Termination of the WGTA: An Examination of Factor Market Distortions, Input Subsidies anc Compensation

Abstract

Input subsidies are common in North American agriculture and create production and trade distortions. As the theoretical discussion in this paper shows, the Crow transportation subsidy was no exception. The Crow benefit was eliminated in 1996 with the elimination of the Western Grain Transportation Act. Under the “pay the producer” approach, farmers in western Canada were compensated for the removal of the Crow subsidy, but the compensation was nowhere near that required to make grain and oilseed producers in western Canada at least as well off as before the Crow subsidy was removed. This policy change satisfied the compensation principle but not the Pareto principle. Reasons are given why this was the case, including very divergent views from various farm groups such as the National Farmers Union, the Alberta Cattle Commission, and the Alberta Barley Growers Association. Les intrants du secteur agricole sont souvent subventionnés en Amérique du Nord, ce qui fausse la production et les échanges. Comme l'illustre la discussion dans cet article, il en a été ainsi pour le tarif du Pas‐du‐Nid‐du‐Corbeau, dans les transports. Cette subvention a été abolie en 1996 avec l'abrogation de Loi sur le transport du grain de l'Ouest. Les producteurs de céréales et d'oléagineux de l'Ouest canadien ont été indemnisés, mais la somme qui leur a été versée était largement insuffisante pour qu'ils restent aussi bien lotis qu'avant l'abolition de la subvention. La nouvelle politique a satisfait le principe de la compensation, mais pas celui de Pareto. On explique le pourquoi de cette situation, l'une des raisons étant les points de vue tràs divergents de diverses associations agricoles.

Competitive Pressure and Technology Adoption: Evidence from a Policy Reform in Western Canada

“…The new pricing regime accounted for the cost to ship grain on lake freighters from Thunder Bay to the mouth of the St. Lawrence Seaway. This change resulted in lower grain prices in eastern Saskatchewan and Manitoba relative to Alberta for grain sold through the CWB (Schmitz et al 2002).…”

“…Removal of the transportation subsidy was expected to have significant impacts on the grains and livestock industries of the prairie region (Kulthreshra and Devine 1978 Farmers were compensated for the higher freight rates resulting from the repeal of the WGTA and the subsequent drop in land values with a one-time payment of $1.6 billion, and an additional $300 million to assist producers that were most severely affected and to invest in rural roads. This compensation was equivalent to approximately two years of the annual subsidy amount and was thus not large enough to fully compensate farmers for the loss of the subsidy (Schmitz et al 2002).…”

Alternative Approaches to Compensation and Producer Rights

“…The Saskatchewan Wheat Pool supported maintaining the “pay the railroad” approach, while the Western Wheat Growers supported the “pay the producer” approach (Schmitz et al ). However, in both the U.S. peanut and tobacco quota buyouts, producers received handsome compensation because they were able to form effective lobbying coalitions (Rucker et al ; Schmitz et al ; Haynes et al ).…”

Scitovsky Reversals and Efficiency Criteria in Policy Analysis

“…The important conclusion is that the net benefit is unaffected, whether one uses the Compensation Principle or the Pareto Principle in the analysis, even though the distributional impacts are very different. Schmitz, Highmoor, and Schmitz (2002).…”

“…Producers were compensated by roughly Cdn$1.5 billion for the removal of the CROW subsidy, while full compensation would have required roughly Cdn$10 billion (Schmitz, Highmoor, and Schmitz, 2002). There are many reasons why full compensation was not made, including the disagreement among special interests.…”