Already heavily subsidized - The Quebec pork industry needs a major overhaul



    MONTREAL, March 14 /CNW Telbec/ - The government should not increase
public assistance to the pork sector but instead should encourage the industry
to reorganize itself so as to raise productivity. In an Economic Note released
today by the Montreal Economic Institute, associate researcher Eric Grenon
states that "reform is made necessary by the high and recurrent costs to
taxpayers of aid to pork producers and by the serious deficiencies in the aid
models that are applied."

    An industry in crisis

    In recent months, major problems in the Quebec pork industry have been
making headlines. Many causes can explain this crisis, especially the higher
Canadian dollar, industry cycles, increased rates of illness, a lack of
competitiveness among slaughterhouses, environmental standards, and so on.
    Against a background of greater worldwide competition and market
integration in the North American pork industry, the production, slaughter and
processing of pork products in Quebec is under threat, in particular by the
U.S. industry that has made use of the last 20 years to consolidate and
restructure.
    A commission on the future of Quebec agriculture and agri-food, now
starting a consultation tour, should be looking into the effectiveness of
current public involvement in upholding and protecting farm income. The
commission should ask if it is worth maintaining the Farm Income Stabilization
Insurance program (known by the French acronym ASRA). With twice Ontario's
subsidy level, Quebec is among the provinces with the most heavily subsidized
agriculture and agri-food sectors.

    The Farm Income Stabilization Insurance program

    ASRA seeks to guarantee a positive net annual income to Quebec farm
businesses. Seen as a pillar of the Quebec model in agriculture, the program
was established in 1978 as an insurance policy against market risks. The pork
industry receives substantial financial support from governments. From 1978 to
2006, total compensation paid through ASRA to the pork sector reached
$1.84 billion. In the last 10 years, subsidies came to an average of $96
million per year. In the 29 years the program has existed, there have been
only eight years without subsidies to the pork industry.

    The program's weaknesses

    The industry's difficulties are due more to structural than to cyclical
factors. ASRA also makes the pork sector more fragile by keeping it from
adapting to market realities. Its insurance mechanism guarantees all pork
producers that they will be compensated for the difference between the market
price and production costs, calculated using a theoretical model. Producers
thus have less incentive to cut costs, to observe market signals and to remain
competitive on domestic and export markets.
    ASRA impairs efforts to raise productivity and efficiency, helping
maintain high production costs compared to competitors. It holds back industry
consolidation by keeping unprofitable farms in business, with viability and
business performance not among the eligibility criteria for the main programs.
    Another weakness of ASRA is that it calculates total compensation based
on a theoretical model of a specialized farm. Since the 1990s, the Quebec
auditor general has questioned the effectiveness and performance of programs
based on this sort of production cost estimate. It was shown that taxpayers
are contributing millions of dollars too much to producers because of these
models. The auditor general has also challenged the updating of these models
of specialized farm and has cast doubt as to whether they are representative.

    The challenges of the pork industry

    The competitiveness of the Quebec pork industry is fragile and is
threatened by growing worldwide competition, both from traditional commercial
rivals such as the United States and from emerging countries such as Brazil.
ASRA has major flaws that get in the way of building a pork industry that can
run profitably on a stable basis and be truly competitive in the long term on
foreign markets.

    The Economic Note, titled The stabilization insurance program and the
crisis in the pork industry, was prepared by economist Eric Grenon, M. Sc.,
MBA, an independent consultant and associate researcher with the Montreal
Economic Institute.
    The Note is available at www.iedm.org.

    The Montreal Economic Institute is an independent, non-partisan,
non-profit body that takes part in public policy debate in Quebec and across
Canada, offering wealth creation solutions on matters of taxation, regulation,
and reform of health and education systems. Its publications since 2000 have
included the Report Card on Quebec's Secondary Schools. In 2004 it won a
Templeton Freedom Award for Institute Excellence for the quality of its
management and public relations.




For further information:

For further information: And interview requests: André Valiquette,
Director of Communications, Montreal Economic Institute, (514) 273-0969, Cell:
(514) 574-0969, avaliquette@iedm.org


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