there is evidence that the egg and chicken agencies have helped to control vertical and horizontal integration, leaving farmers to control egg and broiler production, and redistributed income among producers. (The latter has been the result of limits on the permitted size of operations, as well as a policy of allotting additional quota to smaller-sized units.) 50 It is not easy to determine who has gained the most from supply management. Because the marketing agency virtually guarantees provinces the share of the market they had prior to supply management, it is possible to argue that the greatest beneficiaries are producers in provinces where the regulated industries are concentrated. As Table 19 shows, this includes Ontario egg, broiler, and turkey producers; Quebec chicken, egg, and turkey farmers; and BC egg producers. However, Alberta and British Columbia, whose consumer markets have been growing, view themselves as having been penalized by supply management Ontario also feels that it has been inequitably treated with respect to chicken and dairy products. Against their claims it may be argued that it is not reasonable for any of these provinces to expect to supply their own markets when they depend on other provinces to purchase their livestock, oil, lumber, and manufactured goods. Further, the data may not support British Columbia's and Ontario's

112 Shared responsibility: the 1970s and 1980s complaints. Schmitz cites figures from the Economic Council of Canada to show that British Columbia has benefited the most from the broiler agency. Manitoba egg and broiler producers have benefited the least. 51 National marketing plans are criticized for three detrimental consequences in particular. First, supply management is said to benefit the producer at the consumer's expense. Consumers are said to pay more for poultry and dairy products than they would under competition. And the consumers who pay more are not necessarily those who can afford to do so, since the cost of supply-managed commodities to the consumer varies in proportion to the size of his or her food expenditure on these products. Josling estimates that the national dairy program in 1978-9 cost the consumer $623 million; Barichello's figure is $680 million. Regulation in the egg and broiler industries has been estimated by Arcus to have cost the consumer about $56 million per year, or 13 cents per dozen eggs, and $77 million per year, or 9 cents per pound of broiler meat. However, the reliability of these statistics has recently been challenged. The statistics are derived from economic models that make what may be an erroneous assumption of perfectly competitive conditions elsewhere in the economy. Further, comparing Canadian prices for poultry and dairy products with (unregulated) American prices, as a means of calculating the cost of supply management, fails to take into account a host of other factors that affect egg and poultry prices in the two nations. Also, given long-standing government support for the dairy industry, it is difficult to determine what dairy prices would be in the absence of intervention. Finally, an inquiry panel found that 'on the average [egg] prices have been reasonable from the standpoint of both consumers and producers.' 52 Second, supply management schemes are said to foster inefficiencies in individual production and in the overall economy (both resulting in higher consumer food costs). Some argue that inefficiencies in production are endemic to national marketing boards (keeping in business inefficient producers who would have been forced out of the industry in a competitive market), and others see inefficiencies rooted in political considerations, as quotas are allocated to less efficient regions to prevent squabbles between provinces. However, these allegations are also disputed. Schmitz points to statistics in reports of the Economic Council of Canada to argue that they do not indicate a misallocation of resources or a loss of economic efficiency, showing that the net effect of consumer losses and producer gains is relatively small. Supporters of national marketing plans point out that anti-dumping regulations set the minimum price of out-of-province produce equivalent to that in the exporting province plus freight costs. This means that producers needing market outlets in another region must be as efficient, or more, than that region's producers. Nor is there reason to believe that

113 National marketing and supply management a fixed price keeps inefficient producers from making the necessary improvements to ensure efficiency: inefficient egg producers will probably survive if they are guaranteed only an average price (which is the marketing agency price), but they may have to be satisfied with 'sub-standard' returns. 53 The most severe indictment of national marketing boards is the charge that the bias toward provincial self-sufficiency in quota allocation, quota reallocation, and pricing policies is creating inefficiencies of resource allocation. When changing circumstances alter the comparative efficiency of regions, so as to make outmoded an allocation of production on the basis of historical shares of national output, distortions in interprovincial resource use and commodity trade result. While there is ample evidence of self-sufficiency and protectionist behaviour on the part of the parties to national supply management, it is not clear whether serious inefficiencies in resource allocation have resulted. The general consensus of the regulation reports was that they have; others contend that economic inefficiencies resulting from supply management may be less between regions than among individual producers, as noted below. Nevertheless, whatever the economic realities, the mentality of balkanization that is encouraged by dividing up the national market 'into a set of provincial submarkets' does tend to 'negate the very essence of Canada as a common market ' 54 Third - and on this there is general consensus - national marketing plans are said to discriminate against the new entrant to the industry in favour of producers in the industry at the time the marketing board was established. 55 With access to the industry limited, the effectiveness of marketing boards in increasing and stabilizing producers' prices and incomes has made egg, milk, turkey, and broiler production more attractive. Retiring egg and broiler producers have consequently been able to sell their operations at prices that reflect the value their own quota has acquired. While the quota of original participants had no (or a very low) value when it was initially allocated, this is not true of that of newcomers. Their costs of entering the industry now include the estimated value of the licence to produce. Hence, the marketing board, while generally benefiting those farmers in the industry, produces an inequality between original participants and would-be entrants. Producers with already large quotas may often be the only persons with sufficient capital to buy out retiring farmers. In both the short and the long run, the family farm may be jeopardized as these sectors become consolidated in fewer and fewer hands. Having examined the impact of divided jurisdiction on policy outcomes, we may find it useful to speculate about the beneficiaries and losers in a situation of exclusive federal jurisdiction. In the matter of marketing regulation, it can be argued that the federal minister of agriculture in the Liberal government between

114 Shared responsibility: the 1970sand 1980s 1972 and 1984 (except for 1979-80) was both a more consistent supporter of orderly marketing than some of his provincial colleagues and less susceptible to the influence of interests opposed to supply management- local processors, distributors, and retailers - than some of his provincial counterparts.56 If this is true, lessening the role of provincial officials would expedite creation of national marketing agencies. The case in point is the Potato Marketing Agency; it was earlier argued that provincial vulnerability to the pressure of large integrated potato processors has impeded creation of that agency. If the federal government exercised unilateral authority with respect to marketing, it could alter more easily the structure of the national agencies to allow for non-producer /non-provincial representation that would counterbalance the provincialist tendencies given rein by the current structure of national agencies. One could argue that the ensuing benefit would be a movement away from balkanization of the common agricultural market. SUMMARY AND ANALYSIS

Divided jurisdiction has affected the pattern of and degree of harmony and conflict in federal-provincial relations in national agricultural marketing policy. Economic, political, and constitutional factors give rise to conflicts and sometimes make it difficult to overcome territorial interests when they rear their heads. Divided jurisdiction and federal-provincial relations Federal-provincial relations in national agricultural marketing have been characterized by a minimal amount of conflict The record is one of co-operation and isolated incidents of criticism of one another. When the Supreme Court of Canada in January 1978 ruled that the federal government did not have authority to raise levies to finance agency activities that affected trade within the province, provinces co-operated by making the legislative and regulatory changes necessary to allow CEMA to continue its surplus removal program.57 More recently, as noted earlier the federal minister of agriculture acceded to Ontario Agriculture Minister Timbrell' s request in early 1983 to convene a signatories' meeting to discuss the issue of over-base quota, and provincial ministers showed their respect for their colleagues' sense of urgency by themselves attending the meeting. While infrequent, provincial criticism of federal policy with respect to national agencies has occasionally surfaced, as the earlier analysis of dairy policy noted. Two other federal actions that drew provincial criticism included federal attempts to require agencies to be more attentive to efficiency consider-

115 National marketing and supply management ations and federal import quotas on broilers. In January 1979, the federal cabinet issued the National Council with guidelines, calling on the council to instruct marketing agencies to give greater consideration to efficiency, including more production opportunities to efficient producers, and to ensure the unimpeded flow of poultry products across provincial boundaries. Provincial agriculture ministers joined the Canadian Federation of Agriculture, the Union des producteurs agricoles (UPA), and other farm groups and marketing boards and agencies in condemning the directives. Saskatchewan's minister of agriculture, viewing the guidelines as an attack on orderly marketing, sought amplification from Eugene Whelan of several points in the guidelines. Another guideline called for the council to instruct agencies to create uniform provincial quota restrictions so as not to cause cost differences between provinces and to standardize quota transfer rules (in order to avoid driving up production costs). It, too, was unanimously opposed by producers and provinces, with the latter viewing the guideline as an infringement on provincial jurisdiction. The combination of provincial and producer resistance and a division of opinion within the council resulted in the guidelines not being enforced. 58 Another issue that prompted an alliance of provinces and producer boards against the federal government was the issue of levels of imports of chickens entering Canada in 1978-9. The federal government drew provincial wrath, first, in its delay in placing import controls on American chickens (not doing so until a couple of months after provinces had reached agreement on a domestic supply management scheme) and, thereafter, in the level and nature of chicken import controls. The province of Ontario joined the entire poultry industry in criticizing the high level of imports that Canada had accepted at the Tokyo round of the GATI negotiations (1973-9) and the subsequent issuing of supplementary permits late in the year to two Ontario egg processors to import American chickens in excess of the authorized quota. Pressure on Conservative Agriculture Minister John Wise (June 1979-February 1980) to renegotiate the level of broiler imports came from Ontario Agriculture Minister Lome Henderson, from Liberal andNDP critics and the Agriculture Committee in Parliament, and from the Ontario Broiler Chicken Marketing Agency and poultry farmers marching on Parliament Hill. It was not the Department of Agriculture but rather Industry, Trade and Commerce that had negotiated import levels. (When the Liberal minister of agriculture subsequently attempted to pursue an election promise to ask the United Stales to reopen negotiations on chicken import quotas, he met with failure.)59 The minor degree of federal-provincial conflict surrounding national marketing is contrary to what students of regulatory agencies have led us to expect. Richard Schultz, for example, argues that regulatory agencies, especially those with considerable independence from ministerial control, have contributed to 'a

116 Share.dresponsibility: the 1970sand 1980s corrosive adversary system' of fe.deral-provincial relations.60 This is because, unlike the situation with fe.deral-provincial relations generally, there are few opportunities for governments to co-operate with, influence, and harmonize their own policies with those of another government's regulatory agency. Schultz suggests that regulatory agencies' activities have become fertile ground for jurisdictional disputes; for governmental frustration, as another government's agencies impe.de one's own policy objectives; and for displeasure at not being given automatic access to hearings of another government's agency. Fe.decal-provincial tensions arise, in short, because regulatory agencies often do not provide mechanisms that recognize the interdependence of governments and facilitate its accommodation. What accounts for the relative dearth of conflict of first ministers over national marketing agencies? First, one factor would appear to be judicial review itself. With jurisdiction over marketing divide.d, intergovernmental co-operation is necessary to create and implement a national marketing plan. Rather than conflict being elevate.d by the fact that fe.deral and provincial regulatory authorities have responsibility for different aspects of an economic activity, as Schultz pre.dicte.d,61 if provincial and fe.deral governments are to acce.de to their producers' goals, they have to co-operate and co-ordinate their marketing activities. In addition, judicial clarification of responsibility for marketing, while not as clear as some would desire, has probably minimize.d jurisdictional disputes. Unlike the case with newly emerging policy fields, such as cable television, where jurisdictional boundaries are ambiguous, the delineation of fe.deral and provincial responsibility for agricultural marketing has not change.d much since the 1937 ruling in Reference re the Natural Products Marketing Act. The one reversal of a judicial decision, the upholding in 1978 of provincial levy-raising powers that had been denie.d in 1957, serve.d only to reinforce the nee.d for fe.deral-provincial co-operation and co-ordinate.d marketing legislation. (The Ontario Egg Reference case arose not out of an Ontario dispute with the fe.deral government or with CEMA, but out of a dispute with individual producers not wishing to be bound by the monopolistic egg marketing board.) Second, governments have largely remove.d themselves from the making and implementation of national agricultural marketing policy, leaving those functions to delegate.d bodies. Except at the inception, when they consent to delegate their jurisdictional authority to agencies create.d by the other level of government, ministers of agriculture have tende.d not to involve themselves visibly in the affairs of provincial boards, and their practice has been not to attend signatories' meetings calle.d by the National Council but to leave provincial supervisory councils or, more often, provincial marketing boards to represent the province. The relative non-interference in agency affairs stems from governments at

117 National marketing and supply management

both levels agreeing on the appropriateness of supply management, accepting farmers' wishes to be free to run their own affairs, and having political motives of maintaining producer support. Third, while national marketing agencies are empowered by federal legislation and report to a supervisory council appointed by and responsible to the federal minister of agriculture, national poultry agencies are composed of provincial boards' representatives - either entirely (CTMA) or in a majority sense (CEMA, ccMA). The provinces have a similar appreciable influence on dairy policy through the Canadian Mille Supply Management Committee. Even the National Council, while the target of agency criticisms, cannot be construed as the spokesman of the federal government, since it is required to have a majority of producer representatives, who are selected so as to be regionally representative. In short, the structure of the agencies and the council that make, implement, and oversee national marketing policies provides for extensive representation of provinces and their producers. Hence, seeking a consensus on over-base quota allocation (where more quota for one province means less for another) becomes as difficult as securing the agreement of ten premiers on where economic development should take place in Canada. This analogy means that we should not be surprised if agency directors revert to the practice of their first ministers and seek a political compromise. But, as noted earlier, when that political compromise deviates from a balanced attention to the needs of consumers and producers or from the criterion of comparative advantage in production opportunities, the National Council is given no choice but to oppose the compromise and incur agency antagonism. In tracing the roots of conflict in national marketing, it is important to ask why the national poultry agencies are composed of provincial representatives, why agencies have been given the policy-making authority that they have, and why the supervisory council and the federal government have not demanded from national agencies more accountability, which might have prevented interprovincial competition from developing to the extent it has. The composition of the national poultry agencies and the nature of the marketing plans they administer are shaped by both political and constitutional factors. It will be recalled that the provision that producers constitute a majority of the members of national agencies was a political compromise made to secure producer and provincial consent to the FPMA Act. The political compromise was in part dictated by the constitutional division of marketing authority. Without provincial and producer endorsement, the federal government could still have rammed Bill c-197 through the House of Commons; however, the exercise might have been futile, because both producers and provinces might not have cooperated in using enabling legislation that did not allow them the input they

118 Shared responsibility: the 1970s and 1980s desired. But the absence of federal representation on the national agencies was not a constitutional requisite, as federal input into national dairy policy-making through a crown corporation, the coc, makes clear. While the FPMA Act necessitates a producer majority on the agencies, it allows for the option of Governorin-Council appointment 'or in such other manner ... and for such term as is provided in the proclamation establishing the agency' (see 19.1). The proclamation states how agency members will be selected - by provincial commodity boards or Governor-in-Council appointment- and whether there will be federal representation on the Agency. An explanation of the extent of the decentralization of policy-making to provincial producer boards (regarding pricing, licensing, and levies, for example) and the degree of regulatory authority vested in the national agency (to remove surpluses, to fix national prices) again leads us to constitutional and political factors. Both matters are negotiated prior to the agency's creation and laid out in the federal-provincial agreement and proclamation. That these require provincial unanimity - or at least the agreement of the most significant commodityproducing provinces - is a consequence of judicial review. The courts have given the provinces the jurisdictional authority to sabotage attempts to share a national market by allowing them to refuse to delegate to a federal agency the requisite authority to finance and implement the orderly marketing plan. Only provincial governments can delegate their exclusive control over production in the province and their authority to raise levies to finance the regulation of marketing in the province. However, the federal government is not without its own constitutional and political resources. It alone can legally safeguard a provincial market by restricting the entry of another province's commodities. Further, the federally appointed NFPMC recommends the terms of the marketing plan to the federal minister of agriculture, who has the final say on the plan's terms. The constitutional balance of power means that political considerations likely become important once provinces and producers sit down with federal officials to hammer out the details of a marketing plan. While the example of Prince Edward Island and the potato agency demonstrates that the marketing agency may be jettisoned if even one province does not get the marketing plan it wants, the example of the chicken agency with import controls indicates that the federal government can exercise influence on the marketing plan if provinces and producers want supply management enough. In giving approval to a marketing plan that may conflict with FPMA Act guidelines or that allows for greater decentralization of authority than the federal government would like, the federal minister of agriculture will have balanced the political and economic benefits of supporting the scheme-earning producers' good will, saving the federal treasury perhaps millions of dollars, staying onside with the provinces - against the economic and

119 National marketing and supply management political costs that may ensue once the agency becomes operative. As Peter Arcus's figures show, the savings to the government's treasury can be considerable indeed. He estimates that egg and chicken supply management has established a $115.6-million annual transfer program at a combined federal and provincial treasury cost of$ 1 million per year. 62 The extent of policy-making authority and independence of the national agencies is also affected by the FPMA Act. The act enables the National Council to restrict agency independence by enabling the council itself to determine which agency regulations require its prior approval and which require only postauditing. Those who perceive the council as having been relatively lax in using its pre-auditing authority to require agency accountability have tended to explain that slackness in terms of the producers' majority on the council. If the council's make-up does give it a producer bias, which militates against aggressive supervision or against the appearance of objective supervision, that bias owes its origins to the political compromise made to secure passage of the FPMA Act. As noted earlier in this chapter, council chairperson June Menzies offers alternative explanations for the council's 'highly flexible, pragmatic and subjective approach to supervision' in the past, including its inadequate legal authority, the lack of precedents to guide it, and the meagreness of its professional staff. 63

The roots and nature of conflict While governments and first ministers have tended not to lock heads over national marketing schemes, provincial regulatory boards have clashed with one another, and national agencies have tangled with the federal body delegated to supervise them. Interprovincial squabbles over quota allocation and reallocation have hindered creation of national marketing plans (for chicken64 and potatoes, for example) and marred agencies' performance to the point of evoking an ultimatum from the federal agriculture minister. Within the forum of the national agency, provincial representatives are prone to articulate their producers' interests, which differ from those of producers in other provinces, and which, if fulfilled, may militate against the national interest in unimpeded interprovincial trade and an efficient national agricultural sector. Benoit Lavigne describes the current situation in these terms: 'We have reached a point at the national level where some producers, doubling as agency administrators, are so imbued with self-centred and parochial interest that they behave like kids in the streets. How often do you hear: ''Our province wishes to recuperate so many dozens of eggs, or else we quit the plan "?' 65 While the nature of Canada's agricultural economy - in which producers in different regions with varying degrees of competitiveness are seeking the same limited consumer markets - makes interprovincial conflict unavoidable, the

120 Shared responsibility: the 1970s and 1980s structure of the national agencies makes it virtually inevitable. The marketing agencies, composed of provincial representatives, provide an institutional basis for the articulation of provincial interests and hence build in conflict. As Lavigne asks rhetorically, 'How can you expect a producer, even would he be of high virtue, to rise about his petty interest and have regard for other provinces, for consumers and for the total industry?' 66 Would more direct federal input into national agency policy-making curtail or heighten conflict? The example of the national dairy plan may be helpful, although federal influence on national dairy policy is undoubtedly greater, as a result of federal subsidies for dairy producers and dairy products and the federal government's institutional role in shaping decisions regarding quota allocation and target prices. Federal involvement could well transform provincial conflict into federal-provincial conflict if it allowed for charges of provincial favouritism, as has happened with respect to the CDC. A more intrusive federal role in national poultry agencies carries the risk of provincial ministers following suit and becoming more frequent and open defenders of local producers. That they have largely refrained from doing so is partly because the federal agriculture minister has not often been attacked by regulated producers. Canadian producers were generally pleased with Eugene Whelan's policy of empowering them with the authority to run their own affairs and defending them against marketing board critics. His behaviour earned him farmers' good will. His perceived responsiveness, a pleasant contrast to the behaviour of his colleagues in Transportation and in the portfolio responsible for the Canadian Wheat Board, served as evidence that the Liberal party and the national government could represent at least some agrarian interests.

6

Revising the Crow rates

The perceptions westerners have of themselves and the rest of Canada are intimately bound up with the wheat economy that has dominated their lives for more than three-quarters of a century. (Smith, The Decline of a NoJional Party, 20) Diefenbaker's dictum that wheat is the only thing for politicians to talk about on the Prairies no longer applies. (Gibbins, Prairie Politics and Society, 87)

Federal policies on the handling and movement of western grain into export markets are the most visible aspect of the federal presence in western Canadian agriculture. Federal responsibility stems from its jurisdiction over interprovincial transportation (railway) systems (section 92.10.a of the BNA Act of 1867), its jurisdiction with respect to interprovincial grain marketing, and its statutory commitment to the Crow's Nest Pass freight rates. The courts have sanctioned the authority vested in a federal agency, the Canadian Wheat Board, to exercise monopoly control over the purchase and marketing of grain destined for extraprovincial markets. The federal institutions that carry out federal grainhandling and transportation policies are the Canadian Wheat Board and the Canadian Transport Commission. The agencies are responsible to two different ministers - the minister in charge of the Canadian Wheat Board, and the minister of Transport The practice of one cabinet minister being answerable for both agencies was discontinued in the late l 970s. 1 In the 1970s, and particularly after 1973, the issue of grain movement and transportation policy emerged alongside natural resources as the most outstanding issue in western Canada on the federal-provincial agenda. While, as chapter 3

122 Shared responsibility: the 1970s and 1980s has shown, western grievances relating to the federal government's transportation policy date back many years, throughout the 1970s tensions developed between western Canada and the federal government over two matters: the extent of federal responsibility to update and expand facilities for the storage and transport of grain and the federal commitment to abandon the Crow's Nest Pass rates in place of higher rates for the movement of grain. Both the federal government and western Canada were in agreement on the need for change in the grain-handling and transportation system; both recognized its inadequacy to handle current and projected grain production. But disagreements arose on the means to achieve the mutual"goal of a more efficient system. As noted in chapter 3, the Canadian Wheat Board has been solely responsible for the export marketing of prairie-grown wheat since 1935 and of oats and barley since 1949. It allocates delivery quotas to individual farmers that stipulate the quantity of grain each can deliver to local elevators and thus determine how space in elevators will be apportioned. Until the fall of 1979, when the function was assumed by a grain transportation co-ordinator, the board supervised the rail movement of wheat and other grains (oats, barley, rye, flaxseed, and rapeseed) within and outward from country elevators to feed mills and terminal elevators at Thunder Bay and Vancouver. Hopper cars and boxcars were allocated to elevators to pick up the required volume and grades of grain needed at the export locations. Rather than exercise its authority to operate elevators, the Wheat Board appoints the farmer-owned wheat pools and private grain companies to act as its agents in purchasing and storing wheat and other grain. Since the 1960s the Wheat Board has increasingly negotiated contracts directly with foreign grainbuyers, so that about 70-80 per cent of exports are handled directly by it. It relies on grain-exporting firms to act as agents for the remaining 20 per cent of its sales, selling grain to private companies which, in turn, sell it to buyers in importing countries. The speed and efficiency with which the Wheat Board has been able to oversee the movement of grain from farm to country elevator and then to port terminal and export markets are initially contingent upon two factors. The first is the storage capacity of elevators; the second and equally important factor is the readiness and capacity of the rail network to transport grain. The number of available hopper cars and boxcars places a limit on the railways' grain-handling capacity. The freight rates that the railways are allowed to charge for the movement of grain, relative to other commodities, significantly affect the railways' readiness and incentive to move grain. These rates, it will be recalled, are the Crow's Nest Pass rates, fixed by the Railway Act in 1925 at their 1897 level of 1/2 cent per ton mile. The Crow's Nest rates have applied to grain and flour, grain and flaxseed products, and rapeseed and rapeseed products moved by the railways from the

123 Revising the Crow rates prairies to export through Thunder Bay, Churchill, Vancouver, and Prince Rupert. Beginning in the early 1960s, the railways sought to shed their responsibilities for moving grain. They appealed for the abandonment of branch rail lines on which it was unprofitable for them to haul grain and sought compensation by way of subsidies to make up the difference between what it costs to move grain and the Crow rates. This 'Crow gap' between the statutory Crow rate and the actual cost of moving grain developed as the 1897 rates failed to keep pace with inflation. Since it was less profitable to move grain than to transport processed commodities whose freight rates were not fixed in perpetuity, the railways lacked the necessary incentive to upgrade branch lines to small communities, to repair existing rolling stock, and to purchase new grain boxcars or hopper cars. They appealed to the MacPherson Royal Commission (1959-61) to suspend the Crow rates. Provincial and producer appeals convinced the commission not to recommend elimination of the Crow rate but to seek another method of compensating railway losses. It proposed payments to the railways to compensate them for losses on unprofitable, largely grain-dependent branch lines. The federal government, faced with the prospect of a deteriorating rail system, accepted the recommendation in 1969 and made an initial paymentof$114 million for 'losses attributable to operation of lines required as public services.' The federal subsidy was to decline by 15 per cent per year until eliminated in 1975. Over the period 1971-5, government branch-line subsidies averaged $55 million per year, a figure the railways claimed still fell short of their average 'loss' of $79 million per year. 2 In response to the railways' application in 1965 to abandon 3,725 miles of branch lines that they viewed as unprofitable, the federal government froze 6,300 miles of track until June 1977. It announced its intention to establish a commission that would report in the interim on whether to retain or abandon these branch lines. The government guaranteed a remaining 12,400 miles until the year 2000 and allowed 525 miles to be abandoned immediately. By the mid-1970s a number of factors were pushing the federal government in the direction of revamping the freight rate system. Subsidies to the railways for unprofitable branch lines and further payments for the repair of boxcars ($3 million in 1974) were costly and, moreover, apparently ineffective in eliciting better performance from the railways. Further, growing world demand for wheat led to a great increase in Canadian wheat production in the 1970s and consequently heavier demands on grain-handling and transportation facilities. The optimism of western Canadian farmers and their governments that Canada's grain production could move from the then-current level of 40 million tonnes to 44-45 million

124 Shared responsibility: the 1970s and 1980s tonnes in the 1980s hinged on transportation and grain-handling structures being adequate to market these volumes of grain, since 'of this potential production the export market will take 28.3 million to 35.5 million tonnes.' 3 Impetus for 'reform' of the Crow's Nest rates came also from the minister of transport, Otto Lang, whose department was subsidizing rail-branch-line grain transport. Appointed in 1975, Lang believed that the 1967 National Transportation Act should serve as the model in grain transportation. The act endorsed the principle of intermodal competition as the basis of a national transportation policy, urged efficiency and economy in the transportation system, and was predicated on 'the belief that the railways should be released from past legislative restriction.' Lang popularized the concept of a user-pay system: those who use the transportation system should pay the full cost of the service. Subsidies like the Crow rates, said Lang, remove economic incentives for the railways to transport grain quickly and are the root cause of the grain-handling problem. While the federal minister of transport sought to implement the spirit of the National Transportation Act, the western premiers tried to resist it Reacting in part to the act and specifically on their perception that it was too protective of railways' interests and insufficiently attentive to the economic development interests of the region, the western premiers sought and obtained a meeting with the minister of transport, Jean Marchand, in Calgary in July 1973. At this Western Economic Opportunities Conference the premiers sought guarantees from the federal minister about greater regional input into national transportation policy and a policy that would 'correct a number of serious inequities affecting western transportation.' The immediate stimulus to a review of the federal government's policies with respect to grain transportation - the system and the rates - was the need to make a decision on the branch lines, the status of which was undetermined as a result of the 1965 decision to put them on hold. 4 The debate that began in 1975 and culminated in legislation in the fall of 1983 to revise the Crow's Nest rate structure was characterized above all by its politicized nature. Debate over reform of the rates and improvement of the grainhandling and transportation system penetrated the grass roots of prairie society and permeated the upper echelons of government structures. The issue has driven a wedge within prairie society between livestock and grain producers; has pitted one segment of western Canada against Quebec and fused another sector with Quebec; and jeopardized the unity of the Conservative party and caused the shuffle of at least one cabinet minister. For students of federalism it demonstrates the limits of territorial politics, the imperatives of politics over economics, and the continuing relevance and limitations of national political institutions in meeting western agricultural interests.

125 Revising the Crow rates

The politicization of the issue was the consequence of a number of factors. Politicization was inevitable, but it was also exacerbated by the federal government's own strategy for revising freight rate policy. First, widespread public interest on the prairies was unavoidable, given the producer's direct involvement in grain marketing. Eighty per cent of the country's elevator system is owned by the farmers themselves. In addition, they are further directly involved in grain marketing through the Canadian Wheat Board. While the board is a crown corporation, with its five commissioners appointed by the federal government, it is totally financed by farmers. Eleven individuals are elected by farmers to serve as an advisory committee to the board. Any profits that the board makes from grain sales are passed on directly to the farmers, and any losses it incurs from inefficiencies in the grain-handling system are borne by the farmers. The performance and record of the board are thus monitored closely by them. This fact alone is enough to make provincial governments keenly aware of the board's role. Second, the legacy of struggles for regulated freight and marketing structures meant that changes in these structures were likely to be resisted as infringements on victories with great symbolic significance. The Wheat Board and the Crow's Nest rates were the Davids against the Goliath private grain trade and railways. Indeed, former Saskatchewan premier Allan Blakeney (1971-82) articulated his belief that the promise of 'an efficient, economic rail transportation policy' to help market western products abroad was a Confederation promise to balance the central Canadian benefit of tariff protection. 5 Third, widespread public mobilization in western Canada was the consequence of the high economic stakes portended by change. These will be dealt with in full shortly. Fourth, politicization of the issue grew as a result of the strategy chosen by the federal Liberal government to resolve the issue, affected, no doubt, by the fact that during the period of the debate, the Liberals had first 5 western members (1974-9) and then 2 members, representing urban Winnipeg ridings (1979-84). The federal strategy entailed considerable opportunity for public involvement - with royal commissions and later Transport Committee hearings being held across the prairies. As if to offset the charge of unrepresentativeness, the Liberal government sought to prod the west into coming to a consensus on freight rate reform, delaying a final decision and possibly exacerbating inefficiencies in the grain-handling system as potential inducements to persuade the grain farmers of the need for change. In order to appreciate these points, it is necessary to examine chronologically the policy process and to show how politicization increased as the process wore on.

126 Shared responsibility: the 1970s and 1980s STAGE ONE: BRANCH LINES AND HANDLING CAPACITY, 1975-9

By the mid-1970s producers and provincial governments were expressing concern about railway intentions to abandon branch lines and showing dissatisfaction with the railways' reluctance to upgrade handling capacity through the purchase of new hopper cars and/ or boxcars. Both groups feared the additional expenses that abandonment of branch lines would bring. For provinces, the cost would be higher highway maintenance costs as a result of the increased use of trucks, as farmers turned to the roads to transport grain to centralized elevator systems. Farmers, of course, would have to invest in trucks capable of hauling grain several more miles than they were accustomed to. However, the federal government would bear the costs of rehabilitating and upgrading branch lines. Needing to make a decision on those branch lines whose status was undetermined, and under intense pressure from western farmers and provincial governments not to abandon the Crow rates or branch lines until the producers themselves could make their point of view known, in 1975 the federal government commissioned Justice Emmett Hall to decide the fate of the 6,300 miles of rail branch lines frozen until 30 June 1977. At nine 'global' hearings in the fall of 1975 the railways, wheat pools, grain companies, provincial governments, and farm groups presented their views on the system as a whole. The seventy-seven local hearings in the spring of 1976 allowed briefs from any local citizens or groups who wished to make their views known. Farmers, unions, railway representatives, the wheat pools, the provinces, and local MPS all participated in the local hearings. There followed eleven regional hearings and three final sets of hearings in Saskatoon, Edmonton, and Vancouver. Justice Hall submitted his report in May 1977. Among his recommendations were the following. With respect to the approximately 6,300 miles of track evaluated, Hall recommended that 2,165 miles be abandoned, 1,813 miles be added to the network guaranteed until 2000, and the fate of the remaining 2,344 miles be determined by a newly established Prairie Rail Authority. The latter would make a decision by 1990. The authority to be created would provide for regional input into decisions regarding abandonment of lines. It would be a crown corporation, with three members based in western Canada, and directly accessible to the affected producers, 'independent of the railways, appointed and funded by the federal government' It would hold local hearings prior to authorizing abandonment of a branch line or, alternatively, its transferral to the basic rail network. Western Canada virtually unanimously endorsed the Hall Report, with Alberta and Saskatchewan 'lavish in their praise.' Both farm organizations, the

127 Revising the Crow rates

Canadian Federation of Agriculture and the National Farmers Union, endorsed it, as did the Alberta and Saskatchewan wheat pools. NDP transport critic Les Benjamin called it 'farsighted.' Only the government of Manitoba was upset with Hall's recommendation that half of Manitoba's branch lines be abandoned. The Palliser Wheat Growers Association criticized the report as detrimental to the western Canadian livestock industry. Undoubtedly provincial and producer satisfaction stemmed not just from its recommendations, but also from the fact that the Hall Commission had been a model of public consultation. 6 The federal government announced that it would add the 1,813 miles of branch line to the network as recommended and would spend $100 million over the next two years, 1977-9, to improve the basic permanent network. In addition, it argued that a decision was needed on the 2,344 miles of branch line whose status was undetermined before the proposed 1990 deadline, because neither the elevator companies nor the railways were prepared to commit capital to lines whose fate could remain unkno\\'.n until 1990. Accordingly, the minister of transport appointed a Prairie Rail Action Committee (PRAC) to perform that task. PRAC chairman Fred Anderson delivered the committee's report in early 1979. It recommended that only 40 per cent of the mileage that it reviewed be retained. Dismissing provincial fears of higher highway maintenance costs as ill-founded, PRAC nevertheless recommended 'a level of assistance commensurate with the best estimates of added road costs caused by abandonment decisions.' Farmers having to haul grain more than twenty miles to the nearest elevator as a result of PRAC-induced abandonment should likewise receive financial assistance. The federal minister of transport, Otto Lang, purportedly pleased with PRAC's report, began to pressure the Canadian Transport Commission to implement it. Acceptance of its recommendations would reduce federal rehabilitation and upgrading costs by $210 million and operating costs by $236 million to the year 2000. However, the report was strongly criticized by the Saskatchewan Wheat Pool, the National Farmers Union, and the federal NDP and Conservative agriculture critics.7 Branch line retention and abandonment proceeded as recommended by the PRAC Report. In addition to the $100 million provided for the 1977-8 and 1978-9 fiscal years for rail network rehabilitation, the federal government provided $70 million in 1979-80 and committed itself to a similar amount for nine further years. Total federal spending over the period 1977-8 to 1981-2 on branch line rehabilitation was $402 million. 8 Augmenting the problem of branch line deterioration was the inter-related difficulty of the inadequate capacity of the present grain-handling system. Between 1969 and May 1980 the number of boxcars in use for grain movement

128 Shared responsibility: the 1970s and 1980s declined from approximately 34,000 to slightly over 15,000.9 By the late 1970s a bottleneck had developed. Large grain crops in 1976, 1977, and 1978 placed record strains on the handling and storage capacity of the country elevators and port terminals and on the railways. Log-jams developed, exacerbated by heavy snowfall and labour slowdowns at the ports. While virtually everyone agreed that the capacity of both the western port terminals to store grain and of the railways to transport it were inadequate and inefficient, there was disagreement as to who should assume financial responsibility to bring the rolling stock up to needed levels and to finance the construction of terminal facilities needed at Prince Rupert. Believing it to be a federal responsibility, the Canadian Wheat Board urged the federal government to make up the shortfall in boxcars by purchasing 4,000 more hopper cars. 1 Federal authorities, however, stalled throughout the fall and winter of 1978-9, arguing that the farmers (who, through the wheat pools, own approximately 80 per cent of the storage facilities) and the railways should assume responsibility. The Wheat Board itself purchased 2,000 boxcars at the farmers' expense and, in view of federal inaction, urged the prairie provinces to assume a responsibility proportionate to the volume of grain handled in each province. By the end of the summer of 1979, Saskatchewan had committed itself to purchasing 1,000 boxcars; the newly elected federal Conservative government announced that it would lease 2,000 hopper cars and rehabilitate another 2,000; and Manitoba leased 400 cars. Alberta purchased 1,000 hopper cars in October 1979, but it did so reluctantly, calling the focus on hopper cars 'a band-aid solution,' and placed restrictions on their use.11 Provinces also moved to fill the gap of funds for the construction of the new terminal facilities at Prince Rupert and Vancouver. Alberta drew on its Heritage Trust Fund to purchase three inland terminals, to back financially (in the amount of $240 million) the private companies taking over the Prince Rupert Terminal Facility, and to purchase a terminal elevator in Vancouver. However, these investments by diverse parties fell short of the railways' estimate of the $14 billion needed to improve the railway system to enable it to handle the expected increased traffic. Rather than continue to transfer taxpayers' dollars to the railways, the federal minister of transport sought after 1975 to persuade producers that the 'real' source of the problem in grain handling was the Crow's Nest rate.

°

While the Hall Commission was holding its public hearings, an American economist, Carl Snavely, was acting on the request of Minister of Transport Otto Lang to inquire into the cost of moving grain under the Crow's Nest Pass Agreement and to consider the effects of an altered grain-handling system on the costs of moving grain. The Commission on the Costs of Transporting Grain by Rail

129 Revising the Crow rates

estimated that in 1974 the Crow rates cost the railways large sums of money; Snavely put the figure at about $140 million (Snavely, King and Associates.1977 Costs and Revenues Incurred by the Railways in the Transportation of Grains under the Statutory Rates. [Washington, DC: 1978]). When branch line subsidies were deducted, railway losses amounted to $89 million. The 1977 figures were $175 million if branch line payments were deducted from railway costs, and $239 million without those subsidies. Snavely calculated that in 1977 statutory revenues covered 32.4 per cent of railway costs, government subsidies yielded another 18.0 per cent, and the railways' shareholders met the remaining 49.6 per cent. 12 Snavely's analysis suggested that the Crow rates, in addition to being a major factor in the deterioration of the transportation system, prejudicially affected the livestock feeding and processing industries in western Canada. As Snavely phrased it, the Crow rates amounted to a subsidy to the grain producers from the government and the railways. Were they not in existence, freight rates to Thunder Bay and Vancouver would certainly be greater (3.5 to 4 times) and the farmers' final payment (the world grain selling price minus shipping and handling charges) certainly lower. The Crow rates had implications for the purchase price of grain on the prairies and, accordingly, for the livestock industry. Gordon MacEachern, of the Agricultural Economics Research Council of Canada, argued that because grain growers were paying a freight cost less than the 'real' cost of transporting grain to export markets, the price that they received for exported grain (in their final payment from the Wheat Board) was higher than it would be if they were charged full transportation costs. When the export market absorbed all the locally produced grain, livestock producers on the prairies wishing to buy grain for feed had to compete with the international grain market. Its price, critics alleged, was higher than it would be without the Crow 'subsidy.• Expansion of the livestock industry and of meat processing was thereby curtailed: first, because there were greater incentives to ship grain than to use it locally for feed (when international demand was good); and, second, because the railways recovered money lost on transporting grain and grain products by levying 'higher' freight charges on livestock and processed products. 13 Snavely's conclusion was contrary to two of the Hall Commission's earlier recommendations. Hall had proposed that, first, the statutory Crow rates be retained at their present level and extended to cover processed grain and oilseed products and livestock moving to export and, second, that the federal government make compensatory payments directly to the railways to cover the gap between the Crow rate and the cost of transportation. Snavely argued that

130 Shared responsibility: the 1970s and 1980S retaining and extending the Crow rates to rapeseed products, for example, would leave the railways without the necessary monetary incentive to improve grainhandling services. Thus Snavely, who was followed in quick succession by other consultants with similar conclusions, questioned the benefit of the Crow rates for the prairie region as a whole. The Crow rates became linked to the deteriorating state of the main and branch lines. By the Canadian Pacific Railway's own admission, it had allowed the quality of branch lines to deteriorate in order to bargain for an upward revision of grain freight rates. 14 If this were true, the Crow rates were impeding expansion of the grain economy, as well as blocking livestock production and meat processing expansion in western Canada. Snavely's findings, and other data regarding the deleterious effects of the Crow rates, prompted widespread public debate in western Canada in the late 1970s and early 1980S. With the minister of transport indicating his clear preference for abandoning the statutory rates and revising grain freight rates upward, grain and livestock producers and provincial governments aligned themselves with one of three perspectives. Three positions emerged over the period 1978-December 1980: one calling for a Crow benefit, a second for Crow retention, and a third for compensatory rates. The three positions differed in terms of whether Crow rates should be revised upward and, if so, who should bear the cost of h igherrates. A Crow benefit had been advocated by the Prairie Farm Commodity Coalition since early 1979. Its members included the major cattle and oilseed commodity groups: the Palliser Wheat Growers Association, the Flax Growers of Western Canada, the Western Barley Growers Association, the Saskatchewan Stock Growers Association, the Canadian Cattlemen's Association, and the Rapeseed Association. The Coalition proposed an alternative to the Crow rate in the form of a 'Crow benefit' that would allow the railways to be paid the full cost of grain transport. Farmers would pay a statutory compensatory rate to the railways, and the federal government would give farmers a direct payment based on their seeded acreage to make up the difference between the higher transport rate and the Crow. While the acreage payment would initially be large enough to pick up the current shortfall between Crow rates and rail costs, any increase in the future would be picked up partially by producers. In return for reimbursing the railways for their full costs, the federal government would demand performance guarantees from them. The federal government would be responsible for rail-bed rehabilitation. The Crow benefit alternative was endorsed by the governments of British Columbia, Alberta, and Manitoba in July 1979. Manitoba Agriculture Minister James Downey praised the Crow benefit alternative as a means to 'end the

131 Revising the Crow rates existing freight rate discrimination against livestock and processed goods and return the freight rate plan to its original goal as a development tool for the West.' 15 The NDP government of Saskatchewan and the National Farmers Union (NFU) remained adamant, as 1980 drew to a close, that the Crow rates be retained. The Saskatchewan government argued that the federal government should make direct payments to the railways to offset their losses as a result of the statutory grain rates. It opposed higher freight rates for farmers and cautioned that compensatory federal payments to farmers could easily be phased out sometime in the future. For its part, the NFU opposed any payments to the railways - from either government or producers - on the grounds that there was no guarantee that better service would inevitably follow once railways were assured a profit. When its neighbouring provinces broke ranks to urge the Crow benefit, the Saskatchewan government offered to assume some of the costs of transporting processed agricultural products (rapeseed oil, alfalfa pellets) if the federal government retained Crow rates, extended them to processed goods, and implemented other Hall Report recommendations. This proposal received no more support from the Conservative governments of Alberta and Manitoba than had Saskatchewan's endorsation of Crow retention; neither Alberta nor Manitoba thought it was its responsibility to make up the difference between the Crow and rail rates on processed agricultural products by making direct payments to the railways. As the commodity groups under the umbrella organization of the Prairie Farm Commodity Coalition, along with the governments of Alberta, Manitoba, and British Columbia, urged the Crow alternative and the NFU and the government of Saskatchewan continued to press for Crow rates 'in perpetuity,' the Western Agricultural Conference, meeting in early February 1980, posed the alternative of a statutory compensatory rate. By late 1980 the Western Agricultural Conference had accepted that government financial assistance to the railways was necessary to give the railways the monetary incentive to move grain and to improve railway service. Its members included the three major prairie farm unions (the Saskatchewan Federation of Agriculture, the Manitoba Farm Bureau, and Unifarm in Alberta), the three prairie wheat pools, and the United Grain Growers (which had initially urged abandonment of Crow rates). While it may not be wholly accurate to describe it as representing 'the main stream of organized farmer opinion in the three prairie provinces,' 16 it probably did speak for the majority of grain growers throughout the region. The Conference proposed that the farmers continue to pay the Crow rate but that the federal government make up the difference with a compensatory

132 Shared responsibility: the 1970s and 1980s

payment that would cover the gap between Crow rates and the cost of transport to the railways and that would assure the railways a small profit. The payment would go directly to the railways. Increases in freight rates in the future would be negotiated by the producers, the federal government, and the railways. In return for statutory guarantees by the railway to provide service, the federal government would assume the cost of branch-line upgrading and rehabilitation and the federal and provincial governments would share the costs of hopper cars. Oilseed products and flaxseed would become eligible for compensatory rates. The unanimous response with which the prairie governments had urged early implementation of the Hall Report broke when the Conservative governments of Alberta and Manitoba subsequently parted with the NDP government of Saskatchewan. In May 1977, in a display of intergovernmental co-operation, an Interprovincial Task Force of staff from the agriculture and transport departments of the prairie provinces had been struck to investigate how transportation policy could be changed to help foster development of the livestock feeding and processing industries in western Canada. The Task Force reported in December 1977, but its report was not publicly endorsed by the western governments because Saskatchewan disagreed with its conclusions. The Task Force argued that extension of the Crow rate to livestock (as the Hall Report had proposed) would not increase livestock feeding and processing on the prairies; at the same time, it concluded that the existing rates on grain encouraged livestock feeding in eastern Canada and made it difficult for the western livestock feeder to compete for feed grain supplies. The analysis gave Alberta and Manitoba little incentive to support Saskatchewan in defending the Hall Report's endorsation of Crow rates and their extension to livestock products. And thus, at the Western Premiers' Conference in Prince George, BC, they publicly parted company with Saskatchewan.17 Thus, by the end of 1980 there was no consensus within the region on who should assume financial responsibility for the upgrading of grain-handling and transport facilities, on whether there was a link between the Crow rates and the deterioration of the transport infrastructure, or on the impact of the Crow rates on the overall prairie economy. The differing economic, political, and ideological interests arising from the relative importance of grain versus the livestock industry, the positions of the clientele farm unions and commodity groups in each province, and the political ideologies of the incumbent authorities had prohibited a unified regional response. Alberta's position on the Crow rates grew out of its goals in economic development, its ideological conservatism, and the pressure wielded by the cattle commodity organizations. The Lougheed government believed that a federal

133 Revising the Crow rates transportation policy that 'subsidizes' the transport of unprocessed (grain) prod~ ucts had deleteriously affected the expansion of livestock and meat- and oilseed-processing industries. The most compelling case on the prejudicial effects of the Crow rate on Alberta's economy is made in a study by Gordon MacEachem for the Alberta Cattle Commission. Because feed grain costs have been driven up by the Crow rates, the Alberta livestock grower has had to pay relatively more for his or her feed than does the Iowa or Colorado livestock producer for com, and the Alberta rancher is at a disadvantage with his American competitors with respect to both feeder cattle and the eastern Canadian beef and pork cut markets. As a result, cattle production has been reduced by 'at least 21 %' and hog production by 'at least 16% below the "natural levels".' MacEachem concluded: 'This represents a direct annual loss in production and sales to the Alberta livestock industry (beef and pork) of approximately $87 million which in turn, has a negative multiple effect on the overall Alberta economy at a minimum of between $336-$491 million yearly.' 18 Another study conducted by Anderson and Hendriks for the Alberta government concluded: 'Preferential freight rates for the grain sector effectively bias development on the Prairies away from other sectors of primary agriculture and related secondary industry.' The two consultants concluded that a compensatory freight rate would result in an expansion of cattle herds and hog numbers by 5 and 10 per cent respectively. Further, while the compensatory freight rate would cost Alberta grain producers $162 million, the possibility of increased grain sales and/ or greater transportation efficiency would yield $190 million over twenty-five years, thus making Alberta •over the long run a clear winner.' 19 With half of total farm cash receipts in Alberta accounted for by the sale of livestock and livestock products, Alberta's economy thus stood to gain from abandonment of the Crow rates. More important, the Lougheed government was committed to diversifying the provincial economy by establishing secondary industries. Food processing was perceived as second only to the petrochemical industry as a base on which the province's long-term economic viability would depend long after the non-renewable resources of oil and gas had run out. Both the meat- and oilseed-processing industries ship the bulk of their product out of the province. In addition, the philosophy of the Lougheed government was best described as a 'free enterprise' one. Subsidies- such as Crow rates-were viewed as obstacles that created disincentives to railways to operate efficiently. Only when the railways, like any other business, are assured of making a profit will they operate efficiently. The provincial economy of Saskatchewan is highly dependent on the grain

134 Shared responsibility: the 1970s and 1980s

industry and the export of grain. 'Saskatchewan farmers produce more than half of the export grains produced in all of Canada and within Saskatchewan, the sale of grains accounts for about ¼ of farm cash income.' Having benefited in the past from Crow rates, Saskatchewan had a vested interest in their retention. Its farmers ship about 50 per cent more grain than do those in Alberta and Manitoba; if estimates were correct that 'the cost of moving grain into export position would increase by 300 to 500 percent if the protection of the Crowsnest Pass freight rates were lost,' then Saskatchewan's economy would be seriously hurt indeed. Anderson and Hendriks concluded that replacing the Crow rate with a compensatory rate, even adjusting for gains in sales as a result of a more efficient transport system, would still leave Saskatchewan with a deficit over twenty-five years of $679 million. A University of Saskatchewan report estimated that the loss would have been $412.3 million over 1974-6, and the National Farmers Union calculated that eliminating Crow rates would have cost the average grain producer $4,425 in 1978.20 Thus the prospects of Crow reform were quite different for Saskatchewan than for Alberta. While Alberta could potentially benefit economically, Saskatchewan, with its reliance on the export grain industry, would incur high costs as a result of dismantling Crow rates and 'rationalizing' the grain-handling system costs that could not be offset by an expanded livestock-feeding and -processing sector as in Alberta. Not surprisingly, then, the advice of Saskatchewan' s agriculture minister, Gordon MacMurchy, to the railways and the federal government was, 'Move grain, not Crow.' 21 MacMurchy's position was consistent with the province's grain producers and the province's economic interests and reflected the NDP government's belief that federal responsibility for grain handling and fair freight rates was part of the Confederation 'bargain.' The shift in government to the Progressive Conservatives of Sterling Lyon in 1977 was accompanied by a change in freight rate policy. Whereas the NDP under Ed Schreyer had vociferously supported retention of Crow rates, Lyon' s government lined up with Alberta and British Columbia in arguing for a Crow benefit rather than Crow retention. Given Anderson and Hendriks's conclusion that replacing the Crow rate with a compensatory rate would leave Manitoba in a 'no-loss, no-gain position,' 22 Lyon's government allowed its bias against subsidies and its preference for non-interference in the market economy to mould its freight rate policy. STAGE TWO: MORE CONSULTATION AND A FEDERAL CARROT, 1979-83

The defeat of the federal Liberal government in May 1979 put freight rate reform on hold. The new Conservative government took some steps to resolve the logjam that had built up as a result of large harvests in 1979-80. It appointed a Grain

135 Revising the Crow rates Transport Coordinator23 to head up a Grain Transportation Agency (GTA) to assume most of the transportation functions previously performed by the Canadian Wheat Board. This included allocating all grain cars and distributing railway equipment. Aided by additional railway capacity because of below-normal shipments of other bulk commodities (owing to the slump in international demand for mineral products), the GTA proved effective in moving record shipments of export grain. The return of the Liberals in February 1980 brought with it an institutional change. The portfolios of Transport and minister in charge of the Canadian Wheat Board, held in the previous Liberal government jointly by Otto Lang, were divided between two ministers: Jean-Luc Pepin and Senator Hazen Argue, respectively. This division of responsibility included a difference of viewpoint on retention of Crow's Nest rates. The new transport minister quickly announced that 'the time is right for a fundamental change in the Crow rate,' while the senator from Saskatchewan disagreed. 24 The realization that the previous minister of transport had been personally defeated in 1979 in large part because of his determination to dismantle the Crow rates, plus internal cabinet discord, undoubtedly contributed to the lack of positive direction from the federal government on freight rate policy in 1980 and 1981. So, too, did the renewed vigour with which Crow retentionists championed their cause, all the more spirited because of the rupture in the federal cabinet The October 1980 budget announced a $4-billion Western Development Fund, to be used to cover costs of rail-line upgrading and compensatory payments; however, the federal government was reluctant to use the fund in the face of the considerable dissension surrounding freight rate change. In February 1981, Prime Minister Trudeau announced that the Crow rate would not be changed until there was 'broad support for change.' 'Broad support,' he said, must include the three prairie premiers. 25 An additional factor that kept Crow reform on the back burner throughout 1980 and 1981 was undoubtedly the federal cabinet's preoccupation with two other matters: the National Energy Policy and constitutional reform. Fighting battles with the premiers on these two issues, the federal government was obviously reluctant to give the western Canadian premiers yet another issue around which to rally opposition to Ottawa. Accordingly, its strategy to mobilize support for freight rate change was to argue that not only the livestock producer but also the grain farmer was hurt by the status quo. And that status quo, said Pepin, would not be altered - not by the federal government and certainly not by the railways - until farmers agreed to share the burden of higher grain freight rates. However, while most western grain interests readily accepted the link between, on the one hand, capital investment in rail and grain-handling infrastructure and higher returns to the railways for moving grain and, on the other hand, an

136 Shared responsibility: the 1970s and 1980s improved system for grain movement, they did not accept a role for the grain shipper in meeting that financial commitment. It was not until February 1982 that the federal cabinet took the initiative. Its response came in the wake of reiterating evidence of large railway financial losses owing to Crow rates and indications that the 'consensus' of the Western Agricultural Conference was threatening to unravel. The Saskatchewan Wheat Pool, which one year earlier had endorsed the Conference's proposal of government-financed compensatory payments to the railways and implicitly accepted higher freight rates, set out preconditions in December 1981 to farmers sharing future costs above the Crow rates. At the same time as this largest grain growers' organization was returning to its retentionist policy, the transfer of power in Manitoba from the Conservatives to the NDP in November 1981 also marked a shift to a Crow retentionist policy. The newNDP minister of agriculture, Sam Uruski, was a member of the National Farmers Union and, as such, embraced that farm union's policy on freight rates. Confronted by recharged opponents of statutory freight rate abandonment, Jean-Luc Pepin was delivered new evidence in January 1982 by Carl Snavely that railway losses in 1980 had amounted to $244.4 million and would, if they kept growing at the same rate, reach in excess of $1 billion by 1990. Believing that he could delay no longer, on 8 February 1982, Pepin outlined the government's proposals with respect to freight rate change and rail system improvement He announced the government's intention to replace the Crow's Nest rates with a new statutory framework that would provide adequate compensation to the railways and require producers to pay a larger share of freight costs. The federal government would commit $612 million to branch-line rehabilitations and hopper car purchases; in return, it would require performance and accounting guarantees from the railways. This financial carrot was accompanied by the announcement that Clay Gilson, 'one of the most respected agricultural economists in Canada,' would solicit farmers' and railways' reactions as to the appropriate level of compensation to the railways, who should receive the federal payment, what guarantees of service and performance should be required of the railways, what aspects of a new freight rate and railway rehabilitation policy should be guaranteed by statute, and how future transportation costs should be shared by government, railways, and farmers. In short, the federal government declared that the Crow rate would be eliminated but that the farmers, the railways, and Gilson were to determine what would replace it 26 The cattle and livestock groups, mineral exporters,27 and western processing and railway-related interests responded positively to Pepin's announcement and the promised economic development and jobs that would result from the $4billion Western Development Fund. With regard to the grain growers, by guaranteeing legislative enshrinement of both the new rate structure and the financial

137 Revising the Crow rates commitment to upgrading programs, Pepin had met two of the Saskatchewan and Alberta wheat pools' preconditions to their entering negotiations regarding farmers sharing future freight increases. Pepin hoped that these statutory guarantees, coupled with significant federal expenditures, would alleviate the historical suspicion that grain growers have of the railways and of the federal government and offset the fact that the February 1982 announcement did not meet the pools' proviso that the compensatory payments go to the railways and not the farmers. Pepin had left it to Gilson to resolve this contentious matter of who would receive the government freight subsidy. The issue of the method of payment dominated Gilson's inquiry. The cattle and livestock groups reiterated the Prairie Farm Commodity Coalition position that producers should receive the payment and in tum reimburse railways their costs. This method of payment would likely result in a more immediate lowering of grain prices on the prairies (as grain growers shared an increasingly higher percentage of the transport costs their final payment would be lower) and would benefit the consumers of feed grains and sectors processing grains and oilseeds. The Western Agricultural Conference and the wheat pools remained adamant that the shortfall payment go directly to the railways. This would allow the federal government to withhold payments to the railways as a lever in forcing the railways to improve rail facilities. It would also be far easier to administer payments to two railway companies than to several thousand farmers. Gilson's consultations did not resolve the split in the agricultural community, and Gilson was led to propose a compromise solution. He recommended that the federal government compensate the railways directly in the first year but thereafter make payments principally to the producer, so that by 1989-90 the producer would receive 81 per cent of the federal compensation and the railways the remaining 19 per cent. To the wheat pools the proposal was no more palatable just because it bore a 'made in western Canada' label. The wheat pools, Unifarm in Alberta, and the Saskatchewan Federation of Agriculture were joined in their opposition to producer payments by the two major Quebec farm groups: the Union des producteurs agricoles (UPA) and the Cooperative federee du Quebec. The latter were increasingly uneasy that Quebec's farmers and feed grain industries would be prejudicially affected by a system whereby grain growers, directly subsidized by the federal government, were responsible for bearing higher freight costs. They argued that the prairie feed grower who raised livestock would simply pocket the federal subsidy and be that much better off. Further, western livestock producers would benefit from lower feed grain prices at the prairie farm gate and thereby undercut Quebec egg, dairy, and hog farmers and other feed grain users. The expanded western livestock industry would take over Quebec export markets in the eastern United States and Japan.

138 Shared responsibility: the 1970s and 1980s Gilson's stature in western Canada legitimized his inquiry, and with the exception of the NFU, which remained committed to no change in Crow rates, virtually all farm groups participated in this consultative process. This included the three prairie wheat pools, the United Grain Growers, the two national railways, the Canola Crushers of Western Canada (whose members crush 95 per cent of canola [rapeseed] in western Canada), the three provincial federations of agriculture, the Prairie Farm Commodity Coalition, and the Western Agriculture Conference. While Gilson had not interpreted his consultative mandate to include soliciting the views of provincial governments, the intrusion of a provincial election on 23 April 1982 presented Saskatchewan politicians with the opportunity to attempt to manipulate freight rate change to their partisan advantage. The NDP was first off the mark, describing Pepin's 1982 statistics regarding the size of railway losses as widely exaggerated and asking why farmers should be expected to pay full transport costs when almost all other modes of transport were subsidized. It set up a task force headed by Justice Emmett Hall to save the Crow rates. In an effort to exploit latent hostility toward the railways, the NDP and Agriculture Minister MacMurchy spent $100,000 on an advertising campaign to remind producers that it was the captivity of producers to the railways that had necessitated statutory enactment of Crow rates in 1925. The choice for producers, said MacMurchy, was between backing Pepin's initiatives protecting the railways and endorsing his government and the Crow and protecting the farmers. 28 The hope that this tactic would, as it had with respect to potash and oil in preceding elections, prove effective in rallying the electorate around the NDP and in opposition to the external scapegoat dissipated when the Conservative and Liberal parties also endorsed retention. In Manitoba, the NDP government reiterated the message of its partisan neighbours and passed a resolution in the legislature calling the February 1982 proposals •socially and economically unacceptable. ' 29 The government helped organize meetings across the province to publicize the finding of its own one-man commission that Crow change promised few benefits to Manitoba. However, in Alberta the political and economic context led the government to refrain from publicly entering into the debate. As noted earlier, virtually every study of Crow change predicted significant economic benefits from paying producers directly, since the reduced grain prices would be a boon to Alberta's livestock producers and processors who buy that grain. 30 The latest, January 1982 figures of Agriculture Canada had shown Alberta to benefit by a net gain of $151 million by 1990. However, the farm community, composed of both livestock and grain farmers, was of course divided, with the Alberta Wheat Pool and Unifarm opposed to paying producers and the Alberta Cattle Commission opposed to

139 Revising the Crow rates

paying the railways. With an election in the offing (held on 2 November), the Alberta government was officially non-committal. The consultative process did not end with the release of the Gilson Report on 28 June 1982. It was followed by meetings of the federal ministers of transport, agriculture, employment, and immigration with provincial governments, the major western farm groups, the two national railways, and affected Canadian industries. Thereafter, when it accepted the Gilson report in principle on 4 August 1982, the federal government established task forces with extra-parliamentary representation from the western agricultural groups and the railways 'to work out detailed arrangements concerning the legislation that would bring in the new rate structure for grain and the central co-ordinating agency that would implement it and oversee the railway's performance.' 31 Agricultural officials held additional consultations with Quebec farmers in an effort to curb their increasingly vociferous criticism of Gilson 's proposal to make the largest part of the federal payment to the grain producer. But the events of 1982 served only to demonstrate the limits of consultation. There was no consensus in the farm community regarding the appropriate recipient of the federal freight subsidy, the sum of money the railways should receive, and the farmers' share (if any) of future freight increases. If anything, the continual rounds of hearings served only to cement farm groups' positions; articulating their viewpoints publicly and repeatedly, producers became ever more conscious of the personal stakes of change. Dissatisfied with Gilson's proposed method of payment, the Saskatchewan Wheat Pool found fault elsewhere and campaigned over the summer and fall of 1982 for statutory enshrinement of other guarantees, including abolition of the possibility of variable rates. Its campaign took it to Quebec, where it tried to forge a common policy with the newly emergent lobby of Quebec farm groups, which targeted its own campaign at Quebec's 74 members in the federal Liberal caucus. So effective was the Quebec coalition that by year's end the Quebec caucus was reportedly 'prepared to block parliamentary approval of Crow rate legislation' unless Pepin changed his mind and made payments to the railways.32 Despite these warnings of a Quebec caucus revolt, and unrelenting pressure from western grain farmers, the federal transport minister unveiled in Winnipeg on 1 February 1983 33 proposed legislation to reform the western transportation and freight structure. The legislation accepted Gilson's recommendations with some modifications. Its major provisions were as follows. First, the compensatory payment in the amount of $651.6 million (slightly higher than Gilson's calculation of the railway's shortfall of $644.1 million in 1981-2) would go in the initial year to the railways. Thereafter payments would begin to producers so as to achieve by 1985-6 a 50-50 distribution to producers and railways (rather than

140 Shared responsibility: the 1970s and 1980s

the 81-19 split that Gilson suggested). Second, farmers would be required to share equally with the federal government the costs of future railway freight increases and to pay the full transport costs of exporting grains in excess of 31.1 million tonnes. Third, the legislation outlined the structure and functions of the Grain Transportation Agency (GTA) that would assume responsibility for the major aspects of implementing the policy and stipulated what features of the policy would be statutory. And, fourth, the federal government committed itself to two further financial payments proposed by Gilson: first, an Agricultural Adjustment Shortfall Fund to producers of grain that did not move at statutory rates and who therefore would not benefit from the compensatory payments and, second, as promised in February 1982, to payments to finance hopper car purchases and branch-rail-line rehabilitation. The reaction of farm groups and provincial governments to the proposals was as expected. The most controversial issues were the method of payment and the failure to tie the ceiling of farmers' share of future transport costs to the value of grain exports. The Saskatchewan Wheat Pool outlined seven points of disagreement, foremost among which was opposition to phased-in producer payments. First, 'Producer subsidies,' it argued in a special bulletin to its 70,000 members, 'are politically vulnerable, ... do not permit effective railway performance guarantees; ... are extremely complex to administer in a fair and equitable manner; ... open the door for possible introduction of variable rates' and make likely 'pressure for offsetting grants to other regions of the country. ' 34 All these detrimental effects could be avoided by paying the railways directly. Second, the pool opposed the 31.1-million-tonne ceiling on the federal subsidy as 'completely unfair' insofar as it required producers to bear the full burden of larger grain exports from which the entire country would benefit. Third, the legislation was faulted for not relating producers' sharing of future railway costs to their ability to pay: to, for example, the basket price of grain or to a specific maximum percentage of total freight costs. Fourth, the pool reiterated its long-standing request to have other specialty grains and their processed products added to the list (canola, linseed oil, and meal) to which Pepin proposed to give statutory protection. Fifth, variable rates must be clearly prohibited. The pool sought a guarantee of the maintenance of the present freight rate structure that ruled out the possibility of freight rates varying according to the density of traffic on a branch line. Since rates were currently distance-related, the rates between equidistant points on lightly used and heavily used points were the same. Farmers on less heavily used branch lines must be assured, said the pool, of rates equivalent to those on main branch lines. The possibility of railways introducing discounts for the latter must be

141 Revising the Crow rates

specifically eliminated. Sixth, the proposed GTA must not interfere with or undermine the Wheat Board. Seventh, the sum of money targeted for branch-line rehabilitation needed to be increased. All these themes had been previously reiterated by the Wheat Pool. Nor was the reaction of other groups to the February 1983 legislative framework unanticipated. But while there was nothing new in the substantive reactions of affected groups, there was a new and almost desperate vigour to their response. In the same way that the clock ticking off the final minutes of the championship game galvanizes the trailing football team to muster its resources in one last desperate drive to stave off defeat, the proposals propelled the prairie wheat pools and their allies to one massive national lobbying blitz. They bombarded Ottawa with their messages: the NFU opposing reform entirely, the wheat pools voicing their particular dislike for the method of payment The Quebec government declared its public support for the Quebec agri-food coalition lobby against Pepin's 50-50 method of payment, and the agriculture minister, Jean Garon, went to Ottawa to meet with the Conservative and NDP caucuses. On the prairies, a touring Pepin was forced to rely on a police escort in Edmonton when confronted by angry NFU demonstrators. Both the Saskatchewan government, with the support of all three parties, and the Saskatchewan Wheat Pool took out full-page advertisements in national newspapers to counteract those of the federal government. These ads stressed the costs to all Canadians of higher freight costs, but the Saskatchewan government's ads did not take a stand on the method of payment.35 In contrast to the full mobilization of the opponents of Pepin's proposals, those satisfied with his framework were more low-keyed. While cattlemen expressed their satisfaction that the long-overdue change was imminent, they were less successful in bringing onside provincial governments. Alberta's government refused to endorse the NDP-sponsored motion supporting Saskatchewan's rejection of the proposed legislation but gave only qualified support to the federal scheme. 36 The combined Quebec-Wheat Pool alliance was too effective for Pepin to ignore. On 4 May, four months after he had unveiled his legislative framework, he amended it significantly. Most important, the bill he tabled in the House of Commons provided for payments to be made entirely to the railways. This change, said the prime minister, had been wrought by the wheat pools, which had 'shouted louder.' The retreat cost Pepin and the federal government the support of the one group that had originally and consistently backed it in its objective of Crow reform. Bitter western cattlemen were led to claim that the Liberal government had put its narrow partisan interests ahead of their economic well-being.37

142 Shared responsibility: the 1970s and 1980s STAGE THREE: DEADLOCK AND RIVALRY, 1983-5

On 8 May 1983 Transport Minister Pepin moved to table Bill C-155, 'An Act to facilitate the transportation, shipping and handling of western grain and to amend certain Acts in consequence thereof.• The bill dealt with three matters: the noncontroversial disposition of BC coal lands to the BC government, funding for railroad expansion, and the new grain freight rate structure. It provided for a Crow benefit of $651.6 million to be paid by the federal government to the railways, a new bureaucracy consisting of a Grain Transportation Authority and a Senior Grain Transportation Committee to oversee the grain-handling and transportation sector, and a review process by Parliament. Moreover, it established performance standards for the railways and introduced limited variable rates. Consideration of the bill by Parliament was the third and final stage of the freight rate debate. It lasted six months, with the bill being before the House of Commons for six consecutive weeks - from 26 September to 14 November. Finally, on 17 November 1983, Bill c-155 was given royal assent and the Crow rates were officially abolished. During this phase of the debate, for the first time MPs from western Canada entered directly into the process of freight rate change. Whereas their Quebec and two western Liberal colleagues had already had the opportunity to wield influence within the Liberal caucus, now the Conservative and NDP members from western Canada were given the chance to use the limited levers at their disposal to represent their constituents. This turned out to be a far easier task for theNDP than for the Progressive Conservative party. The positions of both opposition parties were appreciably affected by the geographical make-up of their caucuses and their calculations regarding potential support in the forthcoming federal election. The NDP caucus in the 32nd Parliament included half the Manitoba and Saskatchewan federal representatives: seven members from each province. The absence of Alberta members facilitated the NDP's alliance with grain growers across the prairies. Led by two Saskatchewan members, Vic Althouse, as head of the NDP Save the Crow Committee, and transport critic Les Benjamin, the NDP adopted the NFU policy of opposition to change in the Crow's Nest rates. Farmers, it argued, could not afford higher rates; Bill C-155 would reduce their net income by $1 billion, almost one-third of net farm income. The damage of eliminating Crow rates, argued Althouse, would spill beyond the prairies to the Ontario farm machinery companies. Pointing out that grain transportation accounted for only 14 per cent of rail traffic, the NDP asked why grain farmers alone should be burdened with financing the improved rail system. If the railways were losing money, the federal government should reimburse them and acquire an equity position for its capital commitments. When the government chastised it for impeding a more efficient grain movement

143 Revising the Crow rates system by obstructing Bill c-155's passage, it expressed its readiness to cooperate if the government were to separate out those parts of the bill dealing with coal lands and federal financing for rail investments. In committee, NDP members repeatedly and without success tried to introduce amendments whose effect would be to retain the Crow, as well as amendments to prevent variable rates and erosion of the Canadian Wheat Board's power to control rail car allocation, to add more specialty crops to those eligible for federal compensation, and to maximize pool representation on the Senior Grain Transport Committee to advise the Grain Transportation Authority and the minister. Recognizing that its preferred goal of blockage of Bill c-155 would be inevitably thwarted by the Liberal majority in the House of Commons, the NDP vowed to do 'everything we can, within the rules' to obstruct passage of the bill. It tried to stall the bill sufficiently long to delay higher freight rates until the 1984-5 crop year and to eke out amendments that would reduce the financial burden being shifted on to the farmers' shoulders and that would offer the best possible guarantees of railroad performance. Its tactics to accomplish these goals were to exploit to the fullest all opportunities afforded by the procedures of the House of Commons to prolong debate and to publicize as dramatically as possible opposition to 'killing the Crow.' Accordingly, it called for formal votes on normally routine matters; rather than the House automatically giving its verbal consent to the minister's requests for permission to introduce and give first reading to Bill c-155, the NDP and the Conservatives demanded a recorded vote. The NDP filibustered at the second reading, report, and third reading stages, reading numerous petitions, each signed by 30-40 individuals opposed to the elimination of Crow rates and lining up as many speakers as possible on each amendment at the report stage. Television cameras focused on the monographed wooden crows held aloft by NFU members on Parliament Hill, and a Saskatchewan member, Lome Nystrom, was reprimanded by the Speaker for bringing one of the symbolic crows into the House. The Conservatives joined the NDP in the effort to stall the bill's passage. Their motives for doing so were slightly different. While the NDP was united in seeking to retain the Crow rates, the Conservatives were split The western caucus was dominated by the twenty-one Alberta MPs and included seven members from Saskatchewan and five from Manitoba. The predominance of the Alberta members suggested that cattlemen's interests would receive primary consideration. However, as debate wore on and the federal election became ever more imminent, partisan considerations necessitated not alienating Saskatchewan and Manitoba wheat growers. The likelihood of the Conservatives gaining a majority in the next federal election would be greatly enhanced by capturing additional seats in Saskatchewan and Manitoba; that is, regaining the three Saskatchewan seats

144 Shared responsibility: the 1970s and 1980s

held in 1979 but lost to the NDP in 1980 and reversing the trend of the 1970s of losing seats in Manitoba at the NDP's gain. (While the NDP went from two to five to seven seats in Manitoba in the 1974, 1979, and 1980 elections, the Conservatives dropped from nine to seven to five members.) Publicly a number of western Tories had expressed their support for Crow reform as early as 1979. As minister of transport in the 1979-80 Clark government, Don Mazankowski was purportedly ready to 'tackle the Crow.' Conservative members such as Bert Hargrave (Medicine Hat) and Jack Murta (Lisgar, Manitoba) sided with cattlemen opposed to Crow rates. Murta had congratulated Pepin on his February 1982 initiative, urging speedy passage of legislation, and supported the Gilson recommendations favoured by western cattlemen. When Pepin ignored Gilson and announced in May 1983 that federal compensation would go exclusively to the railways, Don Mazankowski worked closely with the Alberta government to find a method of payment that would minimize the damage to cattlemen of railway payments. Their 'Double 80' solution would allow producers to choose how they would receive the Crow benefit. The government would pay the producer 80 per cent of the freight subsidy; the producer would have the option of receiving the government payment either in the form of cash or on an account at the local elevator from which his freight costs would subsequently be deducted. The proposal, to reinstall the option of producer payments, was very similar to one contemplated by Gilson. 38 As Alberta MPs worked closely with their provincial partisan colleagues to find a compromise that would heal the rift between cattlemen and grain producers, Saskatchewan members like Bill McKnight and Doug Neil became ever more conscious that their Alberta colleagues' stand was not necessarily serving their partisan interests. Given the opposition of the prairie pools to Bill c-155, the party could not afford to seem to be supporting it Accordingly, the Conservatives joined the NDP in stalling the bill's passage, ignoring the ringing bells summoning members to recorded votes on motions to limit debate at second reading. In so doing, the Conservatives bought time until the cattlemen themselves joined grain farmers in believing that •it would be better to kill the bill, to stop it where it is.' When the Double 80 proposal failed to attract widespread endorsation by other farm groups (in Alberta the Wheat Pool rejected it) and was termed politically unsaleable by Pepin, the way was cleared for the Alberta and Manitoba MPs to align themselves with their Saskatchewan colleagues.39 While they continued to seek amendments in committee that would provide the option of producer payments, Conservatives could publicly oppose the bill as meeting neither cattlemen's nor grain growers' objectives. On 15 September, in the dying days of the debate, the Tories reversed their stand and proposed a three-year freeze on freight rates. Arguing that farmers could not afford the

145 Revising the Crow rates

fivefold increase in freight costs, they declared that the government should pay the railways the Crow benefit and its share of inflationary costs. This reversal can properly be viewed as a last-ditch attempt to have it both ways. By calling for a freeze they hoped to avoid being seen as having supported the government that had killed the Crow. Moreover, it was an effort to woo back some prairie grain farmer support previously alienated by amendments that Tories had proposed to reduce wheat pool representation on the senior grain transport committee. At the same time, they hoped that their efforts in committee to procure an amendment that would see a committee established to begin an immediate review of the method of payment would suffice to keep cattlemen onside. They were not wholly successful with the tactic, as the cattlemen and their fellow Alberta Tories criticized both the lack of advance notice of the policy change and its reversal. In an effort to soften the heavy-handed image created by its invocation of time allocation at the second reading stage, the government agreed to allow the Standing Committee on Transport to travel throughout the summer. The committee of five Liberal, three Conservative, and two NDP members held hearings in Edmonton, Winnipeg, Regina, Vancouver, Montreal, and Quebec City. Several hundred individual wib'lesses and group spokesmen came forward - 72 group briefs alone were scheduled to be presented to the committee during the three days it sat in Regina. 40 Wib'lesses included many groups that had not appeared before the Gilson inquiry, including provincial government spokesmen. Representatives of the governments of Quebec and the three prairie provinces presented their unanimous criticisms of the bill. In a surprising move and one in distinction to the endorsation of Bill c-155 by the Quebec agri-business coalition, the Quebec government denounced the bill as potentially harmful to Quebec's livestock industry. The reduced feed costs that would result on the prairies (as farmers' share of freight expenses rose) would give the prairie livestock producer an unfair advantage. The positions of the three prairie governments were more predictable. Alberta embraced the Double 80, freedom-of-choice concept supported by the Alberta Cattle Commission and Unifarm (but opposed by the Alberta Wheat Pool). Unless the bill were amended in a number of ways - most importantly to allow producers to receive some of the federal payment and to choose the manner in which they would receive it- Alberta could not support the legislation. Payments to the railroads, its figures showed, meant lost profits of $300-$400 million per year by 1991 for the Alberta livestock industry. It called for further amendments: to lower the safety net, the farmer's share of freight costs due to inflation, and the ceiling on grain shipments eligible for federal assistance.41 The task of representing its producers was greatest for Saskatchewan's Devine government It was made all the more difficult by the hardening of

146 Shared responsibility: the 1970s and 1980s position of the Saskatchewan Wheat Pool in mid-1983. Under considerable pressure from pool locals who rued the day the Wheat Pool had agreed to negotiate the Crow rate - by partaking in the Gilson inquiry - the Wheat Pool withdrew its support of Bill C-155 until it was amended to meet all its objections. It fell to Saskatchewan's minister of economic development and trade, Eric Bernston, to try to balance the pool's position with the differences in his cabinet and caucus and his own preference for splitting federal compensatory payments 50-50 between the railways and producers. In a less than adroit juggling act, which left committee members quizzical as to just what his stand on Bill c-155 was, Bernston condemned the bill for both perpetuating and altering the status quo. Why, he asked, did Bill c-155 incorporate the Crow benefit 'when that method will most assuredly result in the continued movement of livestock and processing industries into central Canada?' And later, when pressed by Liberal member Jesse Flis as to whether he favoured retention of Crow rates, Bernston argued: 'Unless you can show that the legislation is an improvement over the status quo, the consensus would be that we stay with the status quo or the Crow rate.' Berns ton agreed with Alberta's agriculture minister, Leroy Fjordbotten, that requiring farmers to bear the burden of an improved transport system from which coal, potash, forestry, and sulphur exporters would also benefit was grossly unfair. In short, the bill was a bad bill: it offered few benefits to farmers and insufficient guarantees of an efficient rail system, continued the economic distortion inherent in existing Crow rates, and was far too generous to the railways. For these reasons, it must be rejected. 42 The NDP government in Manitoba, too, rejected Bill C-155. Like the federal NDP, it did so because the bill abolished the Crow rate. In spite of the fact that livestock and poultry products contribute 40 per cent of farm cash receipts in Manitoba, and specialty crops not currently covered by Crow rates another 8.5 per cent, Agriculture Minister Sam Uruski stated that a study at the University of Manitoba had demonstrated that the net benefits to those sectors from eliminating Crow rates would not offset the losses to the grain industry. ' Should farmers be required to pay four times the Crow rate, the value of Manitoba's annual agricultural production would fall by $39.7 million.' The bill, he stated, should be viewed for what it was - 'a vehicle to funnel large amounts of public money to the railway companies under the guise of subsidies to grain producers. ' 43 The Transport Committee's deliberations on Billc-155 extended beyond their promised deadline - to report when the House reconvened in September. The delay was not only the result of the length of Bill c-155 but also the consequence of partisan conflict and animosity that erupted when the Liberal chairman, Maurice Dionne, exercised his power to rule out of order opposition proposed amendments.44 In spite of the many amendments dismissed by Dionne, more than 85

147 Revising the Crow rates were proposed to the legislation that the Transport Committee reported back to the House on 26 September. Debate at the report and third reading stages was every bit as contentious as it had been in May and June, characterized by the now-familiar NDP reading of petitions, by motions to adjourn, and by Tory slowfootedness in answering the bells summoning members to vote. Anxious to end the session and present a new throne speech with initiatives to halt the downward spiral to all-time lows of Liberal party ratings in public opinion polls, the Liberal government limited the debate at the last two stages to three days. Together the debate on the floor of the House of Commons and the hearings and deliberations of the Transport Committee were instrumental in effecting a number of amendments. As early as May, the minister of transport had used the lever of amendments to overcome the log-jam in the bill's progress through the House. On 31 May, Pepin had promised amendments to include a safety net on farmers' freight costs, the addition of specialty crops to those eligible for federal compensation,45 and stronger guarantees of railway performance. When Pepin's successor, Lloyd Axworthy, attempted to honour these promises in November, the Speaker ruled the amendment regarding the safety net out of order. This necessitated a further compromise on Axworthy's part. To get the all-party support necessary to overcome the Speaker's ruling and allow the amendment, he replaced the 10 per cent safety net with a graduated scale whereby the farmer's share of future freight costs would begin at 4 per cent and rise to 10 per cent of the average weighted export price of six major grains by 1990. This amendment, like those that included other specialty crops and required performance standards of the railways, was a cost-saving and symbolic victory gained by the NDP and the wheat pools' lobbying for farmers. Probably the most significant amendment was the formalization of the promise to review the method of payment of federal compensation. The original legislation called for the minister of transport to do so, after consulting with appropriate persons. The lobbying of the Conservatives and cattlemen's associations throughout the summer paid off. They succeeded in procuring amendments to create a formal committee, representative of regional interests and appointed by the minister, to undertake an inquiry and report by 31 March 1985 to the minister. Further, the report of the committee would be laid before Parliament and at the request of the requisite number of members could be debated. This concession to cattlemen meant that the door on producer payments had not been closed. For that reason alone, the bill that passed the House of Commons on 14 November and received royal assent on 17 November did not end the issue of freight rates and the grain movement. The Western Grain Transportation Act provided the railways with a Crow benefit of $658.6 million. It created a senior grain transportation committee of 21

148 Shared responsibility: the 1970s and 1980s members representing producers, the six largest grain companies, prairie crushers and truckers, railways, and eastern and western feed users. The committee was to monitor the railways, ensuring that they meet their performance commitments, and advise the minister of transport and the Grain Transportation Authority. The latter, created in 1979 by the Clark government to allocate grain cars, retained that function and obtained new powers to monitor railway performance and negotiate grain-hauling agreements with truckers. The railways were allowed to vary rates on holidays and weekends. The method of payment and the act could be reviewed by Parliament in 1985 and 1986, respectively. The committee to inquire into the method of paying the Crow benefit was struck in April 1984 and required to report by 31 March 1985 to the minister of transport Named after its chairman, Justice Gordon Hall of the Manitoba Court of Appeal, the Hall Commission recommended on the basis of its own studies and wide consultation with interested groups that Crow benefit payments go to farmers selling grain. The reactions of western and eastern commodity groups and provincial governments were as anticipated. In the period since the passage of the act, positions with respect to the method of payment have not wavered. Cognizant of this, the government of Canada, bound to appoint the review committee but not restricted by a deadline within which to accept or reject its recommendations, has yet to act But it did put forth a series of amendments, passed by the House of Commons on 27 June 1985, which dealt with other producer complaints about the act. The 31.5-million-tonnage ceiling was eliminated, the number of producer representatives on the Grain Transportation Agency was increased from four to nine, and government funding for branch-line rehabilitation was guaranteed until 31 March 1990. In addition, two changes were designed to enhance the accountability of railway companies. The latter were required to publish their annual investment plans and to hold annual public meetings in each province to answer producers' question and receive their suggestions. SUMMARY AND ANALYSIS

The government of Canada enjoyed exclusive authority with respect to grain movement and handling and hence considerable latitude to address the outstanding issues in the manner it chose. Provincial lack of legal authority prescribed a reduced role for the provinces. Unable to veto or to circumscribe federal policy initiatives as their jurisdictional authority with respect to marketing and agriculture allows them, provincial governments were without the most effective weapon with which to impress their priorities and interests upon the federal government They lacked, as well, other political resources with which to pressure the federal government into accommodating their goals and viewpoints.

149 Revising the Crow rates

While the Liberal government's lack of representation in western Canada theoretically enhanced the likelihood of claims by the western governments to be heard on the grounds that they alone represented producers, the credibility of such claims was undermined by the discord in the agricultural community that rendered difficult a provincial consensus of agricultural groups, particularly in Alberta and Manitoba, and ruled out a united regional stand. Provincial governments could not individually profess to be singularly able to represent their provincial constituency or collectively to speak for the regional constituency, because it was obvious that there existed neither a provincial nor a regional consensus. While all three prairie governments eventually rejected the federal government's transportation initiatives as detrimental to their farmers' interests, their own preferred alternatives to Bill C-155 were sufficiently distinctive to preclude a united provincial front offering a producer-endorsed substitute. Accordingly, rather than being active participants in the policy debate, all collectively pressing alternative policy solutions on the federal government, provinces pursued independent strategies, some of which appeared, at times, designed to keep them out of the spotlight rather than in. Particularly in the latter stages of the debate (from 1982 onward), when the Blakeney government in Saskatchewan was succeeded by Devine's Conservatives, the two Conservative provincial governments confined their role to lending support to their constituent producer groups and tried to avoid being drawn more actively into the debate. Given the internal cleavages within their borders, prudence and pragmatism made them leery of taking a public stance on the method-of-payment issue during the Gilson inquiry. While both governments appeared before the parliamentary Transport Committee, they probably had no choice; not to have done so would have cost them the support of their producers. The Lougheed government, earlier in the summer, had aroused the criticism of the province's cattlemen for not taking a higher profile against Bill c-155. Its submission to the Transport Committee, while critical of the legislation, stressed that the matter was a federal responsibility.46 In Saskatchewan, the Devine government was caught between its own philosophical preference for non-subsidization in the market-place, on the one hand, and the clamorous goals of the 70,000-member-strong Saskatchewan Wheat Pool, on the other. While considerations of economics and votes steered it toward opposition to higher freight rates, its own dislike for government subsidies tempered its stance. Cognizant of the 'wide diversity of opinion' in Saskatchewan,47 it appeared halting in its opposition to Bill c-155 and inconsistent in its presentation to the Transport Committee. Only the Pawley government in Manitoba was not eager to sit on the sidelines, and it entered actively into the debate. It passed a resolution in the legislature condemning Bill c-155 and engaged in a public relations campaign throughout the province to co-ordinate opposition to the bill.

150 Shared responsibility: the 1970s and 1980s While there was no constitutional division of powers to limit the federal government's policy-making independence, other considerations led the Liberal government to seek an extra-parliamentary consensus for its initiatives. The long tradition of producer consultation via royal commissions and task forces, combined with the meagre representation of the region in the Liberal caucus, made the government conscious of its limited moral authority to impose a solution on western Canada on a matter as contentious as Crow reform. Accordingly, in order both to defuse the emotionalism surrounding the issue and to enhance its own legitimacy in effecting reform, the Liberal government drew agricultural groups into the policy process. It appointed independent commissioners (Snavely and the PRAC) to establish the deleterious effects of the Crow rate on the efficiency of the railway system and livestock and processing sectors and thereby to overcome the initial overriding resistance of prairie grain farmers to any tampering with the Crow rates. Once some farmers accepted that higher freight rates were a prerequisite to an improved railway and grain movement system, Transport Minister Pepin laid down as a condition of federal financial commitments to make grain movement profitable and more efficient the replacement of Crow rates and the grain producers' assumption of a larger burden of higher rates. The intense emotionalism surrounding the elimination of Crow rates, with the high economic stakes it entailed for all farmers, once again led the government to throw the ball to the western agricultural community and invite it to become actively involved in the debate. It commissioned Clay Gilson to formulate a consensus on how farmers would meet their responsibility for improving the grain-handling system. And still later, agricultural groups were given a final opportunity to put the finishing touches on the Western Grain Transportation Bill when the Transport Committee held hearings throughout Canada. Besides taking advantage of these formal invitations to participate in the policy-making process, specialist interest groups undertook lobbying activities of their own, journeying to Ottawa to meet with the party caucuses and, in the case of the wheat pools, embarking on a public relations campaign through the national media. The capacity of western agricultural groups to shape the final policy outcome was limited by the fact that they did not speak with one voice. Farmers' differences of philosophy and economic interests created cleavages within the agricultural community. The first split was between those grain farmers who held that the Crow rate was non-negotiable, believing it to be a Confederation bargain or a prairie farmer's birthright, and those either persuaded that retention of the Crow rate did not further their interest of maximizing grain exports or who felt that unless they participated in the consultative process they had no hope of affecting its outcome. Accordingly, a division grew between the National Farmers Union

151 Revising the Crow rates and the wheat pools. However, there was never unqualified support among the pool members for its leadership's bargaining stance; many individual pool members were retentionists, and in the final stages of the debate they put sufficient pressure on the leadership to cause it to return essentially to its original retentionist position. The second cleavage developed over the method of payment and drove a wedge between the livestock- and oilseed-processing sectors, on the one hand, and the grain producers, on the other. The same self-interest that motivated the wheat pools to oppose producer payments convinced livestock producers that only producer payments would meet their economic goals. In short, invited to participate, the western agricultural community discovered how diverse and contradictory its goals and interests were. No one agricultural federation could represent its views; each commodity organization spoke for itself.48 In such a decision-making process, the largest, best-financed, and most cohesive interest groups are likely to prevail. The Saskatchewan Wheat Pool had these resourcesand, as it turned out, the even more valuable resource of a unanimity of interest with affected groups in the electoral heart of the federal Liberal party, the province of Quebec. The Liberal government's relative independence to pursue its own political and economic goals in resolving the freight rate and grain movement debate was most visible during the parliamentary stage of policy-making. Its majority meant that its freedom of action would be limited only to whatever concessions, expected to be minimal, necessary to get the consent of the one institution (Parliament) whose approval for a change in the statutory Crow rates was requisite. Parliament made its impact on the legislation through three avenues: the Quebec-dominated Liberal caucus, the debate on the floor of the House of Commons, and the hearings and deliberations of the Standing Committee on Transport. The influence of Quebec members of the Liberal caucus, the more pervasive given the imminence of a federal election when Liberal ratings in public opinion polls were reaching all-time lows, was crucial on one matter of utmost economic significance: whether the producers or the railroads would receive the federal compensatory payment. Their threat to break party ranks over the issue determined the final payment method and later ruled out the Double 80 option. The persuasiveness of Quebec MPs gave the Quebec groups a disproportionate influence on the government policy - far in excess of their significance in the Canadian livestock and grains industries. Their impact demonstrates the primacy of politics over economics in shaping Liberal agricultural policy; in effectively (along with the prairie pools) killing the option of producer payments, in the minds of several economists they killed the most economically efficient mechanism of channelling government support for grain movement and for redressing

152 Shared responsibility: the 1970s and 1980s

the western disadvantage in developing a diversified economic base. Moreover, insofar as the Quebec agri-food coalition, and not the wheat pools, was held ultimately responsible by many western cattlemen for Pepin's reversal on the payment method, the net result was to exacerbate east-west tensions.49 The impact of the opposition parties, on the floor of the House of Commons and in clause-by-clause study of Bill c-155 in the Transport Committee, was probably more symbolic than real. Their greatest representational feat was to draw the nation's attention to western unhappiness with the bill. They did that through their exploitation of the procedural rules of Parliament and were successful to the extent of forcing a delay in the opening of a new session of Parliament and rendering the transport minister so ineffective that he was replaced on 12 August 1983 by Winnipeg member Lloyd Axworthy. Moreover, they successfully represented their constituents in effecting a number of amendments of secondary importance and one of potentially primary significance. Concessions wrought by their obstructionist tactics included addition of more crops eligible for federal compensation, better guarantees of railway performance and investment, and lessening of the immediate effect of higher freight costs on farmers. These were either important money-saving or symbolic victories for grain farmers. But the potentially most fundamental amendment was that to establish a committee to begin an immediate review of the method of payment of federal compensation. As noted earlier, credit for this amendment must go to the Alberta government, Alberta's Conservative MPs, and the well-organized livestock commodity commissions. While the fruits of their labours at representation were somewhat limited, and in-the case of the Conservatives, lessened by the conflict of interest between the grain and livestock sectors of western Canada, their rhetoric certainly was not. Indeed, the parliamentary debate on Bill c-155 was characterized by a spirited rivalry between the NDP and the Conservatives to represent the western Canadian farmer.5 For its part, the NDP was consistent in its goal of representing the grain producer; it did not try to be all-inclusive and accommodate the livestock sector's avowed goals. But the Conservatives' attempt to be all things to all farmers, and their eleventh-hour apparent abandonment of western livestock producers, made them easy prey for the NDP, which argued that it alone was standing up for the grain farmer against the railways, while the Conservatives acted to facilitate the bill's passage and undermined the wheat pools by sponsoring an amendment to reduce their membership on the Senior Grain Transportation Committee. At times, the opposition's attempts to represent western Canada took another form, more familiar to students of Canadian federalism. Both parties at various times labelled the bill as discriminatory toward western Canada. Saskatchewan Conservative MP Ray Hnatyshyn warned that Bill c-155 was 'another form of

°

153 Revising the Crow rates traditional, historical discrimination against Saskatchewan and Western Canada, that we in Saskatchewan are simply not going to tolerate.' And NDP member Vic Althouse, speaking at the end of the second reading debate, made an analogy between Crow rates and bilingualism programs: both were costly, but both were necessary to hold the country together. Eliminating bilingualism because it was too costly would have the same effect as terminating Crow rates: 'What this proposal does is to cut one of the fibres which holds this country together. It [Crow rates] is a policy which was used to populate the West, the Prairies.' The government's abandoning the policy 'says to the people of Canada that a promise is no longer a promise and a deal is no longer a deal. It is killing the trust which has to exist if this country is going to continue as a country. ' 51 To appreciate the impact of the policy outcome of the freight rate and grain system debate, it is useful to make an inventory of the winners and losers. Who realized their goals and who did not? Who staved off the worst possible situation and who did not? While it is still too early to determine the consequences of the Western Grain Transportation Act, some tentative assessments may be made on the basis of the affected groups' own analyses. The clear winners were the railways, the shareholders of CP and CN. The railways achieved the objective they had pursued since the early 1960s: a guarantee of their costs plus a profit in moving grain. The act requires the federal government to compensate the railways in the amount of $658.6 million per year and commits it to a further payment of $313 million to finance railway construction and to a five-year extension of special additional capital cost allowances for new investments in track and other railway assets. A second group of winners are those who will provide the material and reap the jobs involved in double tracking, upgrading the CN line to Prince Rupert, and building tunnels through the mountains. In February 1983 the federal government announced a $75-million Industrial Development Program 'to increase the supply capability of western manufacturing and service sectors' so that they could take advantage of the anticipated railway investments and improvement projects. Industries affected include the railway equipment manufacturing industry, the agricultural processing sector, and other suppliers of equipment needed for future resource development projects. The February 1983 projections of the government of Canada were that such economic activity would provide about 375,000 person-years of employment 52 The third group that will benefit from the improved railway system are the shippers of coal, potash, sulphur, and forest products. In terms of the geographical distribution of these mineral companies, and the aforementioned service and manufacturing industries, the Canadian government's figures are that 57.6 per

154 Shared responsibility: the 1970sand 1980s cent of federal spending ($9.5 billion) will be in western Canada (including British Columbia) and 27.3 per cent ($4.5 billion) in Ontario. A study by the Canada West Foundation concluded that of the western provinces British Columbia would receive the 'lion's share' of benefits. 53 Are the prairie grain farmers winners or losers? Obviously, in light of the preceding discussion, there is no consensus on the effects of the new statutory regime on the grain farmer. The alteration of the status quo wrought by the new policy means that grain farmers face an immediate increase in freight costs. They will pay more to ship grain - five times more by 1991. Whether they will benefit from the improved rail system will depend largely on international grain prices. If prices rise sufficiently to overcome the higher freight costs, the more efficient grain-handling system should allow the grain exporter to realize the maximum benefits of higher prices and not suffer the purported grain sale losses of $400-$600 million in 1977-8 and $600 million in 1978-9 caused by inadequate rail capacity. 54 However, should grain prices not rise at a fast enough pace, the result, say the critics of Crow abolition, will be bankruptcy for many grain farmers and the death of rural communities. The potentially biggest losers are the western livestock farmers and the related meat-packing and food-processing sectors. Billc-155 presents them with a worse situation than the status quo of Crow rates.55 While insufficient rail capacity in the past meant that periodic surpluses of grain on the prairies drove down local feed grain prices, this is not likely to happen in the future. The infusion of federal funds into rail upgrading and the added guarantee to the railways that shipping grain will be profitable give railways sufficient incentives to move grain and so avoid local grain surpluses. If international grain prices rise, the improved system will be more efficient in aiding farmers to export as much grain as possible, leaving less on the domestic market and causing its price to rise. Accordingly, the policy embraced by Bill C-155, cattlemen argue, affords livestock and livestock-related sectors double jeopardy. Implicit in the foregoing inventory of winners and losers are a number of propositions about the impact of exclusive jurisdiction on both the policymaking process and policy outcomes. First, on matters where provinces lack legal authority and/ or where they cannot legitimately claim to articulate a provincial or regional interest, their impact on a federal policy outcome will be less than where they possess concurrent jurisdiction or the backing of their producers. Second, when the federal government is untrammelled by the need to appease premiers and free to pursue its own partisan interests, it will do so. The policy outcome in grain marketing shows evidence of a less careful balancing of the interests of producers in all provinces than do the outcomes in marketing and commodity stabilization. The experience in grain marketing undermines the

155 Revising the Crow rates

credibility of the argument of the federal government that it alone is able to put the national interest ahead of regional interests. And, third, and as a consequence of the latter, the exercise of exclusive jurisdiction, at least in this instance, probably heightened inter-regional producer conflict as much, if not more, than has the exercise of shared jurisdiction in marketing and stabilization. There is a fourth consequence of the federal government's resolution of the Crow reform debate, and that is its impact in exacerbating regional tensions in Canada.56 Chapter 3 documented the historical perception in western Canada of the federal government's reluctance to recognize its responsibilities for grain movement and to accord grain the importance that the west feels it deserves. Unfortunately, the federal government's handling of the freight rate and grain movement issue did little to alter that view. Its infusion of considerable sums of money into improving the system to move grain and other western commodities did not appreciably lessen latent hostilities toward it and overt animosity toward the Liberal party. In spite of extensive consultation with western Canada, the Liberal government's resolution of the issue once again created the impression in many westerners' eyes that it either did not understand western Canada's economic goals and the region's contribution to the overall Canadian economy, or, if it did, it would satisfy western aspirations only to the extent that doing so did not jeopardize its own partisan interests and was congruent with the economic goals of more economically powerful interests, like the railways and the large mineral companies. The submissions of western groups turned repeatedly to these themes. The advertising campaigns and presentations of the wheat pools, and of the NDP governments of Saskatchewan and Manitoba stressed the economic benefits to all of Canada from the $6 billion earned in grain exports. The wheat pools' ads insisted that payments go to the railways because they believed that the subsidy should properly be regarded as a subsidy to the railroads and not to the producer. In their efforts to reduce the size of the farmer's share of freight costs, they asked why grain producers should be forced to bear such a large part of rail line improvement and grain transportation costs when shippers of non-grain products would also benefit from a more efficient transportation system. On the other side of the coin, the government of Alberta and the livestock, oilseeds, and meat processing groups were even less effective in persuading the federal government that its freight rate policy was impeding their goal of a more diversified and economically developed western economy. Because the federal government failed to satisfy completely even one sector of the western economy, it is probably no exaggeration to state that in the immediate aftermath of the passage of Bill C-155, the wedge between the Liberal government and the western Canadian agricultural community was wider than it was

156 Shared responsibility: the 1970s and 1980s in the mid-1970s. The alienation may have been all the greater because the federal government provided ample consultative opportunities and thereby created the expectation that western Canada would have a significant say on the issue. The end result was particularly frustrating for cattlemen. They saw themselves as having precipitated the debate in the farming community, and they had taken every opportunity to participate in the debate, only to be thwarted completely in realizing their goals. The president of the Alberta Cattle Commission, Stan Berg, described the process of Crow change as 'one of the most futile and inept examples of responsible democracy in the history of Canada.' Said Berg: 'Having spent years of discussions and research on the whole reform issue, having involved hundreds of people and organizations and caused them to spend thousands of hours and millions of dollars, many of them by individual farmers, the government has created a railway subsidy program that could in large part have been worked out in a half-day meeting with the Minister of Transport and senior railway officials. ' 57 In conclusion, in the immediate aftermath of the passage of Bill c-155, few western Canadian farmers found defensible the means that the federal Liberal government used to realize the objective of a modernized western transportation system - elimination of the 86-year-old freight rates and their replacement with subsidies to the railways and higher producer freight costs. And hence, although the act has been passed and duly proclaimed, the issue itself is far from dead.

7

Conclusion

The past decade has been one of significant and yet somewhat inconsistent developments in federal agricultural policy. Governmental responsibility for shoring up producers' incomes was enlarged as a result of changes in stabilization legislation in 1975-6. Producers won an enhanced right to protect themselves in the market-place after 1972 as a result of initiatives in national marketing legislation. But having demonstrated both responsiveness and a sense of responsibility toward producers early in the decade, federal policy in the latter half of the 1970s often exhibited little initiative and, when it did, showed little inclination to assume responsibility for assisting producers. The federal agriculture minister appeared to take a back seat, leaving producer groups and provincial governments to address the crisis in the red meat industry and, until 1984, largely ignored their appeals for a red meat stabilization plan. Provincial governments were forced to pick up the slack in the early 1980s, much as they had done in response to the cost-price squeeze in the early 1970s. With respect to agricultural marketing plans, the initiative in the early 1980s for disciplinary action to force greater co-operation in sharing the Canadian market came not from the federal agriculture minister but from provincial ministers and interested onlookers. The charge of abdicated responsibility was probably loudest in the matter of western grain transportation, where the federal government was perceived to be reneging on a traditional obligation to western farmers. Policy changes there burdened farmers with a larger share of grain transportation costs. At the same time, however, the federal government did not absolve itself of complete responsibility for grain freight costs, and it assumed an appreciable financial obligation to undertake improvements in railway transportation from which western farmers will benefit. Both the substance and process of agricultural policy in the 1970s and early 1980s bore the impact of the individual and cumulative effects of the Canadian

158 Conclusion and agricultural political economies, client interest groups, and federalism and intergovernmental relations. Historical claims and traditions, as well as political goals and philosophical perspectives of pressure groups and governmental officials, also made an impact. THE POLITICAL ECONOMY

The oscillating federal stance in the past decade- between responsive leadership and insensitive non-involvement - follows the traditional pattern of federal agricultural policy whereby agriculture has received federal attention in periods of crisis induced by economic dislocation or when the political salience of agriculture was high. Accordingly, the period of federal activism and interventionism, roughly the first half of the 1970s, was a period of uncertain international markets and a severe cost-price squeeze. If the economic situation virtually compelled attention, so too did the political environment. Political instability in Quebec and, after 1973, corrosive federal-provincial relations, as western bitterness with federal energy and natural resource policies spilled over into agriculture and transportation matters, placed pressure on the federal government to bolster its popular support and undercut possible competition for citizen loyalties created by province-building in other policy areas. In western Canada that pressure was significant between 1972 and 1975 as three of the four western governments shared an NDP label and an interventionist outlook. Federal authorities were undoubtedly conscious that their bid to reassert leadership and maintain paramountcy in agricultural policy would be enhanced by bringing restless producers and provinces onside with attractive and long-sought programs. Measures to shield Canadian producers and consumers from the worst effects of market turbulence could be justified as in the national interest as a whole. 1 However, the political and economic environment that faced federal decision-makers in the late 1970s and early 1980s was one that reduced the political salience and influence of agricultural interests, especially western agricultural interests. The government's focus was elsewhere, on the threat to national unity posed by the separatist PQ government in Quebec and strong-willed provincial premiers and on the deepening economic recession. Accordingly, its policy priorities were constitutional reform and revitalizing the ailing industrial economy. A growing deficit dried up funds for supporting producer income and put ceilings on railway transportation subsidies. At the same time, the capacity of agricultural interests to focus the federal government's attention on their goals was undermined by limited western Canadian representation in the government caucus, discord within the agricultural community itself, and the failure of producers and provincial governments to

159 Conclusion mount a common front. Divided within, and unable in many instances to persuade provincial authorities to champion their cause, western Canadian farmers were themselves incapacitated in assisting the federal government to overcome its own representation handicap to devise consensual and accommodating policies with respect to red meat stabilization and reform of grain freight rates. The only exception to reduced interest in agricultural issues displayed by the federal government came when Quebec farmers were wooed during the national unity crisis. PRESSURE GROUP POLITICS

Canadian agricultural policy in the 1970s and early 1980s continued to be significantly shaped by interest group politics. In developments respecting commodity stabilization, agricultural marketing, and western grain transportation, producer groups played an active role, lobbying the federal government on their own behalf and pressuring provincial governments to espouse their goals. Sometimes, as with grain handling, and stabilization in British Columbia, producers' active involvement in policy formulation was solicited by governments themselves. At other times, with respect to the stabilization measures of other provinces and those of the federal government, for example, producers took the initiative, lobbying to draw governments' attention to their problems. In yet another instance, the implementation of marketing plans, producer involvement in policy decisions has been institutionalized as a result of the mutual decision of federal and provincial governments to delegate to producers the authority to run their own affairs. The appreciable role of commodity and farm groups in the Canadian agricultural policy process is not completely typical of the pattern of policy-making in the Canadian federal system. Their role and influence has been affected by the federal system, but they have not been frozen out of decision-making as Richard Simeon 2 has argued has happened in other areas. The division of jurisdiction over marketing has made it necessary for interest groups to lobby both levels of government, and, at the same time, it has afforded them two points of access. The experience of stabilization legislation demonstrates that groups ineffective at the national level have a second 'kick at the can' with provincial officials. The double blockage afforded by divided jurisdiction over marketing has also been exploited by interest groups. The persuasiveness of western cattle and hog commodity groups and Prince Edward Island potato processors has effectively vetoed policy outcomes perceived to be contrary to their interests. These examples are instructive in demonstrating that in a system where jurisdiction is divided between two levels of government, specialized groups wielding

160 Conclusion significant economic clout at a local level may well be successful in undercutting general farm organizations speaking for the majority of farmers. The effectiveness of an interest group on matters where the federal government exercises exclusive jurisdiction would seem to be a function of both the numbers the group represents and its political salience to national decisionmakers. The experience of the Crow rate demonstrates vividly the advantage of having spokesmen within the federal government caucus or, failing that, being able to make an alliance with groups that do. Federal policy-makers showed themselves generally incapable of representing territorially based groups other than those with advocates in the federal cabinet. Opposition members in Parliament scored higher grades, but the diversity of interests in western Canada which denied the existence of one territorial interest meant that the best that the NDP could do was to represent the dominant commodity group on the prairies and the Conservative party could achieve no more than attempting a compromise that was doomed to fail. The experience of marketing and stabilization policies shows that both specialized commodity groups and general farm unions have shared success in realizing policy goals at both levels. In the Crow debate, one specialized group (the wheat pools) and one omnibus coalition (the Quebec producer-processor alliance) were more successful than other groups in achieving their goals. The conclusion would be that when exclusive authority resides at the federal level, as in the last policy example, a sector characterized by a diversity of interests will strain the representational capacity of national federations and undercut their effectiveness vis-a-vis specialist interest groups. FEDERALISM

While the traditional pattern of active involvement by agricultural groups in the formulation of agricultural policy persists and has not been supplanted by negotiations among first ministers, provincial governments nevertheless have had an appreciable role in shaping federal agricultural policy. Provincial input has been institutionalized in various ways, including the annual agriculture ministers' conference. But more important than this meeting is the very elaborate and extensive bureaucratic machinery that co-ordinates the multiple joint programs of the two levels of government. Federal and provincial officials are brought into constant contact as they implement agricultural research, crop insurance, and other programs. 3 Provincial governments have influenced federal agricultural policy directly and indirectly through the exercise of their legal authority and by virtue of their political clout. Their efforts on behalf of producers prodded the federal govern-

161 Conclusion ment into changing its stabilization legislation in 1975-6, and provincial protectionist measures motivated the federal government to enable national marketing schemes. Provincial influence on federal policy tends to be greatest where provinces exercise divided jurisdiction and hence have an effective veto over marketing policies that require regulation of production and sales within provincial borders. But agricultural policy also illustrates the handicap federalism poses for policy-making - especially for provinces. The scope for independent policy formulation allowed by both concurrent and exclusive jurisdiction can frustrate governments from realizing their own economic and marketing goals. This has happened in stabilization policy, where some provinces find the comparative advantage of their producers being offset by the willingness of other provinces to use their legal resource of jurisdictional authority and possibly their greater financial resources to the advantage of their own producers. In the case of the potato marketing agency, provincial veto of a marketing plan has stalled its creation and impeded the federal government and other provinces from realizing this policy objective. Provinces are frustrated most on matters of exclusive jurisdiction. In contrast to the intergovernmental consultation on stabilization and marketing plans, provincial governments were largely excluded from the western grain transportation debate. While provincial lobbying in support of producers was eventually effective in realizing significant amendments to the Western Grain Transportation Bill, provinces had significantly less input on this issue than they desired and have had on issues of concurrent or divided jurisdiction. In terms of the impact of federalism on the behaviour of governments, the example of agricultural policy suggests that the portrait of province-building and provincial claims to territorial representation does not apply unequivocally, nor do generalizations about intergovernmental conflict and competition. Contrary to Alan Cairns' s4 depiction of provincial governments' behaviour in other policy areas, most provincial governments have not actively sought to compete with the federal government by encroaching on federal policy territory and rivalling federal programs with their own equally or more attractive agricultural policies. The PQ government in Quebec has been the possible exception. Its policies to enhance the productivity and diversification of Quebec agriculture were designed to realize self-sufficiency in foodstuffs and to build up the province economically as a means of paving the way for eventual political independence. Other provinces, however, have generally abstained from province-building. Rather than showing a desire to supplant the paramount federal role in agriculture, they have almost unanimously urged greater federal responsibility for agricultural matters. With respect to provincial claims of territorial representation, the behaviour

162 Conclusion of some provincial governments conforms to this pattern.5 Provincial governments have fre,quently promoted the interests of local agricultural groups to the federal government And, on occasion, when frustrated by the failure of their endeavours, they have depicted themselves as the lone defender of local producers, championing their interests against a federal government preoccupied with serving groups antagonistic to local farmers. This behaviour, particularly noticeable during the debate on western grain transportation, is most likely to occur when the policy matter is one of exclusive federal jurisdiction. It is also especially characteristic of NOP governments and the PQ government and most in evidence when there is a unity of philosophical and economic interest of government and interest group - that is, when producer groups within the province are ideologically allied to the incumbent administration and significant to the province's economic well-being. Under these conditions, and motivated by the further goal of re-election, Allan Blakeney and the Saskatchewan NOP not only made opposition to federal freight rate change the dominant theme of their 1982 election campaign but also depicted the issue as an instance of federal discrimination that had to be resisted by the local government. When a provincial government has found itself not so in tune philosophically with the goals of a neglected local group, or been confronted with a divided community, it has been much less willing and able to play a territorial representation role. Accordingly, the Devine and Lougheed governments, beset with one or both of these conditions, devoted fewer resources and less publicity to denouncing the federal policy. The readiness and capacity for articulating the interests of dominant interests within their borders that are not being represented at the national level should theoretically be greater on those matters where the provinces exercise concurrent jurisdiction. The Alberta and Ontario agriculture ministers have publicly championed their dairy and poultry producers' claims to a larger share of the domestic market in those commodities, and provincial governments with red meat income stabilization schemes have supported their producers' determination to maintain 'top-loading' advantages. However, provincial governments probably have little choice but to do the latter, and it bears reiteration that the stabilization measures to support cattlemen of the NOP governments of British Columbia, Saskatchewan, and Manitoba were measures of last resort, which 'occupied a vacuum created by ineffectual territorial representation within the national government. ' 6 Agriculture's failure to conform to what is described by Cairns and others as the typical pattern of federalism - that is, of territorial representation and extrajurisdictional encroachments leading to conflict and competition - appears to be the result of a number of factors. First, as noted above, their exercise of concurrent jurisdiction has given provinces considerable input into federal agricultural policy and, conse,quently, has tended to minimize federal-provincial conflict.

163 Conclusion Second, provinces' realization that jurisdictional responsibility entails expenditure commitments has made them reluctant to compete with the federal government for legislative authority. Where they have done so, by establishing rival programs, their motives have been principally economic, not political. For example, provincial income assurance plans were designed to shore up farmers' incomes and thereby promote the health and stability of the province's agricultural and entire economy. More generally, it is only when provinces have felt that they had no alternative that they have moved to fill the policy vacuum created by federal authorities' failing to address compelling problems. Third, intergovernmental antagonism has been minimized by the fact that, by and large, policy-makers at both levels have shared mutual goals, including the commitment to assisting Canadian farmers to realize stable and adequate incomes. Fourth, in areas of divided jurisdiction, delegation of authority to regulatory agencies has largely removed governments from agricultural marketing, an arena rife with potential for intergovernmental conflict, and reduced to a minimum the opportunity for tensions to arise over differences of politicians' personal and political goals. And, fifth, the capacity of provincial governments to compete with federal authorities for the loyalty of producers - for example, by initiating attractive spending programs - is undermined by differences of goals among local producer groups and differences of those goals with the philosophical orientation of the provincial government The agricultural community in most provinces consists of a range of commodity groups whose interests are frequently incongruent and whose ideological preferences, with respect to a laissez-faire versus a regulated market, are at odds and possibly incompatible with those of the provincial government. 7 This results in provincial governments' opting for inaction or readily 'passing the buck' to the federal government rather than risk alienating some producers. The alacrity with which provincial governments describe a problem as a federal responsibility undoubtedly is related to the difficulty of finding compromises among the disparate goals of producers. As a group, provinces are handicapped by the differences that separate them in claiming to represent jointly regional interests that the federal government is unable to articulate (owing to non-representation). On matters like stabilization, where one province's measures to offset a disadvantage for local producers are damaging the comparative advantage of another province's farmers, or in marketing, where a larger share of the market for one province means a smaller share for another, provinces are themselves in competition. The enhanced possibility of interprovincial conflict, owing to the 'logical impossibility for each government simultaneously to succeed in controlling the environmental uncertainties caused by its rivals,' 8 has created an unprecedented need for intergovernmental

164 Conclusion co-operation. On the whole, provincial governments have avoided publicly chastising one another's protectionist measures and either joined producers in working toward resolution of the problem or supported producers' calls for the federal government to exercise responsibility. Other generalizations about the pattern of intergovernmental relations in contemporary Canadian federalism are not supported by this study of agricultural policy. Specifically, contrary to the claim of Cairns9 and Simeon, political and personal motives of aggrandizement are less likely to lie behind intergovernmental discord than are economic and political differences arising from the varying provincial and national political economies. Most disputes in agriculture arise from the fact that authorities in the different capitals make agricultural policy within different contexts and are subject to different constraints and influences. Federal agricultural policy is shaped within a national and international context, while provincial agricultural positions bear the impact of narrower, provincial economic and political interests. Agriculture Canada has historically argued that serving the national interest means meeting the interest of producers in every region for a fair share of agricultural production as well as serving consumers' interest in low-cost food. Letting natural factors of resource and market advantages, rather than 'unnatural' factors of government subsidization, determine where agricultural production shall take place is fairest, says Agriculture Canada, to producers and consumers in every region. In addition, as the level of government responsible for ensuring harmonious international trading relations, the federal government argues that its obligation to the nation as a whole to sell its products abroad prohibits it from sanctioning income support plans that give Canadian producers unfair subsidization and invite other nations to retaliate with their own protectionist measures. For their part, provincial governments serve characteristically different constituencies. Geographically proximate to their producers, they are able to see and hear at first hand producers' problems and goals. Whereas the federal government may feel that the 'fairest' response to producers' economic distress is to let the market decide, social, economic, and political imperatives may deny provincial governments the luxury of a 'hands off' approach. The provincial government's economic well-being, and consequently its political livelihood, may suffer if producers' problems are not addressed. Such economic and political calculations led provincial governments to serve their producer clients by entering the policy void created by an inadequate federal response, first, to the cost-price squeeze in the early 1970s and, then, in the late 1970s and early 1980s, to bankruptcy threats resulting from high interest rates and reduced producer prices. Once these governments had committed themselves to producer assistance, the political disadvantages of withdrawing this support and the detrimental economic consequences that could ensue have made governments like British

165 Conclusion Columbia's and Quebec's reluctant to abandon their producers to a less supportive federal proposal. But, as noted previously, with the possible exception of Quebec, there seems little evidence that intergovernmental disagreements in income stabilization are rooted in provincial desires for what Alan Cairns describes as institutional self-aggrandizement The same disclaimer may not have applied with respect to a former federal minister of agriculture's motives. Some viewed Eugene Whelan's uncompromising stance on provincial stabilization measures, and his preference for a joint producer-federal government plan (rather than a tripartite scheme that included provincial financing), as rooted in his desire to restore federal hegemony in income stabilization by eliminating any role for the provinces in income support. 10 Tensions in agricultural marketing demonstrate the conflicts endemic in the structure of Canada's agricultural economy. Provincial delegates on the national marketing agencies find it difficult to resist opportunities to promote the economic self-interest of the producers they represent. The disagreements that arise out of competition over shares of a static or incrementally increasing consumer market have been exacerbated by judicial review, federalism, and the political process of agricultural policy formulation. The latter jointly led to the policy of institutionalizing the territorial representation of producer interests on the marketing agency and thereby effectively perpetuating territorial division.11 Conflict among producers, between producers and the federal government, and consequently between the federal government and the provinces was most intense in the third policy area, the western grain transportation debate. The extent to which the federal political system created and exacerbated these conflicts is a question of considerable significance, since most analysts of contemporary Canadian federalism agree with Roger Gibbins that 'the paucity of elected western representation in the national government' 'expanded intergovernmental conflict' 12 To some extent, conflict was inevitable, regardless of the distribution of power and authority in the political system. This was because of the high economic stakes involved for producers and governments and the emotional significance of removing what many western Canadians regarded as a historic birthright. It may also be argued that western Canada's lack of representation in the federal government was not a factor in accelerating conflict because the federal government took considerable pains to offset that liability. Its opting for extensive and repeated consultation with western Canada was intended to give the region the opportunity to furnish the federal government with the views of the region that were not being relayed by elected representatives from the area and also to defuse tensions by giving the region the opportunity to forge a consensus from within. Nonetheless, it does appear that the conflict was made more intense because the exclusive authority that the federal government enjoyed to resolve the issue

166 Conclusion allowed it to be guided by its own 'partisan and electoral interests.' 13 In bending to the will of the Quebec agri-food coalition and Quebec caucus, even though that will was consistent with several of the goals of the principal commodity group on the prairies, the federal government created the impression that producers in one region - and in a less agriculturally significant region - were more important than those in another. In so doing, it turned what was initially an intraregional dispute (between western Canadian livestock and grain growers) into an inter-regional conflict (between western Canadian cattlemen and the Quebec agri-food industry). While western Canada's lack of representation in the federal Liberal caucus certainly impeded some segments of the western Canadian community (especially cattlemen) from realizing their goals, and hence inflamed passions, it is not immediately clear that greater representation in this same caucus would have effected a less controversial outcome. David Smith, in a most incisive dissection of the Liberal party's 'widespread unpopularity' in western Canada, has argued that it is the Liberal party's policies that are distasteful to western Canada. Policies such as 'C.D. Howe's refusal in the fifties to make cash advances on farmstored wheat' and LIFT in the late 1960s and early 1970s were, he says, insensitive to western opinion. When the Liberal party defended these policies as being in the public interest, Smith says, 'westerners concluded that the public interest (for which they read central Canada's) and their own conflicted and that the federal government, at least when the Liberal Party was in power, invariably was the servant of the one and not the other.' 14 The higher priority that the interests of central Canada have had historically in the Liberal party simply reflects the significant influence and representation of that region in the party. Other parties, like the Conservatives and the NOP, with a greater electoral and parliamentary base in western Canada, would presumably, judging from their behaviour during the Crow debate, be more 'sensitive' to western Canadian 'interests.' While even they would have found it impossible to satisfy every interest, their representation in the region would presumably have facilitated their finding a solution that would not have alienated every segment of the western Canadian agricultural community - as the federal Liberal government inevitably did. Had the federal government not enjoyed exclusive authority with respect to grain transportation, and had provinces shared jurisdiction there, provincial governments would have had a greater say in the matter. How this would have affected the resolution of the issue and the degree of controversy is unclear since the provinces themselves were divided over the issue. Perhaps concurrent provincial jurisdiction would only have intensified intraregional tensions, although it is difficult to see how tensions could have been any greater than they were. Had provinces had legal authority and hence more input, a 'made in western Canada'

167 Conclusion solution - perhaps along the lines of the Gilson compromise - would have been more likely. Such an outcome would perhaps have been more palatable- at least to western cattlemen - than the actual outcome, which they perceived to have been made outside the region and significantly manufactured in Quebec. However, the discord surrounding policy change in grain transportation stands out in sharp contrast to the normal harmony in agricultural policy. Federalprovincial relations in agriculture have been described as among the best of those in a number of areas. 15 In turn, producers have generally benefited from the constitutional sharing of jurisdiction over matters affecting agricultural prices and production, having been fairly successful in persuading their provincial governments to pick up the slack when federal authorities were loathe to assume responsibilities entailing expenditures. In conclusion, the extent to which intergovernmental relations in agriculture are atypical can be determined only by in-depth case studies of other policy areas. The analysis here suggests that the agricultural pattern will be most applicable to policy fields characterized by a history of provincial input into federal agricultural policy-making, intergovernmental agreement on fundamental goals with respect to client groups, appreciable financial commitments arising from the exercise of jurisdiction, and internal provincial and regional divisions among client groups. FEDERALISM AND THE ECONOMIC UNION

Nonetheless, it has been noted that some critics worry that joint federalprovincial jurisdiction and activity with respect to agriculture have unwelcome repercussions. While concurrent jurisdiction has enabled provinces to assist local producers to overcome production and marketing disadvantages, such measures may interfere with the allocation of production among regions according to the principle of comparative advantage. The result may be an undermining of the economic efficiency of the Canadian agriculture industry as a whole and the growth of resentment among provinces and producers. With respect to marketing, the fear is that the current provincial make-up and relatively ample decision-making scope of the national marketing agencies have allowed inefficiency and protectionism to creep into national marketing plans. Moreover, the provincial veto over the marketing plan (which allocates current market shares among provinces and determines the formula that shall guide future allocation) makes highly likely political compromises that render criteria of economic efficiency secondary to provincial protectionist goals. These developments in commodity stabilization and poultry marketing are viewed as threats to Canadian economic integration. The perceived seriousness of proliferating provincial protectionist measures

168 Conclusion has led to consideration of constitutional and institutional reforms that would prohibit such behaviour and, in so doing, provide for greater economic integration. A 'strengthened' section 121 of the Canadian constitution has been a target of reform. As interpreted by the courts, the consensus is that section 121 is currently an inadequate safeguard of the internal economic union, since it prohibits only fiscal barriers to interprovincial trade, such as provincial border tariffs and taxes. It does not disallow internal barriers to the free flow of services, labour, and capital. Nor does it appear to apply to non-tariff trade barriers. More specifically, federal marketing regulations, such as those sanctioned by the Canadian Wheat Board and the national poultry agencies, even if related to provincial boundaries, as well as provincial regulations that are intended to mesh with such federal regulations, have been judged to be consistent with section 121. The objective of disallowing provincial non-fiscal trade barriers that discriminate against the citizens and goods of other provinces and inhibit the free flow of capital across provincial borders led the government of Canada to include in its 1980 constitutional reform proposals a series of changes with respect to section 121. These reforms would have expanded this section to prohibit non-tariff trade barriers. Specifically, the federal government proposed that neither the provinces nor the government of Canada be able to pass laws or engage in practices that impeded the 'admission free into any province of goods, services or capital originating in or imported into any other province orterritory' (section 121.6). However, the government of Canada, but not the provinces, could pass laws contravening this principle if Parliament declared such laws 'to be of overriding national interest.' In effect, then, section 121 was to be strengthened to disallow provincial preferential policies but not necessarily similar federal policies. 16 With the exception of Ontario, the provinces reacted negatively to the proposal, and it was jettisoned in order to gain provincial approval for other parts of the federal constitutional package. The provincial arguments against the proposed changes to section 121 are worthy of note because collectively they suggest that constitutional solutions to strengthen the Canadian economic union are probably not politically feasible. Moreover, analyses by a number of economists suggest that such reforms may not be economically necessary, but if they are the government of Canada ought not to be exempt unless the provinces are given some lever by which to ensure that the federal government does indeed define 'the national interest' in a non-discriminatory way. There were essentially three reasons why the provinces opposed the changes proposed in section 121. First, most provinces felt that they were unnecessary insofar as existing barriers to the free movement of goods were not deemed to be significant in 1980. Moreover, the significant barriers, 'the "big" economic levers such as tax rates, tariff and transportation policies,' which 'are precisely

169 Conclusion the forces having the greatest impact on the mobility of resources and products in Canada,' would not be restricted by the revised section 121. Saskatchewan's attorney general argued that to deny a small province the right to take action to protect its competitive position in the economic union was to deny it the right to offset the lures that the richest provinces would continue to be free to deploy favourable tax rates and incentives, ready access to consumer markets with transportation advantages, and so on. The proposed rewritten section 121 would thus penalize the poorer provinces in favour of the richer, larger provinces. Second, the revised section 121 would restrict provincial powers but not necessarily federal powers, since federal laws stated to be 'of an overriding national interest' would be exempt from section 121. As Penny states, that phrase would 'create loopholes of indeterminate magnitude.' And third, Saskatchewan's attorney general argued that legal barriers and judicial interpretation are an inappropriate instrument by which to secure the Canadian economic union. Federal-provincial co-operation and a commitment by the first ministers, which could be constitutionally enshrined if necessary, would be a more appropriate route by which to ensure ongoing review of the discriminatory extra-provincial consequences of legislation. 17 The issue of the degree of harm created by internal trade barriers is fundamental to the further question of the need to take measures to stem protectionism. A comprehensive examination of provincial and federal agricultural and nonagricultural preferential policies led Whalley and Trebilcock to conclude that the economic significance of federal and provincial internal trade barriers 'may have been overplayed,' insofar as their annual costs amount to 'significantly less than one per cent of GNP per year' and affected 'only some $3 billion of $43 billion interprovincial trade activity.' Agricultural marketing boards were estimated to involve no more than 2.5 per cent of interprovincial trade. Moreover, Whalley and Trebilcock conclude, as does Menzie, that federal policies, including the national tariff, have more distortionary effects than do provincial policies. 18 Evidence that the national government is not immune from enacting distortionary trade policies, and may in fact be more culpable than provincial governments, does not in itself justify similar behaviour on the part of provincial governments. National policies may be more tolerable than similar provincial programs because 'centrally induced barriers' rest on a greater degree of political legitimacy than do similar provincial trade restrictions. This is because 'the federal government cannot impose any of the costs of its policies on citizens to whom it is not at least potentially accountable. And it is this fact which gives an inherently different character to federal actions since provincial government interventions are not similarly constrained.' 19 The obvious flaw in this argument is that the government of Canada is not

170 Conclusion perceived to have the same degree of legitimacy in all regions of Canada. The suspicion of many western Canadian residents toward the national government, owing to perceived discriminatory treatment arising out of the National Energy Policy and the region's past under-representation in the governing party and other national decision-making structures, will take some time to erode.20 The inherent structural weaknesses in the capacity of Canada's central institutions to be simultaneously representative of all Canadian regions suggests that a prerequisite to constitutional reinforcement of the Canadian customs union, either by reducing provincial leeway to circumvent it and/ or by maintaining or enhancing federal authority to enforce it, is reform of the national institutions to augment their regional representativeness. This, in tum, would further the credibility and legitimacy of national decision-makers. Even if the economic costs of provincial protectionist measures may not be significant, the political ill will that grows in their wake, in the form of internal tensions among first ministers and producers, is appreciable enough that measures must be taken to minimize protectionist behaviour. The nature of the reforms that are necessary would appear to depend on whether the non-tariff barriers are rooted in the malfunctioning of existing institutions, or whether they arise out of a clash of potentially incompatible social and economic goals of governments and citizens across provinces. The internal decision-making difficulties of the national marketing agencies would appear to be an example of the former. They stem from unforeseen weaknesses in the operational rules and method of selection of national agency members. First, it is the nature of the composition of the agencies that is tending to undermine co-operation in promoting efficient allocation of production across Canadian provinces. It is probably unrealistic to expect the producer delegates of producer-controlled provincial marketing boards to set aside the parochial interests of those they are delegated to serve. An alternative method of selecting provincial representatives, which would respect provincial jurisdictional authority over intraprovincial trade, would be for the provinces to prohibit provincial representatives on national agencies from being producer board delegates. Nonproducer delegates would find themselves freer to co-operate for the well-being of the industry as a whole. Second, the supervisory council has a somewhat inconsistent relationship with the agencies. On the one hand, it acts as their supervisor, mandated to require the agencies to carry out the objectives of ensuring an allocation of production in accordance with the principle of comparative advantage, and bearing in mind the interests of consumers. On the other hand, because of its role in sanctioning some agency orders, which orders are requisite to the continued functioning of the agencies, its hands are partly tied with respect to supervision. Restricting the council's authority with respect to agency orders,

171 Conclusion

by removing its capacity to pre-audit pricing orders, for example, would amplify its freedom to prohibit, in a post-hoc auditing of agency orders, those that contravene the guidelines of the FPMA Act The council would not face the dilemma of trying to persuade agencies to alter policies for which it had previously given its approval, however reluctantly. To alleviate agencies' concerns about a strengthened auditing capacity for the council, and simultaneously to assuage consumers' fears that their interests are ignored, an appeal tribunal along the lines of Ontario's could be established. More troublesome is minimizing the non-tariff barriers, such as subsidy programs, that arise out of the differing social and economic goals of governments. Were all governments to subscribe to Alberta's laissez-faire approach, interprovincial barriers to the unrestricted flow of agricultural goods would undoubtedly be fewer. But they do not and will not because of differences in their own and their clientele's philosophies regarding the role of the state with respect to agricultural development and its responsibility for ensuring adequate producer incomes. Provincial protectionism seems unlikely to go away, given the uneven and competitive character of Canada's agricultural economy, the disparities in provincial treasuries, and the political pressures on governments facing the need to continually reaffirm their mandate to govern. But it may be possible to minimize the incentives for governments to be protectionist It has been argued here that provincial subsidization of local producers was, to some extent, stimulated by, and has persisted because of, a void in national leadership with respect to producer income support This matter of a lack of national leadership is a serious charge, but there is evidence in other areas of agricultural policy that it is a fair indictment A recent example is that of export marketing. Provincial complaints of a lack of aggressiveness by the government of Canada in seeking out agricultural export markets has prompted provinces like Ontario, Quebec, and Alberta to assume an ever larger role for themselves in promoting agri-food exports. These provinces have in recent years committed larger financial and personnel resources to assisting the private sector in the promotion of locally significant commodities. The resulting consequence of yet another field of agricultural policy becoming one of joint federal-provincial activity will be a need for coordination of these activities in order to avoid the loss of export opportunities, owing to interprovincial competition for the same customers and a fragmentation of effort. 21 The relative absence of national leadership on agricultural issues in recent years can be traced to the declining status of the minister of agriculture and of the department itself. The view of the deputy minister of agriculture for much of this period, Gaetan Lussier, was that among other government department officials and ministers, there was 'a systematic bias against agriculture and a failure to

172 Conclusion recognize the potential in the sector for economic growth and job creation.' The minister in charge of propelling the Western Grain Transportation Act through its final stages in Parliament, Lloyd Ax worthy, has confirmed that •Agriculture did not enjoy a good reputation as a department that was helping government and that was on the cutting edge. Considering its importance, it was not a leadership department. It was out of sync. ' 22 This diminution in the status of Agriculture Canada and general failure in the government of Canada to accord agricultural matters a high profile mean that producers and provinces will be loathe to yield responsibility entirely to the federal government when it comes to the matter of defining the national interest in agricultural matters. It will be necessary for Agriculture Canada, and decision-makers in departments whose policies affect agriculture, to show more willingness to shoulder responsibility that may entail financial commitments23 and will require setting aside partisan interests. The government of Canada and the agriculture minister will need to rid themselves of a perceived tendency to let agricultural policy be dictated by those provinces whose voters are most electorally influential. Institutional reforms that enhance opportunities for producers from all regions to receive a hearing in Ottawa are probably necessary. In the absence of other options, a revamped Senate, composed at least in part of representatives of the provinces, and given authority to delay or block federal legislation that is judged discriminatory in its provincial impact, is one possibility. 24 Another, probably more readily realized, is an ongoing committee of provincial and federal officials wherein each government is made to defend its discriminatory policies and proceeds to negotiate on which should be allowed and which terminated. The latter institutional reform would appear to be the most viable since the co-ordination and harmonization of federal and provincial policies cannot be dictated by either the courts or the government of Canada but must result from a political process involving federal and provincial governments. The hope for a future of cooperation among producers and governments in Canada rests on a continuation of the legacy of past collaboration. The mechanism of intergovernmental collaboration, even if it has not always worked as effectively and as fairly as it might have in the past, would still appear to be the best available process of formulating Canadian agricultural policy.

Appendix: Tables

TABLE I

Wheat Cattle Dairy Hogs Barley Small grains Oilseeds Field crops Poultry (eggs) Poultry Fruits and vegetables Fruit crops Other Mixed

Distribution of total farm cash receipts by commodity (0/o)

Census farms with sales of $2,500 or more by product type• (0/o)

1975

1977

1976

25.6 18.4 13.6 8.9 6.3

18.8 20.5 13.3 8.4 5.0

22.8 21.5 17.9 3.8

3.9

3.8 13 .5 7.6

18.8

6.8

1.9 1.6

3.1 13.4

9.1

3.0 2.0 6.6

SOURCES: I 975 : Orientation of Canadian Agriculture, l, A: Table 4. I 9; I 977 : Agricultural Statistics, Table 44 • Product type: In order to qualify under a particular category, sales of that product must make up 51 per cent or more of a particular farm's total sales. Total number of farms 268,124

174 Appendix TABLE 2 Value of agricultural exports Grains Wheat and grain products Total grains and grain products Meat, eggs, other animal products Animal feeds Animals (live), meats, and other animal products Live animals Oilseeds and products Dairy products Fruits and vegetables Others Total

1971-5 average(%)

1978 (OJo)

62.0 54.7

IO. I 2.4

16.7 2.8 11.5 2.1

13.4

6.0

1.9 3.5 9.8

100.0

100.0

3. 1

SOURCES: 1971-5 average: Agriculture Canada, Agriculture Facts, 24; 1978: Canadian Farm Economics, 14, 3, Table I

175 Appendix TABLE 3 Prairie agricultural systems: most important agricultural commodities Saskatchewan

Total farm cash receipts (%), 1977• 57 .3b Wheat 15.9 Cattle and calves Barley 5.9 Oilseeds 10.9 Hogs Dairy Poultry and eggs

Alberta

19.6 34.4 11.0 10.2 5.9 5.9

Census farms with sales of $2,500 or more classified by product type (%), 1976 Total farms (66,258) (5 I ,897) Wheat 66.1 16.4 37 .6 Cattle 11.6 28.4 Small grains (barley) 15.4 2.3 Hogs 0.8 3.7 Dairy 0.9 Poultry 0.2 0.6 Field crops 0.1 1.0 Other 4.2 1.3 4.7 8.7 Mixed Total

100.0

100.0

Manitoba

23 .5 20.6 7.8 10.6 8.6 6.0 6.0

(27,265) 27 .2 19.0 33 .5 3.0 6.0 1.0 1.0 1.2 8.0 100.0

SOURCE: Agricultural Statistics, 136 • Percentages will not sum to 100 per cent because only most important commodities are included. b 1976: 63.6 per cent; 1975: 63.5 per cent

176 Appendix TABLE 4 Most important agricultural commodities in Ontario and Quebec

Total farm cash receipts (%), 1977 Other crops• Cattle and calves Dairyb Hogs Poultry and eggs

Ontario

Quebec

27.4 23 .2 20.8 IO.I 9.8

8.0 46.1 18.3 14.0

Census farms with sales of $2,500 or more by product type(%), 1976 Total farms (67,613) Dairy 23.1 27 .1 Cattle Hogs 6.6 Poultry 2.5 Wheat 1.4 19.9 Small grains 2.6 Field crops 5.3 Fruits and vegetables 7.8 Mixed 3.6 Other

(37 ,270) 64.6 6.8 6.2 3.0 0.4 4.5 2.8 4.8 3.5 2.4

SOURCE: Agricultural Statistics, Table 44: Agriculture Canada, Selected Agricultural Statistics for Canada, Table 22 • Corn, sugar beets, potatoes, fruits , vegetables, tobacco , other crops b Includes receipts from dairy products plus dairy supplementary payment

177 Appendix TABLE 5 The Maritimes: total farm cash receipts and farms by product type PEI 1976

Farm cash receipts (%) Potatoes Cattle Hogs Dairy products Vegetables Fruits Poultry Other

46.6 12.3 11.7 11.5 1.7 0.5 0.7 15 .0

Nova Scotia 1978

27 .2• 17.8 17.2 14.9 2.3 1.2 1.0 18.4

1976

2.5 9.3 9.6 29.6 3.4 5.5 12.6 27 .5

New Brunswick 1978

1.4 13.5 10.2 27.9 2.5 9.2 11.0 24.3

Census farms with sales of $2,500 or more by product type (%) Total farms (2,524) (2,519) Dairy 33 .5 36.2 Cattle 13.2 20.6 Hogs 8.6 6.0 Poultry 0.8 5.3 Wheat 0.5 0.2 Small grains 5.0 1.6 Field cropsb 18.7 3.3 14.1 Fruits and vegetables 1.2 Mixed combination 17.7 12.8

1976

36.6 6.6 5.7 19.6 2.9 2.4 9.9 16.3

1978

23.4 13.6 5.9 20.8 2.9 3.4 11.1 18.9

(2,489) 33.7 13.4 3.8 4.1 0.4 2.6 26.6 6.6 6.1

SOURCES: Statistics Canada, Farm Cash Receipts, 1976, Cat. no . 21-201 , 14; Statistics Canada, Farm Net Income, 1978, Cat. no. 21-202, 22; Agriculture Canada, Selected Agricultural Statistics, Table 22 • The average for the 1974-8 period was 39.6 per cent. b Includes potatoes

178 Appendix TABLE 6 Most important agricultural commodities in British Columbia

Total farm cash receipts (%), 1977 Other crops• Cattle and calves Dairyb Poultry and eggs All others