Ontario Agricultural College Podcasts
The U of Guelph's Ontario Agricultural College hosts podcasts from expert faculty and students in food, agriculture, communities and the environment. Explore OAC's podcasts, including The Why and How Podcast and the FARE Talk Podcast. The Why and How Podcast looks to answer big questions in agriculture, food, and the environment through casual conversations that are rooted in research. Host Josh Moran chats with graduate students, researchers and professors to learn more about the science behind today's hot topics and trends. The FARE Talk Podcast provides an enduring conversation about contemporary topics relevant to food, agricultural and resource economics.
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Food Prices - July 4th, 2011
03/14/2025
Food Prices - July 4th, 2011
The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices. Transcript Brady Deaton: Today my guest is Dr. Patrick Westhoff, and we will be discussing his book, The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices. This book was published in 2010 by the FT Press. Dr. Westhoff is the Director of the Food Policy Research Institute at the University of Missouri in Colombia. He's had an active role in both academia, as well as in the legislative setting in the United States. Welcome, Pat Patrick W.: Hi. Thanks for the opportunity. Brady: Pat, tell me a little bit about what inspired you to write this book. Patrick W.: Well, during the summer of 2008, food prices were very much in the news. I was getting lots of calls from reporters around the country and around the world, trying to explain what was actually going on in those food markets. An editor gave me a call and asked if I wanted to try put those thoughts into a book, and I thought it might be a good opportunity, so I took advantage of it. Brady: Now, your book focuses on the economics of food, but it orbits around the change in food prices between 2005 and 2009. Give me a little bit of background about food prices over the last little bit. Patrick W.: Well, we've seen food prices increase in US over the last several decades at an average rate of about two and a half percent per year. For most of the last a couple of decades, food prices really weren't that much in the news. It was a relatively stable set of things going on in those food markets, and meant that food price inflation was very similar to overall inflation in the economy. But then came 2007 and 2008. We had big run ups in the prices for a large number of American cultural commodities, and a sharp increase in the overall consumer food price index in the US, and concerns about food prices around the world. It definitely got lots of folks' attention and then just in time for everybody to get excited about the really high price of food in 2007 and 2008, we had the global recession that made things go the opposite direction a year later. Brady: Talk to me a little bit about it. When we talk about food prices, where that information comes from, where the data on food prices and commodity prices how do ...? We talk a bit about this in your book but where is this information coming from? Patrick W.: Well, in the US the Bureau of Labor Statistics estimates consumer food price inflation by a variety of categories every month. We can find out what the average price of food was this month versus last month or versus a year ago. Every few weeks we get new information about that. [inaudible 00:02:28] can be more of a challenge to get information about consumer food prices in particular countries but individual countries do have their own statistical services putting out this information. In contract commodity markets are probably easier to follow. We have lot of information about futures markets for grains, oil, seeds, meat, sugar and a variety of other agricultural products where it's very easy to get information on a daily basis about what people think is going to happen to the price of those commodities. Brady: I want to talk a little bit about why we are concerned, or the general public is concerned about these changes in food prices. I want to just back off a bit and talk about, economists usually look at changes in prices as really important to coordinating the market system. If prices go up then it may induce incentives to plant more corn if for example the corn price increases or, if price would go up we may conserve on food, or it may induce investments and importantly it will allow for local decision making. If a farmer wakes up, and he's learned that the price of soybeans is gone up then he may plant more soybeans. We are concerned about food prices. What are those concerns? Patrick W.: You're absolutely right that the prices play a vital role in the agricultural economy, and the economy as a whole and helping folks decide what's the appropriate set of things to try to produce and what are the appropriate set of things to consume in any given point in time. Concerns of course come from the fact that food is such a vital part of people's standard of living. Consumers in some countries spend a very high proportion of their income in food each month. In some of the poor countries lower income folks can spend half or more of their income on food at any given time. When there is a big change in the price of food it can very directly affect their standard of living. A higher price for food can make it much harder for a low income family to be able to meet their basic needs. Of course, you have [inaudible 00:04:26] food is also a very big source of income for lots of people around the world. Higher income countries in Europe and North American and elsewhere the number of people directly involved in agriculture is relatively small and so the number of people directly affected by food prices in terms of their income is relatively modest. When you're talking about a lower income countries, developing countries around the world, quite often a very significant portion, some places as much more than half of overall population may be involved directly in agricultural production. The price of food can be important for them in terms of their incomes as well. Brady: How does your work experience in Guatemala inform your understanding of that issue? Patrick W.: Yes, I was a Peace Corp Volunteer in Guatemala a long time ago. It was very good to get the exposure to people who have much more limited means and a very different set of things that drive their daily decision making. The typical person I was working with may have only owned or operated a couple of acres, one hectare of land, which might just barely be enough to feed their own family, maybe not even enough to feed their own family. They would use the land that they operated to provide some of their basic needs for corn and for beans and then would have to rely on outside employment for whatever income they were going to have to be able to buy other necessities in life. For those people a change in the weather, a change in market prices could have a big impact on their standard of living. Brady: Now, when you've talked about the change of food prices, you've directed your attention to a number of specific issues that you thought were important. I don't know that we'll have time to review all of them today, but I thought I would name them, and we can begin to discuss some of them. You mention of course biofuel production, energy prices, government policies, the weather, economic growth and changing diets and there is a focus a bit on India and China here, speculation and the changes in the value of the US Dollar. Of that list, is there any one of those or a couple of those that are more important? Patrick W.: Oh I think over the long haul what's happening to the global economy is probably as important as anything else in determining where we're going to see food prices evolve to over the next several years and over the next several decades. Yet, the global economy is growing at a rapid pace. We're going to see more rapid increases in demand for meats and other socio products that people tend to consume when they have higher incomes. That's especially important in countries like India and China where we're seeing diets change very rapidly in recent years. If Chinese consumers for example are going to be consuming more meat and other high valued products in the future, that means that we're going to need to have more grain to feed those animals and that's going to have an effect on the global system. Likewise, global economic growth will affect the price of petroleum and other major energy inputs. As the price of petroleum changes it affects not only the cost of producing crops and livestock products that will be turned into food that people eat but it will also affect the demand of bio fuels and their demand for biofuels of course has risen very sharply in recent years, caused by a variety of factors, [inaudible 00:07:39] policy and the overall economy. Again, if I had to pick one thing that's really important for the longer haul in terms of determining food prices I'd probably say it's the general economy. Brady: What about for the short run, the period between 2005 and 2009 that you focus on? Patrick W.: Right. If you had to pick one thing that was really important during that period of time and continues to be important today, I'd say it's probably the weather. People who are involved in agriculture know this but, some folks who may not deal with agriculture production every day don't really understand to what extent agricultural producers are at the mercy of the weather. If we have a favorable set of figure conditions, we can have very large crops, larger than expected. Those large crops can have a major effect in driving down food prices in any given year. Supplies exceed the immediate need to consume that grain or those other products. On the other hand if we have a short crop caused by floods, drought, disease, or whatever we can have a very sharp increase in food prices as available supplies may come short of what desired levels demand might be. In 2006 and 2007, we saw crops that weren't quite as big as they'd been in 2004 in particular. That caused a draw down in the overall level of grain and other foods that were in storage to eventually we got to where the level of grains available for consumption were getting really, really tight relative to what demands were going to be. People got concerned about that and helped drive up the prices very sharply. Then, in contrast we got the 2008 and 2009. We had much bigger crops than we'd had the previous couple of years. That helped to restore global supplies of those commodities and aid prices fall back again. Brady: One of the interesting points that you bring up when you're discussing the weather is this idea that if you're more dependent in terms of trade in the global economy then you're more vulnerable to these shocks, international changes in weather. But, that if you're less dependent for example on trade, then you basically increase your vulnerability on domestic changes in the weather. I thought that was important when you were comparing the effect that a drought in Australia might have on consumers in Australia as in contrast with low income wheat importing countries. Could you just expand on that point a little bit? Patrick W.: No. That's right. If you're talking about what happens when you have a drought in a country like Australia, it's not really going to affect food consumption in Australia very much. The Australian markets are pretty open markets. If they have a reduced production of wheat in Australia, they'll still feed their domestic consumers and you won't see a big effect on the consumption of calories in Australia. But the reduced exports out of Australia will mean higher prices for food in global markets and that will mean increased cost to consumers around the world that are reliant on imported wheat and other imported grains to try to satisfy their dietary needs. That's an example of where, what happens on the other side of the globe can affect people everywhere on the planet, at least everywhere in the planet where their local policies allow prices in the local market to be tied to prices in international markets. In contrast, if you talk about say, a country in Central Africa that, because of high transportation cost or because of government policies may find it difficult to import or export, much of its local demand or supply for food. In those types of countries if there is a change in Australia or Canada or the United States, it has almost no impact whatsoever on the local markets but in contrast a change in the local weather can have a huge impact on the welfare of people in those countries so that's a case where not being able to trade means that you're protecting yourself if you will from some of the volatility in global markets but at the expense of being much more at the mercy of what happens in your local markets. If there is a drought or something in some country in Central Africa it will directly affect the ability of people in that country to be able to get a good diet. Brady: It's interesting that your primary two issues that you focused in on are the growth in demand in China and India and then changes in the weather. The one is the demand push, and the other is the variation in supply as a result of changes in the weather. Certainly two issues that we certainly have paid a lot of attention to recently are biofuel production and speculation. Let's take a moment and talk about one of the first rules of thumb that you have in your book and that is that an increase in production raises the price of food. What did you mean by that rule of thumb? Patrick W.: Well, we saw a large increase in biofuel production in the United States and many other countries between 2005 and 2007. Lot of people looking at what was occurring in the markets were very concerned that we were taking grain, sugar and vegetable oil that could be used to feed people and instead using it to produce biofuels. There were many folks who were drawing the connection saying, "Well this sharp increase in biofuel production was a major, even the major cause for the higher food prices you were experiencing during that period of time." In the book I try to take a look at that. It's certainly true that is, if you are taking more of the world's available supplies in grains and oil seeds and sugar to make biofuels it does mean there's less available for other uses. That will obviously result in higher prices. That is indeed a large part of the story. But, it was, I try to make clear in the book, there was also many other things that were happening at the same period of time. It wasn't just biofuels that caused the sharp run up we saw in prices there was also concerns about the weather, exchange rates and many other factors all happening at that same time. Brady: Right. Now we talk about this first generation of biofuels regards to at least in the US, I guess we're largely talking about corn. Talk to me a little bit and one of the things I thought was really well done in your book is that you really talk about how a change in the price of corn works its way through all of the commodities and eventually into the prices of meats and such. Talk to me a little bit about that. Patrick W.: Sure. Corn is the single largest crop produced in the United States. In fact there is more corn produced in the world than there is any other single commodity, agricultural commodity. Corn is really important just in terms of the amount being produced. It's also important because of its effect on all the other major foods as well. When, the price of corn goes up it means that farmers are probably going to want to plant more corn [inaudible 00:14:05]. They're going to plant more corn, they're going to plant less of something else, less soybeans, less wheat, less of any other crops that might be competing with corn for available resources. Likewise, if you are someone who's using corn, higher prices of corn maybe [inaudible 00:14:19] make you want to try to find other alternatives that you might be able to turn to instead. For example, you might want to feed more wheat to your livestock if wheat is affordably priced. You may want to use more rice in providing food for humans if you have a higher price for corn. Those things mean that you'll see substitution away from corn towards other commodities to try to assess by the demand that's out there for feed and food around the world. When that happens that ends up driving up the price for all those competing food stuffs as well. Higher price for corn doesn't just mean a higher price for products that are made directly from corn, it also means higher prices for everything from vegetable oil to bread to rice that you might see in people's diets. On the livestock side of the picture, corn is the number one feed that's being used to produce pork and chicken around the world. When those hogs and those chickens are going to be needing to have a feed that's more expensive that means their producers are either going to cut back on their production or going to be expecting to get a higher price of their beef and pork and chicken that they're going to be selling eventually. By the time these pieces work through the system we end up with higher prices not just for corn but for all the grains, for all the oil seeds and for the meats and other products as well. Brady: The simple, the rule of thumb is that increasing the biofuel production raises the price of food and an increase in the price of corn works its way through all of these other commodities and eventually into the prices of all sorts of food. You also mentioned several arguments that complicate our understanding of the biofuel effect. You mentioned some of those. Are there any other issues we should think about when we're thinking, okay well, generally we think an increase in biofuel production will raise the price of food but what complicates that simple rule of thumb or what are the things you would be thinking about? Patrick W.: One thing to remember if you're talking about corn based ethanol for example is that when we produce ethanol from corn we also get the distillers grains, a co-product of ethanol production that can be used as a livestock feed. Roughly one third of the weight that goes into an ethanol plant of corn comes back out the other way in this distillers grains that can be fed to livestock. That all by itself mitigates some of the effects that you might see from increased production of ethanol. Still, we are taking a lot of the calories that are in a bushel of corn and converting them to biofuels and that does have an effect on the market. Of course as I've already alluded to, the fact that when we have higher prices for corn we're going to see more corn production, means that markets do respond. It's not as if every bushel of corn that goes in an ethanol plant reduces the amount of grain available to feed the world's people by exactly the same bushel. We're going to see some offsets on supply, some offsets in demand that will mitigate those effects to at least some extent. Then, clearly there is many [inaudible 00:17:19] that are happening in the market at the same time. People were very quick to point to ethanol as being the major culprit in the increase in food prices. One report for example from the Royal Bank suggested as much as 70% of the increase in food prices was due to ethanol and some others [inaudible 00:17:35] on those regards. In contrast, USDA Secretary of Agriculture at the time, he thought that the impact is much, much smaller. In fact, he was citing reports and estimates that it may be less than 5% of the increase in food prices as being due to ethanol production growth. In our own look at these questions, we've come to the conclusion that, yes there were lots of things going on in those markets at the time. Therefore some of the higher estimates of how important ethanol was in the overall mix of things was probably overstated but at the same time it was still a very significant effect. I think when you're trying to make sense out of all this, it is important to remember that the growth in ethanol production was by no means unexpected. We knew that we were going to have a lot of new plants coming on stream in 2006, 2007. The markets had that information already. The fact that prices...
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Standards: Recipes for Reality - July 15th, 2011
03/14/2025
Standards: Recipes for Reality - July 15th, 2011
Dr. Busch argues that standards play a central role in constructing reality. Transcript Brady Deaton: My guest today is Dr. Laurence Bush. He and I will be discussing his forthcoming book titled Standards: Recipes for Reality. The book will be published by MIT Press. Laurence Bush is university-distinguished professor in the Department of Sociology at Michigan State University and co-directs the Center for the Study of Standards in Society. Larry, thanks so much for joining us. Laurence Bush: Good morning, Brady. It's a pleasure to do so. Brady: Larry, after reading your book, I saw in every newspaper I picked up the issue of standards, and I found it was particularly relevant to the area of agriculture economics, but before I focus on those issues, I'd like to just start off broadly, and ask you about what you mean by the idea that standards are the way and the means by which we construct reality. Laurence Bush: Yeah. The thing about standards is that they very, very quickly become taken for granted objects, whether they are texts, or they are physical objects, like for example, weights and measures. These things take on a taken for granted character, and as a result, become part of the reality that we expect. For example, if I get in a car that I've never seen, the cars are sufficiently standardized, and I can very quickly figure out how to drive that car. It doesn't require any special training. Once I've learned how to drive a car, I can drive any car. Brady: In your book, you have a number of examples that are fascinating, and I wonder if you might just talk about some of the ways that we encounter standards that we might not think have found your discussion about time, and railroads, and the albino rats in the laboratory experiments particularly compelling. Could you pick a couple of those examples, and just discuss them? Laurence Bush: Sure. Let's talk about the ones you mentioned, and maybe we'll move on to some others. If you take the example of railroads, obviously one realizes immediately that in order to have a system of railroads that crosses your entire country, you have to have the same track gauge. That part actually didn't occur in the United States until the 1880s, and was largely the result of building the transcontinental railroad, and deciding that a particular gauge was going to be used for that, and then gradually moving towards that being the standard gauge for all railroads. More complicated than that, and equally important, perhaps maybe even more important, was the fact that until something that used to be called railroad time, and that we today call standard time was developed, riding on trains was an extremely dangerous affair. Let me give you an example. Most railway tracks were single track lines, so that meant that if a train were to leave one end of the line, it had to arrive at a crossing somewhere, where there would be a siding. It would pull off, and wait for a train coming the opposite direction to go past. Since you didn't have standard time, that is to say, every little town had its own time, what that meant was that it was very difficult to predict where those two trains were going to come to the crossing point, where they have to go past each other. The result was an enormous number of head-on collisions. There were several ways to solve that. The most obvious way to solve that was to build two tracks, but to build two tracks was quite an expensive proposition, especially if there wasn't sufficient freight on the line to justify a second track. The ultimate solution was the creation of standard time, which allowed a given train to leave at a particular time that would be immediately knowable to people on the other end of the line and thereby to ensure that the trains would manage to pass each other at a point where there was a siding, and wouldn't collide head-on. I think that's just a few of the standards, but to that we would of course have to add that there needed to be standards for the track bed, so that trains that were heavier wouldn't sink into the mud. There had to be standards for bridges. There had to be just an enormous array of standards for the railways, and they had to be distributed across an entire nation, at the very least across an entire nation. In Europe, of course, they had to be distributed across many nations. Even today, there are several European nations that have standards that are not compatible with the most common standard, so Spain, for example, accepting its high-speed trains that have just recently been put in, all of the other lines in Spain are simply not compatible with the standards in the rest of Europe. You literally have to get off a train at the border, walk across, and get on another trainer. Obviously rather time-consuming and clumsy kind of thing to have to do. One of the other cases where you find standards is in science itself, so for example, in order to produce rat studies, of which there are literally tens of thousands now, you had to have standardized rats, and starting in the 1930s, it was a major effort to create standard rats. Standard rats were not your typical sewer rat. That would probably be rather nasty. It would be of enormous genetic diversity, would have a rather poor diet, and an enormously variable diet, and the idea was to produce rats that had a standard diet, had a standard amount of exercise, had a standard genetic base, and that were relatively gentle in their demeanor, and would not resist human care. Doing that required the actual production of a detailed manual that went through everything from cage size to the position of water dispensers in the cage, to the kinds of specific nutritional elements that needed to be in the feed, and specific genetic types that were desirable. Today, if you are a scientist who uses rats in the work, you will have to go and buy those rats from one of three or four companies that produce particular rats that are designed for particular kinds of scientific studies. Picking the rat that you find out of the sewer would actually make your results rather useless. Brady: I think what's so compelling about those two examples is that if standards play a central role in coordinating our understanding of time, and developing our knowledge, i.e., the albino laboratory rat is central for scientific study, it's not surprising that we're seeing the role of standards in all of the issues that we're addressing. What this word standard, how is it ... How do you differentiate it? How is it associated with other similar words, like regulation, or law? Laurence Bush: I think there's undoubtedly an irreducible ambiguity there. Standards, for example, may be produced. A good example would be building codes. The standards that are used in building codes are developed by the private sector. They're developed by architects, plumbers, electricians, and so on, and those are then adopted by government agencies and turned into law. There's a rather ambiguous border between standards and laws, but of course most standards are not legally required. That is to say, they're not written into law. They are at least in principle voluntary, although avoiding those standards is often nigh impossible, or extremely difficult and expensive. Even if the standard is not a legally regulated standard, it is necessary to pursue it. I think, again, I don't think there's any way you can clarify this. This is an ambiguity that's built into our behavior, so at certain times, certain things are seen as standards. For example, until recently, whether or not smoking was allowed in a particular restaurant was up to the owner. These days, in most cases, smoking is legally prohibited in restaurants, so what was a private standard, what was a voluntary standard, becomes a law. The reverse, of course, occasionally occurs, although that tends to be relatively rare, where things that were in law are deleted, and left to the product sector. The other point I would emphasize here, too, is that given the enormous amount of technology that's constantly being developed, enormous number of products, processes, services that are constantly being developed, that there is a continuing and extraordinarily important need for new standards, without which these things literally can't function. A good example would be all of the IT information that ... I'm sorry, all the IT products that are available, which require literally thousands of standards. If I developed a new super duper computer that could do many, many things that are currently unavailable on existing computers, but I couldn't plug that into the larger system, so I couldn't connect it to the internet, I couldn't make it talk to other computers, I couldn't share files and so on, it would be essentially useless. It's all those standards that allow compatibility, and what in the computer science community is known as interoperability, that make that kind of stuff possible. These are constantly changing, constantly being updated, constantly being modified as new technologies arrive. Brady: Do you see that the role of standards has changed over time? Are there more of them, or are they changing in character, or have they always been this essential means by which we construct order in the economy, or amongst relationships between people? Laurence Bush: I think there are two parts to the answer to that question. First, I think there's no question that over time, the number of standards has increased markedly. That's partially a function of the production of, mass production of various kinds of goods and services that starts in the 19th century. Once you start to produce things en masse, you wind up producing things that are in some sense standardized. Late 19th century, you see a huge movement to create publicly available standards, to do things like, for example, reduce the number of different kinds of screw threads, to reduce the number of track types that are used by trollies in the streets. You see a massive effort starting roughly in the 1880s to standardize these things in order to make markets function more effectively, but what you then see in the late 20th century is an explosion of standards, because while standards were used to standardize up until roughly the mid-20th century, and to some extent they still are, starting in the late 20th century, you also see standards being used to differentiate. The auto industry is probably the place where this first starts, if you look at the switch from Henry Ford's famous any color as long as it's black to General Motor's differentiation of the market by virtue of having different standards for different vehicles, and has of course different prices, different characteristics of different vehicles. You can also see it of course in the agricultural area, with Heinz's development in the late 19th century of his famous 57 varieties of pickles. Those varieties, each of which was standardized, and remain standardized, changed the market for pickles rather dramatically from a single product to 57 different kinds of products. Brady: Since we're heading in that direction, let's talk about the role that standards have played in the agriculture sector, and perhaps let's start with a general discussion of that, and then we'll move into some more specific questions. Laurence Bush: Standards actually played relatively little role in the agricultural sector, with a few exceptions until the 1930s. The first area where standards developed, which was really early in the century, was in the grain tray, where it became obvious that trading grains sack by sack was an extremely laborious process, and the sheer volume of grain that was being moved around made it more and more difficult to do that. Standards were developed in Chicago that allowed grain to be treated as liquid, and allowed grain to be standardized by using a certain set of characteristics, such that any sack of number two wheat was the equivalent of any other sack of number two wheat. That was a huge change in the way in which the agricultural, the wheat, the grain sector was organized. It changed the way in which people treated grain. They didn't treat it anymore as something that had to be inspected sack by sack. They treated it as something that could be bought and sold at a distance. If somebody told me they were going to sell me so many bushels of wheat of a particular grade, we could negotiate over the price, but we didn't actually have to physically inspect it after that point. That only was, that was confined largely to the grain sector, even up through until the late thirties, early 1940s. In fact, one of the USDA yearbooks in the 1940s is a long article that talks about how standards for various kinds of agricultural commodities are incompatible across state lines. They talk about I believe it was peaches, and how peaches from the state of Washington had to be removed from the boxes they were in, and regraded in order to be brought into California. This was of course enormously expensive, enormously time-consuming, and it blocked the movement of many, many agricultural commodities across state and sometimes even city lines, because what constituted, say, a grade A egg in one city might be considered a grade B egg in another city. It was very, very time-consuming. Gradually, most of this, though not all of it, most of this kind of unnecessary differentiation disappeared, and you wound up with a set of common standards for most widely-traded agricultural products. Brady: The grain was, were those initially private standards or public standards, and your book describes this distinction a lot, so maybe you can help differentiate the two of those. Laurence Bush: In the case of grain, we started off with private standards, and the problem that you had was the difficulty in coming up with ones that would be acceptable over the entire nation, and perhaps even globally. It was all too easy with private standards to claim one thing, but actually deliver something else. For example, the US has been exporting grain since even the late 18th century to Europe. By the mid-19th century, we were exporting fairly significant quantities, and Europeans complained that they thought they were getting one thing, and they got something else. Finally, in the early 20th century, the state entered into that, and the US government took standards that existed, modified them a bit, and produced a set of official, legally-mandated standards for use in the grain trade. What that meant was that if you put a label on a particular quantity of grain, whether it was a truckload, a rail car load, a ship load, and you said, "This is number two wheat," you had to be able to demonstrate that indeed it was number two wheat, or you wound up paying a rather significant fine. Brady: One of the issues that you kind of brought out there was this role of, well, private standards are facilitating trade by essentially reducing the costs of transacting, but your book argues that that is one explanation of the increasing role of standards, but that's just one dimension of it. What are the other ways that we should be thinking about the role of standards? Laurence Bush: Again, as I mentioned as implicit in the title of the book, standards are ways in which we produce realities. Today, in the US grain market, nobody thinks twice about buying and selling grain that have particular standardized characteristics, and there are no or almost no quarrels over those kinds of things. In contrast, prior to that, there were constantly quarrels about the qualities of things that were delivered. Moreover, if you want something ... Let's say you wanted to use the grain for some very specialized and unusual use. You might discover that those standards actually are an impediment to you, because it may be that the particular characteristic that's of interest to you is not measured by the standards at all. In that case, you have to basically start from scratch. You have to develop a set of specialized standards that allow you this new use, and of course, I should emphasize that one of the paradoxical things about standards, and grain standards are no different than others in this respect, is if they're constantly being revised. There are new uses. There are changes in the product itself. There are, for example in the case of grain, there are obviously genetic improvements that are made. There are improvements in harvesting equipment, and as these things take place, the standards have to be revised in order to keep up with the changes that occur in the world. Brady: I think that's a very important point that your book draws out, and I was reflecting a bit on USDA organic as I was reading the book. There was 10 years of fairly contested discussions about what would actually constitute organic. Yet most of that discussion is lost perhaps on the people who purchase organic. One issue that you raise is that these standards are kind of invisible until you are dealing with the creation of perhaps a new standard, or the standard itself is being contested. I'd like to read you a headline, and just have you reflect on it a little bit in the context of our discussion about the movement from private standards to more public standards. This is from the New York Times, July 7th article written by William Newman, and I'm just going to read you the title. Egg Producers and Humane Society Urging Federal Standard on Hen Cages. What's going on there? Laurence Bush: What's going on here is that there are already standards available. There are so-called enriched cages that have been developed, and that the United Egg Producers and Humane Society have pretty much agreed are an improvement from their vantage point over the previously-used cages. The problem is that what is happening here is that different states, California, for example, have passed laws that have different specifications in them. I think what United Egg Producers was concerned about, quite understandably, was that if you have different rules, different laws in different states, it's going to be extremely difficult to move these products across state lines. It's also going to be difficult for companies that operate in several states to operate in conformity with the law. I think part of this move is to head off a proliferation of laws that are contradictory in character. The other aspect of it is that while the majority of layer producers produce according to the standards that are currently available, that are private and voluntary, there's a still a significant number that do not, and so making this into a law is a way of ensuring that basically all have to compete on the same, if you wish, level playing field. Brady: All right. In contrast to that, I want to read you another headline about the local food movement, and your ... One of the things that we can't go into as much detail in your book is your book spends a lot of time helping you understand types of standards, and what you call a tripartite standard regime. A good deal of your book helps us break down these kind of issues, and I wonder ... I'll read you this, and I can read it to you again if it's not clear. If you might just reflect on it with respect to the tripartite regime of standards that's developed in your book, and by tripartite, you're talking about standard certifications, and accreditations. This is from the Globe and Mail, Saturday, July 2, 2011. The title is The Local Food Movement Goes National, and the excerpt I want to read you is as follows. "Local Food Plus, a nonprofit that issues its private certification to progressive farmers who conform to a tough set of sustainability and production standards written for the...
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Understanding Rural Canada - Octoboer 19th, 2011
03/14/2025
Understanding Rural Canada - Octoboer 19th, 2011
Ray Bollman discusses terms, trends, and policy issues relevant to understanding rural Canada. Transcript Brady Deaton: My guest today is Ray Bollman. He and I will be discussing issues related to rural Canada and policy. Ray has been the focal point in Statistics Canada for rural research and analysis since the 1990's. He initiated Statistics Canada's rural and small town Canada Analysis Bulletins in 1998 and there are 62 of these bulletins now available. We'll provide a URL to them on the website. Before his retirement, he was the Chief of the Rural Research Group at Statistics Canada. Hi Ray and welcome to FARE Talk. Ray Bollman: Yeah, thanks for calling. Brady: Ray, let me begin by asking you, how should we think about rural? What is rural? Ray Bollman: Well different people, we do it differently. I'm an economist, so I would look at the price of rurality and I would look at distance, density and the distance to density. And that's sort of the way the World Bank Rural Development in 2009 on Reshaping Economic Geography clearly stated the issue of regional geography as in density and distance to density. And so density then is the advantages of glomerated economies and the distance to density, there's economic distance, price and time to get there, but there's social distance and psychological distance to density. So I look at it as distance in density. Some people will talk about is as identity. So if you feel rural, even if you're living in a city, you might behave differently. I would say gee, you're facing the same relative prices in the city, whether you feel rural or not, so I don't think you'd behave differently. Maybe that's an empirical question. Brady: So for some folks, when you talk about glomeration effects being associated with the density character of urban and then lower density in rural, what are we talking about? A glomeration effects occur in urbanized areas ... Ray Bollman: It’s because it's a lower cost of people living together and working together. Firms, if they're beside each other, in much the same industry have lower cost because they have better access to specialized labor force. Their employees would go to the same church, or drink at the same bars, or curl at the same curling rinks, and over the conversation just exchange of tasset knowledge. They would just exchange tidbits on how things are done in their particular occupation or their particular industry. And if that firm was in a more remote area, that exchange of tasset knowledge's could not take place. You could read on the internet the written knowledge but the embedded or tasset knowledge that the specialized workers have, that they do not write down, just cannot be exchanged over the internet, you have to do that at the elbow of the master, if you will, and that's a big advantage of a glomerations and having both people and firms being close together. Brady: So, I guess, part of the idea, is if you're in an urban area, if you take the same person, or the same firm, from a rural area and move them to an urban area, they may be more productive. Because of the exchange of this tasset knowledge and the interactions with experts in the area. Ray Bollman: Yep. Brady: Yeah. Ray Bollman: Yep. More productive or lower cost unit output, same thing. That's right. Brady: Okay so that's part of the density issue of rural. And the distance, can we think about that, and you mentioned this is cost, takes longer to transport good and information to rural areas. Ray Bollman: Yeah, to rural areas and from rural areas. So in some sense, the high price distance is an advantage for some rural firms, cause they have a distance tariff and so you might be able to set up a business in a rural area because it's too expensive to import that service, or that facility, yeah that service from an urban area. So the distance is a nice tariff barrier. But the other side is, if you're producing something in a rural area, it's going to cost you something to ship it to the urban market. And it's going to cost you something that you're gonna have a harder time finding out how that niche, or that product, or that market, is developing and how you should change your product. If you're living in the middle of the market, you have an intuitive feel how that market is changing but if you're living away from the market and shipping it to that market, you have harder time just being with the market and I don't know ... what color you have to do, what your promotion should be, how fast you have to change your good or service. So it's just not being aware of the changing market if you're at a distance and so there's a bit of higher cost on the market research side. Brady: Now I notice in a number of your writings, and we'll makes these available on our website, but you make the point, I think it's a really important one, that rural is not necessarily low density and remote, sometimes it can be high density and remote. And talk to me a little bit about those two issues. Ray Bollman: Yeah well, and one of the papers you might reference there set up a little grid, and so two by two table, and you could be, if we think of rurality as density and distance to density, so on the table, one dimension is from high density to low density, so as you get to more low density or more rural. But some of those low density places, those small villages, could be in the commuting shadow of a big city. So some of us, if we took our spouses to these small villages that are within the commuting shadow, they would see a cow out the front window and say gee, this is really a rural place. And your kids would probably go to a fairly small school and have the benefits of a small school, but maybe the cost of a small school. But there might be benefits of a small school. If you wanted to become the editor of the school newspaper, I'm sure you could get on the committee at least. And if you wanted to play basketball, I'm sure you could get onto the team. And but your spouse would have access back to the big city for a big city job, you know brain surgeon, NHL trainer, or whatever. So if you're a small community, small density, low density community, within the commuting zone of a big place, you have the benefits, if you will, of low density, and the advantages of short distance to density. So you could go the other way on that grid, from high urban, that's big places, to high rural, which would be long distance. So you could be a long way from a metro center and have a pretty dense town or city. And maybe you think Dawson, Manitoba, or Mattawa, Ontario, or places like that 6, 7, 8. 9,000 people, you might have two high schools in those places that are very competitive basketball teams, and you'd have trouble making the teams. But it's a rural, and small town economy, a small town labor market and there'd just be no jobs there for your professional [inaudible 00:07:34]. And if you became the teacher or the principal of the school and your spouse was a dentist, there's probably already one dentist in that town and there'd just not be a job for your spouse. And they'd be too far away from the metro area to commute. So there's a fairly high density place, looks a bit urban in some sense, but no distance, long distance to a metro job. So you can have small towns close to areas, or you can have big towns away from metro areas, two different types of rural places and different types of options, different types of opportunities, I guess different types of policy options too. Brady: I think that's really important point. When I was working, in Central Appalachia from 1995 to 1997, I was confronted with this issue, that there were pockets of real dense housing in relative rural areas. And this was particularly challenging, because the issue that we were working with was trying to address sewage runoff into the river. And the primary way that was being thought about how you deal with this in rural areas, is to put in septic tanks. But in this area of Central Appalachia, where there were pockets of very dense housing, as a result we refer to them often as cole camp areas where houses were developed, basically row houses in a rural area, to house workers that were working in the mines, there wasn't the kind of space to put in a septic tank. Ray Bollman: Right, right. Brady: And when you met, often times, with people that were involved in it, their approach to the problem was, oh well this is a rural area, and the way you deal with a problem is to put in septic tanks. But the density was such, within this rural area in the sense it was remote from major cities, that the density was as challenging as any urban area. Ray Bollman: Exactly. And the general rural observation is if you seen one small town, you've seen one small town. And they're all different. And if you're sitting in the 13th floor of the metro center worrying about rural policy, the capital city worrying about rural policy, rural areas are so heterogeneous that you just can't say, well if it's rural, obviously it's low density and sparse and therefore septic tanks. Because it's just a lot of differentiation out there. But trap sets the first law of statistics, right? The within variability is always than the between variability, so the between variability between urban and rural, on average, is not very big. But the variability within rural is big, and of course the variability within urban is big. Which is to say within variability is always bigger than between variability. Brady: And I think it's also important to note, and you note this elsewhere, that if you go and you talk to residents of a quote unquote rural community, they will reflect that variation of understanding in their own discussion. So you might be in what you think is a rural community, and ask them what rural is and they'll refer to a different place in their own county as rural. Ray Bollman: Okay and it's all perception. You could be the urban center of the county and you are the urban center of the county, and I don't know 2,000, 4,000 people or something, and some of us might think, or some of our spouses might think, that's a very rural town. And colleagues at Brandon University, a number of years ago, were doing some of this, and they were asking people in the countryside, it was more of a health issue, but do you consider yourself rural, what do you consider rural? And one of the conclusions was, I think one of the conclusions was, well I think rural might not be the right word. But the other conclusion was Brandon was a rural city. Brandon was 40,000 people in Manitoba and many people decided it was a rural city. So it's perception is important, and it's not clear one should ever use the word rural, you want the local people, or the residents to define it from their point of view. That's fair. Brady: I want to move into a discussion, just about general trends, and feel free to add numbers where you like, but talking about, in general terms, will be fine I think. But before I do that, give me a historical context, or what aspects of history, maybe starting from whatever point you feel comfortable, should I understand, to think about rural Canada? And here I'm thinking about things like the initial settlements. Ray Bollman: Yes, I would observe, I guess, some of the first elements in Canada, were quite self-sufficient. But most of the history of rural Canada is people move in to export things. Labrador, wheeling stations, the cod fishery, up and down the major rivers in Canada the export lumber, the prairie wheat economy, the nickel, gold, copper mines. And so none of those towns, none of those societies were ever designed or started to be an internally, or locally self-sufficient. They were all importing food and importing goods and services and exporting generally raw commodities. So talking about a sustainable rural community is a bit difficult, given that that never really started that way. It seems to me, I've sat around meetings saying gee, what's so problematic in rural Canada. Well it seems to me, if you think of that history, one idea of the problematic is the increasing value of human times, T.W. Fultz's Nobel Prize lecture, The Increasing Value of Human Time. Well, it's one ongoing constant trend for a long, long time, that the price of labor is going up relative to many other things, certainly the price of capital. And it's good that our real wages are going up. And for rural community, well, there's such an incentive to substitute machines for people in all these exporting industries, that the exports of wheat is up, and lumber is up, and nickel is up, very few people underground in nickel lines anymore, and so on. So increased output, increases export with less and less labor in the towns of fewer people working in these industries. Now, can you sustain your former population level? Yes, but only if you find something new to export. Cause you need fewer and fewer people to export more and more, or the raise on debt to the community in the first place. And that's the problematic, in my view, is that the communities were started to export products, export commodities, you need fewer people to do it, often, there's nothing else you can imagine to export from this place, therefore the population has to go down. And that's a long run trend in Canada, certainly since the second World War. Brady: Now are there any trends in labor movements or the labor market, with respect to the aboriginal populations that you can talk about or that we should be aware of? Ray Bollman: Well certainly, the aboriginal population is younger. And so they're going to be contributing more than their share, perhaps, of their workers on the labor market over time. A couple of examples, as a baseline you might consider Yukon. In Yukon, there's about one person coming onto the workforce, per person leaving the workforce, looking out 10, 15, 20 years. So it's quite a stable demand supply situation for labor. In Nunavut, for every person retiring, there are four people coming onto the workforce, just been looking at the demographics. Much younger society, lot more people coming onto the workforce, relative to those retiring, tremendous demand for jobs, or a tremendous demand for our migration from Nunavat to someplace where there might be jobs. We could talk about, just in prairies, you probably know from just reading newspapers, the prairie population, certainly in Saskatchewan, maybe 10, 15% of the population's aboriginal now, it may be 20% in 2017, so in the south, the southern provinces, Saskatchewan is the most intensive in aboriginals. But if you look at the absolute numbers, Ontario has the most aboriginals of any province in Canada, partly because of the big northern expanse of Ontario. You go back to the demand for labor and the supplied labor coming on the market, in Saskatchewan, right now, about 20% of the new people coming onto the labor market, 20% of the population 20 to 29 years of age, 20% of them are aboriginals now in Saskatchewan, and looking out 2017, about 30% of this age groups will be aboriginal. Therefore, out 2017, almost a third of the new workers in Saskatchewan, will be aboriginal. Brady: I'd like to direct some questions now to the relationship between agriculture and rural. Ray Bollman: There's a different between the landscape and the people scape. If you fly over rural Canada, sometimes you'll see a mine, sometimes you'll see forest, and in general the airplanes are flying over agricultural land. So you say gee, everybody down there is farming. Well, back to the time of the second World War, maybe, and you got the numbers in front of you, I think maybe two-thirds of all the people in rural Canada were living on a census farm, some of them are quite small but still living on a land holding that was included in the census. And that's two-thirds in agriculture are farm, and that was including all the rural areas where people weren't mining, and forestry, and then the few in the [inaudible 00:17:52] maybe even back then. And over time, that people scape has changed. Now if you're in a rural area, maybe 10% are living in a census farm. So it's really a major change in the local politics; used to be farmers on municipal councils, and farmers on school boards and so on cause the vast majority of people in rural areas were in farming families. And a major change over time, so maybe 10% in rural areas, and therefore on school boards, and municipal councils, and buying things in town, 10% of the families are agricultural. And it's a complete change in the people scape, but the landscape still looks much the same. And so, the Windchill survey versus the fiscal survey has changed a lot. And you can imagine the culture, certainly the political culture, has changed a lot over time. Brady: You know, that's really interesting. So we think about agriculture policy, we think it's certainly probably still affecting the landscape of rural areas, but not necessarily having the same impact that it had when two-thirds of the rural residents lived on census farms, prior to World War II, on people. Ray Bollman: That's right. Back then, if you put some agriculture policy out there, it hit two-thirds of rural people. And now if you put an agriculture policy out there, it directly hits 10% of rural people. Might be a bit of a spinoff in linkage, if people driving trucks or in the truck sector, and they're shipping more commodities. But it directly hits 10% of the rural people. Brady: Now, one other thing that I note, in your article with Bill Rhymer, is that you point out that 20% of agriculture takes place in municipalities, within census metropolitan areas. Ray Bollman: Yes, those are metro labor markets and back to my distance and density thing, if you're in the commuting zone of a metro labor market, your spouse will have access to a metro type job. And that type of job opportunity means that the rural development problematic, the rural development opportunities, the rural development approach, should be quite different in the sense that you have access to non-farm jobs in larger urban centers. And that's important, and I don't know if you should be surprised that maybe 10% of agriculture is within those zones, cause that would include greenhouse, and nursery, and so on, that have a big advantage being close to big cities. Brady: Okay so we've talked a little bit about the trend of agriculture, in terms of employment in rural areas, are there other sectors that we should take note of? Ray Bollman: If you go to these rural areas and look at the numbers, you'd find that up til recently, manufacturing, in Canada, was a bigger sector, in terms of employment, that agriculture. In fact, manufacturing was the biggest sector, all depends how you split up the numbers. So the numbers in the paper with Bill Rhymer and myself, we're looking at if you can put wholesale and retail trade together, 15% of people in rural and small town areas, were working in the wholesale and retail sector. And 13% in manufacturing, and 8% in agriculture. So if we split wholesale and retail separately, then of course, poof we win, manufacturing is bigger. If wholesale and retail are together, then now manufacturing is number two. It was number one four and five years ago. So one thing Bill Rhymer and I were asking, gee, if manufacturing is such a big sector in rural and small town Canada, would you put a rural secretariat into your agriculture ministry or in your industry ministry? Just to think about that. And it was only two or three provinces...
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The Canadian Wheat Board (CWB): Assessing the future of wheat marketing in Canada. - October 20th, 2011
03/14/2025
The Canadian Wheat Board (CWB): Assessing the future of wheat marketing in Canada. - October 20th, 2011
Dr. Murray Fulton and Dr. Brady Deaton discuss the Canadian Wheat Board (CWB) Transcript Brady Deaton: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. Of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. Today, Dr. Murray Fulton and I will be discussing what's going on with the Canadian Wheat Board. Murray is an agricultural economist and a professor in the Johnson-Shoyama Graduate School of Public Policy at the university of Saskatchewan. He has a long interest in Agricultural policy and in marketing systems. He is the co-author of a report by the Economic Council of Canada titled, Canadian Agricultural Policy and Prairie Agriculture, and has extensively studied the structure and behavior of the agricultural marketing systems. Murray, thanks for being with us. Murray Fulton: Oh it's a real pleasure. Brady: Murray, what's going on. How do we start this. How do we start to understand what's going on with the Canadian Wheat Board. Keep in mind there'll be people tuning in who aren't aware of the current situation. Murray: Good starting point Brady. Here's what's going on. What we're seeing in Canada over this next year, I mean, by next summer, we will have in place in Canada a completely different marketing system for wheat and that includes Durum and Barley for human consumption, malt and barley. When I say a completely different system, I mean that in the strongest sense. What is happening is the replacement of a marketing system that, while it's evolved in some considerable ways, has retained the major fundamental structure that it acquired back in the 1930s and the 1940s. That's a mixture of an administrative and market system with Canadian Wheat Board playing a key role in that grain handling and transportation system for those grains, wheat and barley, in Western Canada. What we're going to have by next July is some kind of much more market oriented system without the Wheat Board, at least without the Wheat Board as a compulsory marketing agency, which has been the case since the 1930s. There is still a question, I'll come to this at some point about whether or not a voluntary Wheat Board might be in place. But regardless of that central role, that the Canadian Wheat Board was playing, will no longer exist. There is considerable discussion going on by farm organizations, the industry participants, these are the railways, the elevator companies, the millers, as to exactly what kind of rules are going to be put in place come next July and August. Brady: All right. One of the terms that's often used this Single Desk Selling Authority. My understanding is that that ensures that the Canadian Wheat Board can basically purchase all of the wheat and barley for export or human consumption. Is that for all of Canada or just particular provinces. Murray: The Wheat board only applies to the Western wheat growing area. This includes the grain growing areas in [inaudible 00:03:40] Saskatchewan, and Alberta and up into the Peace River area as well. Wheat growing in Ontario does not for instance, does not come under the auspices of the Canadian Wheat Board. You're right the term that is used is the Single Desk Selling. This is actually key to that central role that the Canadian Wheat Board has been playing. Just very quickly what this Single Desk means is that all farmers in the [inaudible 00:04:14] Wheat Board area are required by legislation to deliver their wheat or durum or barley for human consumption to the Canadian Wheat Board. The Canadian Wheat Board then on behalf of the farmers then markets that grain, both domestically and internationally. What the board then .... This is an additional element in its, it's not strictly connected with the Single Desk though it's grown up with it. What the Wheat Board has done for the most part then is take that grain, all the receipts from that grain that it sells and offers back to farmers a single pool price. All farmers, basis the export position get the same price. Regardless of whether the grain that the farmer delivered to the Canadian Wheat Board was sold in November at a particular price or in May at a different price or even sometime in the middle of July at perhaps at a third price, all farmers would get exactly the same price. Now, what I need to say is that, that's adjusted, the price that an individual farmer will get will be adjusted for where that farmer is located in the grain growing region. The reason is that, off of that price that the Wheat Board provides, has to come the cost of grain transportation and grain handling. Depending upon where you are and the kinds of distance you are to port, or the degree of competition that there might be between grain elevators, farmers will end up having a different deduction, one from another. Brady: Okay, I want to work through, maybe a simple example of that, but I also want to then talk a little bit about the change that's coming because as I understand the change actually hasn't happened yet. I think there's some interesting nuances there. First let me just make sure I've got it straight. If I'm a wheat farmer right now, under the Single Desk Selling Authority. Say, I've harvested my wheat crop, walk me through really quick, how I'll work with the elevator and the price that I'll receive. Again building off of what you said abstractly but say, I'm done with harvest, what happens to me now. Murray: What farmers will have done and I won't give you all the gory details, but what they would have done in spring is signed a contract with the Canadian Wheat Board indicating roughly what their planting intentions were going to be so that they said, "Well, I'm going to be roughly seeding this much wheat, this much durum, for instance and malt and barley if that's what they were doing. The Wheat Board has an indication of the amounts of grain roughly that are going to be out there. They adjust these planting intentions of course for yields that are occurring. The Wheat Board, if you like, has a basic idea of how much grain it has. It keep pretty good track of the quality that's coming in, if there is an early frost in a particular area, they know that that grains maybe marked down to a Number 2 or something like that. As the Wheat Board, as their customers come forward and say, "We need grain of a particular type." They will go out to farmers and ask the farmers to deliver on those contracts that they had signed back in the spring. They may come and say, "In November, we want you to deliver 25% of that contract that you had signed." Farmers then would deliver that grain. Here's where it's interesting. The farmers now have complete choice as to which elevator company they would like to deal with. What's happening at the same time is as the board puts out these calls to the farmers for grain, they, at the same time approach the elevator companies and have the elevator companies bid on the right to fulfill those contracts. For instance, Viterra, the largest grain handler may decide to bid on a particular amount and it is then up to Viterra to make arrangements with the railway to have sufficient cars in place. Now, the railway also has to coordinate with the Canadian Wheat Board and I'll come back to that in just a second. At the same time the elevator company has to go out and make sure it's offering the right kinds of incentives to farms to get that grain delivered, in this case to the Viterra elevators rather than to a competitor elevator. You have, what I'm calling a mixture of an administrative system with the Wheat Board providing the broad demands that the system needs to meet and then having bidding going on or ordinary market competition to actually get the operational components to fit to those macro demands. Let me just continue on that. A farmer will then say, "okay, I'm going to deliver to Viterra." They may for instance have a trucking subsidy in place that has encouraged them to go to Viterra, rather than to say one of the competitors. The farmer would deliver that. They would get, what's called and Advance Payment that pays them some proportion of what the wheat board anticipates will be the final payment due. The reason the board doesn't pay out the entire amount is that the board has to keep that contingency in place, in case the market should tank sometime in the future, the board would not be able to meet its obligations without incurring a deficit. This procedure occurs over the year, with farmers getting their Advance Payment. At the end of the crop year, at the end of, sometime in July, the board totals up all the revenue that it had obtained, divides that through roughly by the amount of grain. This is done by various classes. You'll look at a top grade versus dropping down to a second grade and so forth and each of those will be done separately. They will take that total revenue, divide by the total number of bushels or tons that were sold and come up with that average price. The farmer then will get the difference between that final price and the initial price that they had been paid. Now, often the board knows or has a pretty good sense part way through the year that they are going to be able to pay out a final price. They'll have some interim payments to farmers that get a little bit closer to that final price. Now, meanwhile, the farmer also then has to pay the elevator company and the railway for the grain that they are hauling. They will have a bill that they will pay at the elevator that will break out the amount that the elevator company is collecting for storage and handling as well as the amount that the railway has charged the elevator company to haul that grain to port. At the end of the day, the farmer gets that average kind of world price, which is the price at the port position, typically Vancouver but occasionally Thunder Bay, minus their costs of actually getting it to that location. Brady: What this typically contract, so in the absence of then the Single Desk Selling Authority, farmers would deal with the grain handling and the transportation and typically bring it to a grain elevator and then get the price on that day. Is that too simplistic or ...? Murray: Not too simplistic at all. That's exactly what will happen. Typically, the elevator company will have contracted with the railway. Once again the farmer will simply see a ... In this case they'll simply see a final price at the elevator that they would get. If they deliver the grain that day they would get that price. If they wait the next day, they'll get whatever that price is. That price is typically based off of futures market with what's called the basis subtracted off which is the difference between again, that price at the port minus all these additional costs. Brady: Now. One thing I did want to touch on because I think it's really fascinating in a real difference between what's going on in Canada in terms of this and what might go on in a similar situation in the United States. The actual change that we're talking about anticipating is occurring in August 2012. As I understand that the legislation actually hasn't come up yet. But, we can anticipate it because the current government has a majority. I wonder if in the United States, even if some say, the Democrats or the Republicans control both houses, if you would be as certain that a policy would go through, as certain as we are that this one is going through. In other words we're talking about it as it's going to happen because the conservatives have said that it's part of their policy and we expect it to go through without a hitch. Murray: Yes. I guess what I would just add to that, you're absolutely right. I think this is actually one of the real advantages of perhaps our political system in this particular case is that one of the worst things that could happen is having uncertainly over what kind of marketing system we were going to have. There is lots of debates going on in the countryside these days as to whether or not this is a good move or a bad move. Regardless if there is going to be a change, what you want to have is a situation that we have where we know that it's going to be one way or the other. This allows at least the opportunity to plan and to get expectations, at least somewhat in order before the change actually occurs. It would really be pandemonium, I think if it was uncertain as to which system was going to be in place come next August. Brady: Real interesting difference. I want to move to a little bit of the debate about the capacity of the Wheat Board to increase prices. What I'd like to do is kind of ... I've reviewed some of the literature and I think I'd like to just lay out my understanding of it and get your comment. You may feel like this isn't actually where the conversation needs to be and that's find and we can move on. When I was looking through as an agriculture economist it seemed like there was generally conceptual agreement on what needed to be done in order for the Canadian Wheat Board to actually help producers through its Single Desk Authority. That's one thing just to review is Canada is a small producer of, relatively small of, the total wheat production. Just say roughly 5% but a much larger percentage of the export market. It's like, in there it's roughly around 20%. In order to that it seems that economists generally conceptually agree that it needed to be able to discriminate between different buyers of wheat between, let's say Japan and I don't know, another major importer, Indonesia. There seemed to be agreement on that. Then, they had to be able to discriminate and then they had to be able to stop the arbitrage, which basically just means that they can't sell a lot of wheat to Japan at a relatively lower price and then they turn around and sell it to Indonesia at a higher price. Murray: That actually would be the other way around. What the Wheat Board would like to do is, and I think, has been practicing is selling, if you like shorting the Japanese market a little bit, keep the price up there selling at ... The Indonesians won't pay quite so much. They have a much more elastic demand receiving a lower price in the Indonesian market. What you don't want is, that grain going into Indonesia to find its way back into the Japanese market. Brady: Okay sure. The key is that they can give different prices and then you're saying in this case it would make ... They won't want Indonesia to ship it back to Japan. Murray: Exactly. Brady: I think in our field there's general agreement about that and that if they can do that and also ensure that their cost, let's say, of handling the grain don't increase relative to an alternative system, then they can provide benefits to producers. That was kind of the conceptual issue. I thought, "Well there's broad agreement." Then I thought from looking at a bunch of the articles and I'll make some of the links available to various articles on the website. Then, I thought well, there's few studies and they generally seem to disagree. Is that a correct characterization of again a little bit of the backdrop about how the Ag economists have tackled this issue. Murray: Yeah. Let me just take that even a little bit further, I think, Brady because you're right. This issue about whether the Wheat Board had the ability to be able to as a single seller, whether it was able to get higher prices for farmers, in part is a reflection of the situation that was in place certainly at the time that the Wheat Board was formed in the 1930s. What we have to do is cast our minds back to the debates that were going on, not so much actually in the '30s but in the '20s. The farm movement in Western Canada at that time had prior to the first world war had dealt with what they thought was the immediate problem, which was a lack of competition amongst the grain elevator companies. One of the major concerns by farmers say in 1900, 1905 was that they were getting squeezed on the amount that they were being charged for just handling that grain. The fees that they were paying were too high. There was also concerns about the power that the railways had and the prices that they were charging and the access that they were making available. The farmers responded to those problems by creating a whole set of elevator cooperatives. These were by province and some of them were Pan-Western Canada with the consequence that by the beginning of the war, there was a consensus, I think that, that problem had been addressed. Then there was a hiatus with the war and when the world came back to normal commerce starting in the 1920s the problem that the farmers saw themselves facing was no longer the same one that they had before the war but, it was a different one. They now felt that they weren't getting as good a price on the world market as they should be getting. They felt that there was, if you like, some market power being exerted. They were having their prices depressed, even at the same time that these companies were turning around and getting a very nice price on the world market. Classic case of both monopoly power that relative to the farmers and then these traders having some monopoly power on the world market. The precursor to the Canadian Wheat Board was actually a voluntary marketing system established by three of the cooperatives in Western Canada, what eventually ended up being called the Three Prairie Pools, one in Alberta, one in Saskatchewan, one in Manitoba. They formed something called the Central Selling Agency where they agreed to take all of the grain that they were handling through their elevator systems. These are the same elevator systems that had been established earlier, and market that grain centrally on to the world markets. At that time, the major market was Liverpool. That scheme was in place for about four years or maybe three. Then it collapsed, with the collapse of the stock market in 1929. What happened was that the Central Selling Agency and then these co-ops had made promises to farmers and in fact had given initial payments to the farmers, worth X amount and all of a sudden, the world price had fallen dramatically below X and They weren't able to cover off these ... They weren't actually able to raise the money that they'd already committed the farmers. They essentially had a debt on their hands. The Board then was actually ... The first Canadian Wheat Board was actually created by government to take ownership of this grain that the Central Selling Agency had accumulated and to dispose of it in the world market. This of course was in the 1930s. One of the things that the Board did at that time was to dispose it in some kind of fashion that didn't aggravate the already very, very weak prices that the world was seeing at that particular point in time. I say all of this because this was the environment and the mindset that the wheat board was then, when it was finally created in 1935 and then again reaffirmed in the 1940s that this was the mindset that farmers had that the board was a vehicle for getting additional market power and for practicing price discrimination of the kind that you so nicely described. That view continued and I think for those of us who are interested in how marketing systems work, this is a great example where norms and, if you like institutions, get established. They're very hard to get rid of. Because this view actually prevailed then up until, I think roughly about 10 or 15, 29 years ago. Interestingly it was still prevailing in the 1980s when there was actually a...
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The Origins, Nature, and Content of the Right to Property: Five Economic Solitudes - February 15th, 2012
03/14/2025
The Origins, Nature, and Content of the Right to Property: Five Economic Solitudes - February 15th, 2012
Dr. Glenn Fox and Dr. Brady Deaton discuss Glenn's longstanding interest in property rights and his recent publication in the Canadian Journal of Agricultural Economics. Transcript Dr. Brady Deaton: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton, Jr., of the Department of Food, Agriculture, and Resource Economics at The University of Guelph. I'll be your host. Today, Dr. Glen Fox and I will be discussing his long-standing interest and research on property rights. Glen is an agricultural economist at the University of Guelph. He was recently honored as a fellow of the Canadian Agriculture Economic Society and his fellow address, recently published in the Canadian Journal of Agriculture Economics. This address will be linked to this podcast. Glen, welcome to FARE Talk. Dr. Glenn Fox: Thanks Brady. Brady: In your paper, you point out the many long-standing controversies in agriculture and natural resource policies are really debates about the nature of property rights. That's the issue that I want to tackle in today's podcast, but before I do, I wonder if there's some kind of story or anecdote that you can give that kind of sets the stage for our listeners. Glenn: I started working on this topic about 20 years ago, actually, Brady, with one of my master's students named Mike Ivy. And Mike and I were interested in a topic which had become sort of visible or had emerged in importance in the late 1980s, in the early 1990s on the question of when or under what circumstances does a regulation become so costly or so burdensome to a landowner to become the equivalent of a taking, to become tantamount to expropriation. And so we started to read legal literature, economic literature, read some case law, and we very quickly were confronted with a paradox. And the paradox was that most of the literature, whether or it was being written by economists or by lawyers or by political scientists or ethicists, dealt with a small number of cases typically that had gone to the U.S. Supreme Court. They used apparently the same words and concepts, but when they got to the punchline, this critical question, does regulation constitute a taking, the answers were all over the map. And we had a great deal of difficulty figuring out why when there's only so many cases and they appear to all be using the same words, that the interpretations or the conclusions could be so divergent. And after staring at this for a while, we realized that there was something else behind the scenes. And the something else behind the scenes was that each of the authors was invoking a different theory of property rights. And initially we identified three different theories of property rights. Subsequently, we've refined that and now have a list of five theories of property rights that I think exist in work that economists do, but also that legal theorists do. And the five are: classical liberalism, pragmatism, utilitarianism, legal positivism, and then modern libertarianism. Brady: Now in the regulatory [inaudible 00:03:10] situations in the United States there's this reference to the Constitution. So, the Fifth Amendment of the Constitution. In the Canadian context, is there something like the Fifth Amendment there? Glenn: That's a good point. The reason that this word "takings" came up, the reason it's in this literature is because of the one clause referred to as the "takings" clause in the Fifth Amendment to the U.S. Constitution. There is no equivalent to a "takings" clause in Canadian constitutional law. There is another paradox and this is still something that puzzles me today and I don't have a good answer to this is that while there is a "takings" clause in the U.S., there is not a "takings" clause in Canadian constitutional law. The practice has generally been in Canada, when regulations have been found to be excessively burdensome that property owners were compensated whereas the practice in the United States under "takings" clause has been generally that property owners have not been compensated when they've subject to certain types of regulations. So that's a bit of a mystery to me, but - Brady: I mean I think one of the [00:04:18] in our area, one of the things you hear referenced a lot is this Crow rate subsidy. And that's an example of where farmers or landowners were ultimately compensated for the fact that their guarantee of basically lower shipping rates was taken away by an act. Is that something that comes up in your understanding of this topic and kind of contrasting the U.S. situation with Canada? Glenn: I think that's a related development, but it's really somewhat different from the regulatory takings. In the case of the Crow rate, which were these grain transportation subsidies off the prairies, those subsidies meant that the price of grain at the farm gate in the prairie provinces was higher than it otherwise would be because essentially those farmers were price takers so whatever price they got was the world market less the transportation cost. If the transportation was subsidized then their price went up. So grain farmers had a higher price. Livestock producers in the prairies were at a disadvantage because their feed costs were higher. So when the decision was made to phase out these Crow rate subsidies, there was compensation ultimately that was paid to farmers because of this sort of entitlement that had emerged, particularly to grain farmers. They had that built into their cost structure and really, I think for sort of reasons of political expediency, the government said, "We need to get away from this policy and we recognize that there are people whose livelihood has been helped by this policy and who will be hurt when we take it away. But we're going to take it away so we'll compensate them for that. The regulatory takings issue is really something quite different and maybe an example of wetland policy, might be an example. So you think of a farmer who's got a wetland or a marsh on his or her property. Then there's some policy measure that designates that as some sort of protected area under a wetlands protection policy. Once that designation is imposed, then that restricts what the farmer could do. Up until that point, maybe the farmer could drain the wetland and turn it into a mock gardening agricultural operation. Well, now that option's off the table and the farm is arguably worth less than it would have been, because the option to do that has been removed. And so the farmer might say, "My farm was worth a million dollars before and now it's worth half a million dollars. I need to be compensated for the imposition of that regulation to protect the wetland on my farm. Brady: So just to make sure I've got it straight. In Canada, if the government compulsory takes the land, actually takes it, then there's the tradition of compensation. But if the question or the line that you've been kind of working on is when you change the economic value or the market value of something through regulation, then at what point does that constitute something that should be compensated for? And of course that's the big debate in the U.S. literature examining Supreme Court decisions. And it's still [inaudible 00:07:35] your observation of things that are going on in Canada. Let's take a couple of cases that you think - That you cover a number of actually applied situation in the Canadian context to examine the origin of property rights and how that helps illuminate the controversy around different natural resource issues. Let's take a couple of those and maybe just illuminate this idea of the origins of property rights being very helpful in illuminating aspects of that controversy. Glenn: Well, one of the examples that I understand you've done a previous podcast on this subject already, but- One of the long-standing controversies in Canadian agricultural policy has to do with the Wheat Board. And under the framework developed by federal legislation for the prairie provinces, producers of certain types of grain had to sell that grain to the Wheat Board. It was called a [inaudible 00:08:30] selling agency. It was the monopoly buyer that was then tasked with the job of marketing that grain, particularly to export markets. There are numerous sides to that debate, but I think two of the sides that I think illustrate these different property rights are on the one hand, some farmers and some agricultural economists and some people at the Wheat Board argue essentially a utilitarian theory of property rights. And the utilitarian theory of property rights says that an arrangement, a policy, an institution is a good policy or a good institution if it maximizes the sum of utilities in some net sense, it maximizes the net benefits for everybody that's affected by the action. So the utilitarian pro-Wheat Board argument would be that farmers on net gain, even though they've had this restriction on their ability to sell grain to any customer that they choose because of the operations of the Wheat Board. Because of counter[inaudible 00:09:41] market powers or economies of size or scale or whatever. And so there's a net gain even though some individual farmers might be disadvantaged. And so that would be the utilitarian perspective. Brady: You know, in the previous podcasts we discussed this a bit and we look at our own profession, agriculture economics and its debate about whether or not the Wheat Board was able to increase net returns to farmers. And so that would be an example of our literature, would you characterize as being kind of utilitarian in origin? Glenn: Yes, and when I'm saying that there are these different theories of property rights, it's not to say that there aren't what I'll call "intermural contests" within each theory of property rights as to whether or not a particular policy or a particular action is a good one or not. And certainly in the agricultural economics literature there have been some researchers have said, "No, there is not a net gain in utility," and others have said, "Yes, there is a net gain in utility." But what's common to all of them is the utility scale and this idea of adding up the benefits accruing to the winners and subtracting away the harms imposed on the losers and coming up with some sort of net calculus from that. An alternative perspective, and I think that some of the farmers in Western Canada who protested and some ultimately went to jail over the Wheat Board's monopsony on grain purchases took more either a classical liberal or a libertarian point of view. And their argument went something like this. "We own our own labor. We own the land. We own the equipment. We bought the seed. And it was the combination of all those things that we own that went into the production of the grain. And now we own the grain. And one of the prerogatives of ownership is we should get to choose to whom we sell the grain." And having an institution like the Wheat Board, utility calculations notwithstanding, is a violation of a property right that a modern libertarian or a classical liberal would say, "Because I produced it with my inputs, with my resources, with my labor, then I should have the prerogative to sell it to whomever I choose. And therefore the institution is a violation of those property rights." And unfortunately, those two perspectives kind of pass each other like two ships in the night. We talk past one another, failing to recognize that they're fundamentally different ethical theories, the fundamentally different property rights theories that are involved in the controversy and we end up with these skirmishes about your utility calculations versus my utility calculations versus my rights and somehow we're not really understanding what's at the core of the disagreement. Brady: That's interesting because in some cases there could be a convergence. In other words, you could do a utility calculation and at the same time, it could be consistent with the libertarian. But also there could be divergence and in this case, there was a divergence between those two. And I think you're right that we often don't spend time looking at the nature of that controversy in the articles that we write. Glenn: Certainly the five different theories that I've enumerated earlier can reach the same conclusions under some circumstances. But I think it's important to be clear on the process through which we're reaching our conclusions, because I think a lot of the times when we disagree, it's not clear why we're disagreeing. Obviously, there're easy cases. If all the theories point in the same direction, then there's usually not much of a controversy. There's not much of a fight. Brady: But that's interesting because that's almost like there's this [inaudible 00:13:20] ethical superior situation and if you can get all of the ethical theories kind of coming together, then you can argue at least- That's an interesting point. Glenn: But you have to be lucky. That's kind of like winning the lottery, right? It's a wonderful outcome if you can get it, but in a lot of practical cases, we don't have them line up like that and the different theories will give us quite different answers. Brady: Now that's the utilitarian position versus the libertarian position. Are there other parts of the theories that fit into this example? Or maybe it makes sense to go on to another example if you want to illuminate the other- Glenn: Well, another example that's gotten a fair amount of attention in Ontario and in some other jurisdictions is the question of raw milk consumption. And most milk goes through a pasteurization process, but there are some people for a variety of reasons that would like to have- To be able to consume raw milk. Brady: So pasteurization, we're just basically heating up the milk to kill certain bad things, bad bacteria. Glenn: And sort of the long-standing public health argument, which essentially is the utilitarian argument says that there's a net gain in utility, there's a net benefit even though it does impose some costs. There's a net benefit to pasteurization and everybody should drink pasteurized milk. And there's also a legal positivist argument that says that currently, in the province of Ontario and in many jurisdictions, it is illegal for a farmer to sell raw milk commercially to a customer. So there's a legal positivist argument that says that's what the law is and so that should be what is followed. But there's a case very similarly in Ontario where a farmer- Let me back up a little bit. Because one of the important aspects from a legal positivist point of view is that there is an exception to the rule and the exception is that a farmer can drink raw milk from his or her own cows. And that's a long-standing exception, but you can't sell it to somebody else. There was farmer in Ontario and he introduced what was called a "cow share" program. So that people who were not part of his family could buy shares in a cow and then they were cow owners and he argued that they would then be eligible to drink raw milk from the cows that they owned as a cow share in this cow share arrangement. And there was a court case about that. And that court case is going to be appealed, apparently, to higher levels. The farmers and I think the cow share owners who've generally been unsuccessful in making this case that they're trying to make tend to come at it more from what I would call a classical liberal or modern libertarian point of view, which goes back to this ownership. "I own my own body, I own my own cows. I can go into a contractual arrangement with somebody else to share cows. And if I choose to consume milk from my cows that's unpasteurized then that's my business and it's not anybody else's business." The utilitarian public cow argument tends to hinge on this estimation or calculation of net benefits. So there will be costs to non-pasteurization of maybe diseases and those diseases would have to be treated and so by pasteurization we eliminate that and save those costs. Brady: One of the things that comes out of your paper is this discussion of legal positivism, which has always been- We've talked about this before. I'm always interested in this issue where ... I think to a legal positive they might define property as the word given to a protected set of interests. So I'm just thinking of phrases from someone like Warren Samuels who might say, "Property is protected not because it's property, but it's property because it's protected." And in our discussions, you've always had a somewhat different, I think, perspective than that. And I wonder if we can just talk about that a little bit. Glenn: Well, I think that's a very good recapitulation of legal positivist theory of property rights and that is that legal positivism and I think pragmatism and utilitarianism characterize rights in general as political. And that is, people have rights because the legislature granted them those rights. In contrast with classical liberalism or modern libertarianism which tend to view rights as pre-political. That is, you have rights because you're human not because a legislature or a king or some other political organization declared that you had those rights. But certainly legal positivists say that your rights are whatever, in the Ontario context, whatever the legislature says they are. And if you can point to chapter and verse in current statutes and laws in Ontario that say you have a particular right, then a legal positivist says you have that right. And if you can't point to that chapter and verse then a legal positivist would say that you don't have that right. Sometimes legal positivists use the term "presumptive right." Which is, you think you have a right, but in fact there's no legislative authorization that declares that you have that right, therefore it's presumptive. You don't really have it, because the legislature hasn't granted it to you. Brady: And how does that contrast with the Lockean or the natural law position that you talk a little bit about in your paper? Glenn: The classical liberal and the modern libertarian views tend to be based on natural law, which views rights as pre-political, which is you have rights because you're human. And that would exist even if you were the only human being on the planet and there was no organization called a government or a state or a legislature or what have you. And so those are rights that we acquire by virtue of being human. Because we exist, we have these rights. John Locke was one of the leading proponents of that particular view of the origin of human rights. And then he devoted quite a bit of attention to an explanation of how these rights become rights to property, which is a claim of authority over something in the external world, external to my body. So if I say I have a property right in this pencil, that's something in the external world, I'm claim authority over this pencil, by virtue of Lockean rights claim. Brady: So when we look at- You've given two examples we could talk about agriculture zoning or things like green belts. All of these things tend to influence the debate by discussions about whose right is it to decide how property should be used. Do you see, coming from your own research and your own experience and your paper, do you see a research agenda or an extension role for academics or even maybe for government people in using the kind of work you've done or plan to do to illuminate the issue further? What should a graduate student...
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Farm Succession Planning: Reflections and Suggestions - May 11th, 2012
03/14/2025
Farm Succession Planning: Reflections and Suggestions - May 11th, 2012
Jennifer Stevenson and Dr. Brady Deaton discuss farm succession planning. Jennifer is the Business Finance Program Lead with the Ontario Ministry of Agriculture Food and Rural Affairs (OMAFRA). Transcript Brady Deaton Jr.: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton, Jr. of The Department of Food, Agriculture, and Resource Economics at The University of Guelph. I'll be your host. My guest today is Jennifer Stevenson, she works for The Ontario Ministry of Agriculture, Food, and Rural Affairs as The Business Finance Program Lead. She is very involved in supporting farm tax and business seminars, as well as ongoing efforts to enhance the capacity of farmers to develop succession plans. Jennifer, welcome to FARE Talk. Jennifer S.: Thank you. Brady: I recently heard you speak in Fergus about succession planning, particularly as it relates to the agriculture sector, and it was really interesting to me. I hadn't read that much research on it, but I was aware of the issue, and I was hoping that we could explore that in today's conversation. So, just to kind of get the ball rolling, talk to me a little bit about your role with the ministry in looking at succession planning? Jennifer: Actually it's a recent role that I've taken on, as one of my colleagues went to a different role. But what I'm seeing in talking with producers and producer groups, is that succession planning is definitely top of mind. There's a lot of concerns, and there's concerns most on the technical side, because there's obviously some tax implications, but also on the human dynamics side. A lot of people have, shall we say, a reluctance to talk about the human dynamics problem. So what I try to do is demystify that, bring it right out on the table, let's talk about it, and having them recognize that they all really share the same kind of problems, and also to find some solutions, maybe sometimes some out of the box solutions, to those problems. Brady: Breaking down this whole idea of succession planning, when I hear it talked about and when you talked about it, there always seems to be two kind of components to it. The succession planning, which is about the business of farming, and passing that to the next generation, and the estate planning. Are those important or what do I need to understand about those two? Jennifer: Yeah. I don't know if you remember when I actually gave that seminar, but one of the things I said right off the top is you've got to separate wealth from income, because the thing about farming is that most farmers actually live where they work. So, their wealth is actually tied up into their business, as well as their home, and a lot of that wealth has been accumulated on what I call an emotional basis. Meaning, that's where you've raised your kids, that's home, that's comfort. So, what you have to do is be able to separate the business assets from those emotional or home type assets. Look at what's really generating income, as opposed to what's accumulating wealth over the course of the business? If you take a look at farm wealth in particular, I mean let's be honest here, we'll talk about land assets. They have tended to appreciate to a higher degree than has the S&P 500. So, there's been a fair accumulation of assets within the agricultural community. So, you're talking about a substantial amount of wealth that's been accumulated, so when you're looking at the next generation coming in, you have to ask the question, "Are they ready to take over the wealth? Are they capable? Are they able to get financial backing?" Let's say from a traditional source, let's say from a financial institution like a bank or whatever. If they're not, what do you do? Are you able just to gift it? Or, do you have to look at some other scenarios? I think that's the big problem out there. Brady: Right. So, I mean, and then that probably gets into the emotional sensitivity. If you think about a farmer thinking about a succession plan, but also thinking about how they're going to deal with their estate, or bequest their estate, and they're looking at land as you mentioned, as one of the big, if not the biggest item, they're often dealing with children that are both active potentially on the farm operation, but then often times a lot of children that aren't on the farm. Jennifer: Well also, what you're talking about is protecting assets, because we take a look at the divorce rate of being 50%, they're also looking at protecting assets from divorce. I mean, let's be honest. If you've built up this emotional capital that you've put a lot of blood, sweat, and tears in over the years, it's really hard to envision that this is going to come apart. So, you're absolutely right. There's a lot of investment, a lot of thinking, and some people just don't even want to deal with it. They just want to avoid thinking about it. But understanding that avoiding doesn't make the problem go away, so we have to try and think of a way to get people at the table talking about these issues honestly and openly. And also bringing their stakeholders within their family, and the potential stakeholders, so that they can put these issues or ideas in a gentle sort of way, but one that will get everybody not at a perfect result, because I understand that succession planning is not a perfect process, but at least something that a compromise that everyone can live with. Brady: One of the issues that was brought up there was a great site and I'll provide a link to it. I'll provide a link to your sites on OMAFRA as well, as links to the site I'm about to mention, which is the [Burmont 00:05:43] Extension Program, but they talk about one important aspect of farm succession planning, is these farm business agreements which in one way or another have to account for the five Ds. Death, disaster, disability, divorce, and disagreement. Jennifer: Absolutely. Farmers have a tradition of, "My handshake is my word" so a lot of it is changing the culture to recognize that, hey, this is a business. You are the CEO of your business, so we have to make things formalized. The nice thing about formalizing an agreement is it takes the emotion out of it. So, putting things on paper, having people sign agreements is a way to be able to secure your assets, in terms of you know exactly what your rights and responsibilities are, as well as the other person's rights and responsibilities. Again, it comes down to getting that culture shift in people's minds. Brady: Well, let's take a scenario that I imagine is out there where a farmer is in a sole proprietor situation, but they have several children. One of them who may have a handshake or an informal agreement, that they'll get the farm. If that isn't written down, and the person were to die without say a will that guaranteed the land to the individual, then I imagine that person is no longer, despite the fact that there was an informal agreement, that that informal agreement is not the formal agreement that actually occurs, and that person's in a whole heap of trouble. Jennifer: Oh, yes, yes, yes. When I give any kind of workshop on succession planning, I say, "Hear this. If hear nothing else, hear this, that if you die without a will, what you're doing is handing over control to a person you've never met to make financial decisions on your behalf." So, it's extremely important to have a will. Also, if you're planning on bringing kids into the business, why wait? Bring them in as soon as you possibly can, and bring them into financial discussions. Bring them into the bank, bring them in when you have a discussion with your accountant. It's incredibly important to have that level of commitment and allow them to establish a level of commitment in the business. Brady: I know land is interesting to us both, and land is so expensive, and in a lot of places in Southern Ontario, its value is not only reflective of its farm productivity, but also of its potential future non-farm activity, which makes it hard for the next generation to actually maybe afford the land at its market price. How do people account for that in their succession planning? Jennifer: Yeah, I mean you're talking about extrinsic versus intrinsic value, and again, it comes back to wealth versus income. You've got to make sure that you can provide yourself with an income before even looking at your business plan. Make sure that the idea at the end is that there's going to be enough income to be able to provide for your wants and needs. The other thing to remember, too, is that we've been I think lulled into a certain level of complacency that the level of interest rates right now are so low that looking at the future, are they going to be this low in the future? Might not be, right? Just looking at the past, and in fact, I was talking ... Sorry, I was listening to Dr. David Kohl who had a presentation yesterday about this issue. Said that what he called normal interest rates were only about 6 or 7%. So, if you had for instance, a mortgage at 2%, and it went to 4%, you're actually doubling your interest expense. So, I think a lot of kids coming in, or young adults coming into farming right now have to recognize that these interest rates that we're seeing right now are not "normal" interest rates, and that if they go to refinance in 5-10 years, they have to consider what that interest rate will likely be. Brady: So, in terms of succession planning, I guess there's two ends to this. The first end is if you're the current owner looking into the future, trying to either asking yourself what you're going to do with your land, whether you're going to give it to your children or whether you're going to sell it, one of the challenging is how are you going to provide for yourself in your retirement? That's the one end, so I'm retiring, what do I do? How do I pass on this farm business? Am I going to get some share of the farm profit? Am I going to get some rent? Am I going just to hand it over? Am I going to get a job off the farm? But then the other is if you're a child and you're about to inherit this portion of land it's, "Can I really make this farm business operation meet? What is the quality of the assets I'm about to inherit, the non-land assets? Am I going to have to make major investments in barns?" So, I guess when you put that business plan together and the succession, you've really got to have both ends of that worked on, and failure to do that really probably makes it very difficult for the farm operation to continue, and probably leads to a lot of conflict amongst family members. Jennifer: Well, conflict yes, and that's another thing I say to people is have a disaster plan, or emergency plan in place. Because yes you can plan, put a succession plan in place, or plan to have a succession plan, but what happens if something happens? You have a medical emergency or whatnot, that the person who's currently running the farm is no longer able. So, it's important to have a long term plan, but also have an emergency plan in place, yeah. Brady: Now, one of the things I noticed on your website, and it seems to me really important when you're dealing with trying to plan for how you're going to pass land down from one generation or own it, what form you want to own it, is a discussion of capital gains taxes. I think you mentioned it's the question you get the most often. What are maybe capital gains 101 and relate that to succession planning, if you wouldn't mind? Jennifer: Okay. So, again, it comes down to being able to either pass your assets to the next generation or to sell them outside of the family. What you're looking at is the value at which you acquired them, so let's just say you acquired, I don't know, a farm at a million dollars. You sold it for two million dollars, so the capital gain would be the two million dollars at which you sold it for, minus the million dollars that you acquired it for, meaning net a million dollars. So, the Canadian Revenue Agency has a capital gains exception of $750,000 for qualified farm property, so in this case, there would be an exemption of $750,000. However- Brady: Now I'm paying capital gains on 250,000, instead of, if I- Jennifer: Correct. So, but the thing to remember, too, is that is qualified farm property. There's a whole bunch of rules that have to be adhered to, so it's good to talk to someone who's a financial professional or an accountant who's familiar with farm property if you're [crosstalk 00:12:55]. Brady: I guess then there's situations then where the way I put my succession plan or make a farm plan agreement, that could jeopardize the ability of that land to be qualified property? Jennifer: Absolutely. Cause I'm certainly getting a lot of calls recently from kids of farmers who they think that their parents were farmers, but in fact they were just renting out land on farm property. They're saying, "Well, do I get the capital gains exemption?" And the way that the rules work is renting out farm property's actually not considered farming income. So, in that case, it would not be qualified for the capital gains exemption, so it's pretty important to understand what the criteria is to be able to be eligible for the capital gains exemption. Brady: Are there any, in terms of choosing the business entity, as we think about a succession plan, so I'm a sole proprietor, I can maybe move into a partnership with my children, I guess there's limited liability relationships, and there's corporations. How does that figure? Have you got any thoughts on how the business ... Is the choice of business entity a key aspect of the succession planning, or? Jennifer: I wouldn't say it's a key aspect, but it's definitely something you should think about if you're a sole proprietor, and you want to pass the farm onto one of your kids. Certainly you want to think about business strategy or business structure. You want to think, "Well, do I want to bring the child in and perhaps transfer some of the assets to them in a partnership? Do we want to establish a corporation?" The thing to remember is that there's tax implications on each of the business strategies. For instance, in a partnership, you have to declare all of the income. You have to actually take all the income for the year, whereas in a ... For a corporation, sorry, what you can do is defer some of the income. I'll give you an example. Let's say a farm makes $100,000, okay? And you had two partners, each with 50% partnership. Each of those partners would have to take in $50,000 of income. However, if it was in a corporation, and that corporate farm made $100,000, the farmer would have a choice to take a salary of 0 to $100,000. So there's a little bit more flexibility in terms of how much income you could recognize in a corporation, as opposed to a partnership. But what I say to farmers thinking about this is don't just look at the business structure, and don't just look at the taxation aspects of it. What you have to look at is what you're trying to do with the land down the road, because in a corporation for instance, it's a lot more difficult to be able to realize those capital gains exemptions, because a corporation is not eligible for the capital gains exemption. Only an individual is. So, what you actually have to do is sell the shares of the corporation in order to be able to get that capital gains exemption. Again, there's things that people have to be aware of and it's important in your decision-making to bring some of those financial advisors or accountants, bankers, whatever, into the conversation so that you're well aware of all of your opportunities or all your choices out there. Brady: What are the expertise you want to bring to the table? What are the ingredients of putting together a good succession plan in terms of people? Sounds like an attorney is needed. Jennifer: Yep. In a lot of cases, an attorney. Certainly if you want to get a will together. You probably want to talk to your accountant, be able to get things like cash flow statements or projected cash flows. You probably want to talk to your banker to see what sort of line of credit, or what sort of credit can be extended to the next generation. Again, you might want to talk to some farm advisors to see if there's any way that you want to look at some of the scalability of your existing farm, and any expansion potential or changing in farming practices, to be able to accommodate the next generation. There's a whole host of people potentially you can bring to the table. Brady: Now, from your experiences or from talking to people, it seems to me like one big scenario, and we talked about that earlier, is a situation where you have one child who wants to work on the farm, but you have all of these other children who may not, and then you're trying to deal with the ongoing farm business versus selling the land and dividing up the proceeds from that. Are there any kind of ways you've seen people creatively deal with that issue? Jennifer: Yeah. Well, one of the things I do mention is that you don't have to be equal to be equitable. So, you can look at things like for instance, insurance might be one way. I heard of one farmer in Eastern Ontario who decided that what he would do is give his children who didn't want to participate in the farm each $100,000 as kind of a kick-start to their careers or whatever, and that the child who'd stay on the farm would actually get the farm assets, and they would also get some sort of assets when the parents both died. So, there's different ways of looking at it. There's also some trusts that could be set up to be able to pass down some of the farm profits to non-participating children. Again, it depends on what the parents want to do, how much the parents want to be equitable or equal. It's also tough when you have the interests of spouses of kids who suddenly come to the table and might not have the same values as the kids or as the farm family. That's what I talk about, is that a lot of times it comes down to ... How should I say? Accommodating different people's values, and how much you want to be accommodative, how much you want to have peace. Because for a lot of people, having that Sunday dinner with everybody around the table is really important. So what I say is, can you put a price tag on that? Are you prepared to put a price tag on that? So, those are the kinds of questions you have to ask, because again, there's an emotional component to it that you can't necessarily integrate as you would with other types of businesses. Brady: So, you mean that the harmony that whatever your decision has to be, if there's not harmony there, then it can really come back to bite you and you may not be having Easter dinner in a year or two together. That's quite a challenge, isn't it? Jennifer: It is. Brady: I guess the temptation would be just to put it off. Jennifer: Well again, that's a huge temptation, right? But the temptation of putting it off can be offset by saying, "You know what? If you don't control it, somebody else will control it." So, it's a good idea that at least you try to work it out, and no, it's not going to be perfect, and yes, it's probably going to take a lot of time. It might even take a few iterations, but it's worth the effort. The important thing is to get people around the table as soon as possible. Meaning that at least people, if they feel like their voice...
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Does Dutch Disease Explain Canada's Manufacturing Woes? - June 14th, 2012
03/14/2025
Does Dutch Disease Explain Canada's Manufacturing Woes? - June 14th, 2012
In this podcast Jeremy Leonard and I discuss a paper that he and his colleagues - Mohammad Shakeri and Richard S. Gray - recently published through the Institute for Research on Public Policy. The paper is titled, "Dutch Disease or Failure to Compete? A Diagnosis of Canada's Manufacturing Woes," and is available for download. Transcript Brady Deaton Jr.: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton, Jr. of the Department of Food, Agriculture, and Resource Economics at the University of Guelph. I'll be your host. Today my guest is Jeremy Leonard. Jeremy is a research director at the Institute for Research on Public Policy. He and his co-authors, Mohammad Shakeri and Richard Gray, have just recently released a study titled, Dutch Disease or Failure to Compete, A Diagnosis of Canada's Manufacturing Woes. Jeremy, welcome to FARE Talk. Jeremy Leonard: Good to be here, Brady. Brady Deaton Jr: Jeremy, before we start, talk to me a little bit about the Institute that has published this study. Jeremy Leonard: Sure, I'd be pleased to. The Institute for Research on Public Policy is a national think tank based in Montreal, Quebec. We're just celebrating our 40th anniversary this year. We were created in 1972 as an independent think tank. We don't have members and we do not have supporters. We're supported by an endowment fund, which basically allows us to produce studies that are evidence based, and try not to take ideological or political sides in debates. Our role is really to inform and spark debate; pose the questions before we come up with the answers. We study a diverse array of issues including economic issues like the one we're going to talk about today, as well as more social issues like immigration, aging, and a whole host of other issues. Brady Deaton Jr: All right, and I should say that we will link the listeners up to your site so that they can download this study if they want to read it more fully. Let's start off just by impacting your question. The paper's question, Dutch Disease, or Failure to Compete. What generally is prompting this question? Jeremy Leonard: What's prompted the question is two facts over the past several years that are undeniable. One is the fact that the Canadian dollar has strengthened considerably over the last five to six years, going from about 60 to 65 cents to parity today. That's a fact. Another fact is that the manufacturing sector has been shrinking in Canada over the past five, six, seven years. That shrinkage started happening well before the recession, and it happened at the same time as this appreciation of the currency. There's a natural question because the issue of the Dutch disease is really just that. The one, appreciation of the currency, causes the other, problems in manufacturing. We're clearly seeing these two things happening at the same time. We thought it was important to sort of dig a little bit deeper on the question, is one really causing the other or are they both happening at the same time for some other reason that we haven't taken account of. Brady Deaton Jr: One of the things that I was trying to work through in kind of preparing for this podcast, was a better understanding of exactly this term, the Dutch disease. When you first hear it, it sounds like it's something that's damaging to the economy overall or having some kind of miserating effect on the economy. But, in wading through it, and I'd like to get your thoughts on this, it seems more like an effect than a disease. What are your thoughts about that? Jeremy Leonard: The term Dutch disease comes from Holland as the name suggests. There were discoveries of natural gas off the North Sea off the coast of Holland, and that created tremendous demand for those energy resources. That energy demand can be a good thing for an economy because it brings in dollars; it increases exports; and a whole host of other things. One of the things it also does it that the people who are interested in buying these resources are using Dutch currency to do it and it causes an appreciation in the Dutch currency which did raise the cost of exports to Dutch manufacturing exporters. And, in fact, the Dutch manufacturing sector did decline considerably. You could argue that the term Dutch disease is really an effect of something which can at the base have some positive effects. Since then, the Dutch disease has come to be a convenient shorthand to say, it's the exchange rate that's causing problems in the manufacturing sector. In some sense, in Canada, you can say the same thing about the developments of the oil sands. People can have different opinions about these aspects of it, but one thing that's absolutely clear is that it has brought very large amounts of money and economic resources into the country from the many other countries who are demanding these energy resources. That still leaves us with the question that we try to address in this study, which is, to what extent does that boom and those economic good times for the energy sector by force mean economic bad times for the manufacturing sector. That was really the goal of the study. Brady Deaton Jr: Right. So, it's not, isn't bad for the economy. The whole idea of your paper as I read is really focused on this effect on the particular sector, in this case manufacturing. So, is there a negative relationship between a resource boom and manufacturing output. That's really what's going to drive the research that we're going to talk about. Talk to me a little bit about the theory, the abstraction, that drives the argument for there being a negative effect between a resource boom and manufacturing output. Jeremy Leonard: Yeah, sure, and I touched on it a little bit, but we can go into it in a little bit more detail. The issue really boils down to the effect that there are some goods in the economy that are tradable and some that are not tradable. What happens when you have a boom of any sort, whether it's a natural resource boom or any other kind of boom, is you have a sector where there's very rapidly growing demand for services and production. That tends to bid up wages because the higher your demand is, you need to hire more workers, and anyone who has studied Economics 101 knows that in those conditions wages are going to rise and they can rise rapidly. So you'll have upward wage pressure in the booming sector, which is then going to trickle over into other sectors. People will be drawn into the energy sector, that will mean fewer people wanting to work in the non-energy sectors. The main result is you have this upward pressure on wages. This upward pressure on wages causes problems in industries that are exporting goods. Their costs are going to go up and they will not be able to raise their prices. Essentially what it causes is an increase in the terms of trade, which causes problems for exporters. We see this has manifested itself in a rising currency. That's sort of a very complicated way of explaining it, but it really has to do ... It's much more than just about dollars floating around the economy and whether the Central Bank is creating too much money or not creating enough or issues like that. It really has to do with some pretty fundamental economic effects that come about from this resource boom. We know the economic forces at play and the question then becomes, what's driving those economic forces, and then there are a number of things that can effect that. That's sort of the theory behind it. It's very well developed and you can look at it in terms of how flexible sectors are. In other words, how much labor mobility there is in sectors and things like that. Invariably what you find is that there's a possibility that the manufacturing and trade intensive sectors will be adversely effected, but it's not a necessity. In other words, you can certainly envision scenarios where you can actually see a resource boom and you wouldn't necessarily see an adverse effect. Given that the theory doesn't give you a definite answer on whether a resource boom is going to cause problems in manufacturing, we decided we needed to look at the actual numbers in Canada to try to answer that question. Brady Deaton Jr: All right, so let's get into this. As you pointed out earlier, Canada's energy sector has experienced a boom; oil production has increased; gas has increased; Canadian exports have increased. We've got the first part. Talk to me about how you examine then how this effects manufacturing. Jeremy Leonard: What we did was we basically did a two stage process. The first thing we wanted to get a handle on was to what extent is the strong Canadian dollar being driven by energy prices. There are many, many things that can affect the exchange rate besides energy prices. It can be prices of other commodities. It can be the stance of monetary policy. For instance, if interest rates are higher in Canada than they are in the United States as they have been for quite a few years, that's going to encourage investors to invest in Canada, which will also put upward pressure on the exchange rate. So the first stage was to examine the extent to which energy prices are associated with high exchange rates. The answer is that there is a linkage there, but the interesting finding there was that it's not just energy prices that are driving this exchange rate. It's also prices of other commodities like wheat; other commodities that Canada produces like industrial metals. So there is a partial effect. Stage one was simply to establish what piece of the strengthening of the Canadian dollar could be attributed to rising energy prices. Brady Deaton Jr.: Before you get to the second stage, first stage you're basically just saying what is the relationship between the Canada and U.S. exchange rate and energy prices and controlling for a bunch of other factors. Jeremy Leonard: That's right. Brady Deaton Jr.: What time period are we talking about that you're looking at here? Jeremy Leonard: We looked at the 1992 to 2007 period. We wanted to look at a longer period than just the boom to get a sense of trends that were happening earlier on. What we found was actually that the effect of energy prices on the exchange rate was about the same and possibly even a little bit less than that for other commodities. That, to us, was an interesting- Brady Deaton Jr.: That is interesting. Jeremy Leonard: ... observation. The other thing that we didn't talk about but other researchers have looked at is the fact that there are two things that drive the Canada/U.S. exchange rate. One is the strength of the Canadian dollar, but the other is quite frankly the weakness of the U.S. dollar, which may have little to do with what's going on in terms of resource prices. We cite in our paper some work that's been done, it's not published yet, but basically indicating there's a piece of the strength of the Canadian dollar that really has to do with the weakness of the U.S. dollar related to the fiscal and economic problems south of the border. All that to say that the energy piece of the appreciation of the Canada dollar is a lot smaller than the total appreciation that we've seen. Another way of saying that is even if we had not had such an energy boom, we probably still would have seen a strengthening of the Canada/U.S. dollar for other reasons. I think that's an important observation to make, that we can't just attribute this 40% to 50% in the Canadian dollar 100% to energy because that's not what the data tells us. Brady Deaton Jr.: This seems to be some evidence against the argument that there's a petrol currency here. If I understand you correctly, you're saying that energy prices effect the exchange rate but so do non energy commodities and other factors and relatively more so than this energy price effect on the exchange rate. Jeremy Leonard: That's right. That's absolutely right. It comes down to the fact that you can ... you know, many of us have seen these charts where you plot the Canadian dollar against the oil prices and you get a nice match. The fact of the matter is you can actually plot it against a whole of different price indices and you can get a similar match. So one of the points of doing this research was to try to take all of these factors into consideration and ask ourselves, how much is the one effect when controlling for the other. It would be just as incorrect to call the Canadian dollar a petrol dollar as it would to be to call it a nickel dollar or a wheat dollar or any other commodity you might like to call it. Again, stage one was really a kind of cautionary tale in the sense that, yes, we do see this positive link as the Dutch disease theory suggests, but we can't draw the conclusion that energy prices are driving exchange rates and by extension, weakness in manufacturing. Brady Deaton Jr.: That takes us to the second step. If you've established some effect between energy prices and the exchange rate, but there are a lot of other things that are effecting it, and energy prices are a smaller perhaps than expected driver. And, now we're moving to the second step. Okay? Jeremy Leonard: Right, because really the ultimate question we want to know is, to what extent have the energy induced strengthening of the dollar adversely effected manufacturing. The way we go about doing that is we actually looked at 80 different manufacturing industries because we wanted to get down at a pretty fine level of detail because you lose a lot of interesting differences and constraints if you look at the sector as a whole. We looked at 80 different industries. For each of those industries, we essentially estimated outputs using a model that ... You know, output estimation models have certain standard elements to them, but we added this energy price induced appreciation of the exchange rate that we've calculated from stage one. That was one key element that went into that statistical estimation. The second one that we put in, which was very important, was the trends and output in the corresponding industry in the United States. Now, why did we do that? We did that because we wanted to kind of use the United States as a control country, as a country that is not a large energy exporter, certainly wasn't over the time period we looked at, with the notion being that if the Dutch disease, if this exchange rate induced adverse effect on manufacturers, if that's really the explanation, then we shouldn't see kind of similar trends in output in manufacturing in the United States. They are not afflicted with this Dutch disease. When I talk about the results, I'll talk about why that's important. It was important for us to have a kind of control case to say, how is output evolving differently in Canada relative to the United States? We looked at all of these 80 industries. It was quite an arduous task punching all the numbers. Brady Deaton Jr.: I'm going to say something. For those of you listening, in their paper they actually do a great job of providing a lot of data and a lot of tables that actual allow you to look at the different industries and the various effects on them. That's something that's really well done that I know you're not going to be able to go in details in this discussion. Jeremy Leonard: Yeah, and really it's because the nuts and bolts of the detailed results are not as interesting as kind of the overall fundamental result of the question we're after, which is what is essentially this variable we're looking at; this kind of Dutch disease term, if you will. Is it significant? Is it statistically significant in these equations? The answer was obviously nuanced, but I guess a little bit perhaps to our surprise given the popular discourse about the Dutch disease, is that the majority of industries that we looked at really didn't exhibit a strong adverse effect of this energy induced increase in the exchange rate. What do I mean by that? Even if you accept that energy prices have had an upward influence on the exchange rates, that has not generally been associated with declining manufacturing output once you control for other factors effecting output. It seems a bit counter intuitive because ... and, that's something we've kind of heard in the political discussion in recent weeks is how can that possible be because we've seen the dollar has strengthened and manufacturing output has declined. So, how can you possibly say that the two aren't linked? The answer comes back to this notion of the control variable in the United States. There are other factors that have happened that have been going on over the past, during the 2000's, that have been at the same time as the resource. The most important of these is really the rise of China and other low cost producers in global value chains. In fact, most listeners may not know this, but China has actually passed Canada as the United States' number one source of imports into the United States. This competition is not just happening in traditionally in t-shirts and toys and other things that we've known the Chinese have been exporting to us for decades. They're moving into higher value industries like machinery, like fabricated metals, things feeding into the automotive sector. They're actually starting to compete head-to-head with Canadian exporters in U.S. markets. This factor, I'll kind of just call it the globalization of manufacturing, has actually been a much more important negative effect on not only Canadian manufacturers, but American manufacturers as well. So what do the results tell us? They tell us that there are certain industries that have indeed been adversely affected by the exchange rates. The other industries where we don't see an adverse effect from the Dutch disease, these industries are still having problems but they're much more related to trying to compete with the South Korea's and the China's and the Brazil's, and the other emerging markets of the world. Not only within Canada, but more importantly in markets where Canada exports, mostly notably the U.S. market. Brady Deaton Jr.: Are there any characteristics of those industries that were negatively affected by the exchange rate; do they have any characteristics that are worth noting? Jeremy Leonard: Yeah, well, I'll just highlight two extremes really. The ones that had the largest negative Dutch disease coefficients in absolute terms were the clothing and textile industries as well as leather products, which is basically namely footwear and handbags. This kind of comes back to what I was saying earlier. These are industries for which there's not much product differentiation. They're sort of commoditized industries. I like to just use the example, a t-shirt is a t-shirt is a t-shirt and there's not really a lot of opportunities to diversify and add value to your product. Secondly, these industries are very, very trade intensive. They have a very high proportion of their product that is overseas and they also have a very high import penetration rate. It's sort of not surprising that they would be most affected by the exchange rates and least able to adapt to it, I guess is the way I would put it. These industries, you have to remember, textiles, apparels, and leather together probably make up ... they certainly make up more than 5% of Canadian manufacturing. They are relatively small sectors. The other sector that was kind of interesting was actually a piece of the chemical industry, the pharmaceutical sector, which also showed a...
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First Nations Lands and Economies - September 13th, 2012
03/14/2025
First Nations Lands and Economies - September 13th, 2012
In this podcast Chief Robert Louie and I discuss the management and control of First Nations Land. Chief Louie is the Chief of the Westbank First Nation. He is the chairman of the First Nations Lands Advisory Board since 1989 and a member of the Order of Canada. Transcript Brady Deaton Jr.: Welcome to FARE-Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton, Jr. of the Department of Food, Agriculture, and Resource Economics at the University of Guelph. I'll be your host. Today Chief Robert Louie and I will be discussing the management and control of First Nation's land with particular focus on the Framework Agreement on First Nations Land Management. Chief Louis is the Chief of the Westbank First Nation. He is the Chairman of First Nations Land Advisory Board since 1989 and a member of the Order of Canada. Welcome to FARE-Talk, Chief Louie. Chief Louie: Thank you very much Brady. It's a pleasure to be here. Brady Deaton Jr: I want to begin by mentioning something that's on the Land Advisory's Board website and have you kind of discuss it; and there's a statement there that's very powerful. It says, "For the first time in history of First Nations, we'll gain a window of opportunity to have the power as a Nation to manage its reserves, lands, and resources, and eliminate the bureaucracy of Justice and Indian Affairs." Talk to me a little bit about that. Chief Louie: Well, it's extremely important for First Nations across this country that First Nations be recognized with inherited right to manage their own lands and resources; and for us this land management process and the implementation of land codes does exactly that. It recognizes the jurisdiction. It recognizes that First Nations are the lawmakers on their own lands, that they have the power to make laws over their lands and their resources; and that's fundamentally important. And it is the first time in the history of Canada, that such an accomplishment has occurred. First Nations were historically self-governing before the Europeans came to Canada, and now with Land Codes and with the Frame Agreement initiative, it recognizes that First Nations again have the jurisdiction to look after their lands and their resources. Brady Deaton Jr: I think there's two big terms that will probably be used a little bit interchangeably, but I wouldn't mind if you could just unpack them a little bit. There's the Framework Agreement, and there's the First Nation Land Management Act. The Framework Agreement, of course, come into being in 1996. And the Land Management Act is in 1999, I believe. Talk to me a little bit about the difference between those, and how they came into being. Chief Louie: The Frame Agreement is a government to government agreement that was negotiated by the First Nations and with Canada. And that Frame Agreement, back in the 1996 timeframe, at the time of signing, sets for principles that recognizes First Nations to have the inherited right to do such things, as manage their lands and resources. It talks about principles to protect lands, so reserve lands cannot be sold. It recognizes that third party interests are going to be protected. Principles of that nature. It's a fundamental document that set for strategy and set for the process, so that government could eventually pass its legislation, and that legislation was passed in 1999, the First Nation Management Act. By Canada passing that legislation, it ratify the Frame Agreement. What's unique about the Frame Agreement and the First Nation Management Act is very simple. It says and it recognizes that unilateral changes cannot be made without the consent of the other party. That's fundamentally important from the First Nation perspective, specially when we're looking at how laws are developed and the negotiations that took place to put forces [inaudible 00:03:54]. That's very, very important and it's very unique in Canada. Brady Deaton Jr: The process leading up to the Framework Agreement it's quite interesting. It's something that emphasized discussions of the First Nations Land Management Act. The Westbank First Nation was one of the original signatories, what was that process? Chief Louie: In the early 1990's, and even going back to the late 1980's, there was a movement by First Nations at ... We had to see the recognition of the inherited right of First Nations recognized. We had the constitution that was passed prior to that. It's spoke of, in section 25 and section 35 in that constitution, spoke of the inherited right of First Nations, but it wasn't implemented. This was a very serious contention by First Nations. When government look at, and it was about time of the changing government, it was the election process in the early 1990's that led to the liberal government, who wanted to come into power. They said to First Nations in their background, in the election process, saying that we would want to have First Nations recognized with certain inherited rights. We capitalized on that. Our process was "Let's do that", to do that we needed to get ourselves out of the Indian Act. We worked with the government when it became government and we negotiated the Frame Agreement. That really was the starting point to say, "Yes, there is a process, and if the government says they would support it, then, let's see the reality of it." The reality of it was the Frame Agreement and the eventual passage of the First Nations Land Management Act legislation. Of course, since then we have been [inaudible 00:06:09] First Nations who have passed land codes, who were now self-governing to the extent that they can now manage their lands and their resources. Brady Deaton Jr: How many First Nations have opted in to the Framework? Chief Louie: Right now we have 37 First Nations to actually become operational, that have passed land codes and are fully operational. We have 25 that are in the developmental phase today. We have a total of about 83 First Nations on the waiting list to become involved. When we add up all those figures, it boils down to about one in six First Nations in Canada are either involved or want to be involved in the Land Management. Brady Deaton Jr: What are the steps if a First Nation wants to basically enter into the Framework Agreement? What are the steps by which that would be done? I wanna talk in a minute about the Indian Act, because I think that's important. If you wanna to move out of the Indian Act into the Framework Agreement what generally are the steps that First Nations would undertake? Chief Louie: The First Nation that is interested in this process first of it has to have the genuine interest. And that interest would normally, and usually comes from the council of the First Nation. It has interest, it's heard of the Land Management initiative through one process, step, or another. It says and it feels, "Yes, this is something that could work for our community", that First Nation would then look at passing a bank council resolution to set the process, to say, "We have interest, we'd like to become involved, we have interest here, accept our resolution saying that we have that interest, it's signed that we wish to proceed." Now, in the recent years, last couple of years, government of Canada has said, "well, that's fine, but now we have to go through a process, you're going to have to fill out some application forms and let's take a look at all of the varies things that have to now be considered. Are you in third part management for example, do you have economic development needs, do you have any environmental issues or matters of serious concern, are you [inaudible 00:08:30] Canada?" Questions of that nature. Then Canada, once it has that application, will make a decision. It has the control, if you to will, to accept or reject the First Nation now coming into the process. If it accepts that First Nation, then that First Nation is recognized "Yes, you will now have an opportunity to participate when the funds and when time permits." Recently, in the Spring of 2000, the minister of Indian Affairs accepted to have that [inaudible 00:09:07] of First nations, another group, 18 new First Nations, from coast to coast, were then agreed upon to enter into the land measurement process. That opened the doors for those 18 First Nations. They're now in the developmental phase of their land code development. We still have many other First Nations for waiting. You can appreciate that cost money to have First Nations in developmental process. Canada has to set aside those [inaudible 00:09:38] and has to budget it. Right now, we're under certain budget constraints. Even though that we have KPMG studies, and studies of that nature, that suggest and support the fact that if a First Nation becomes operational, we can show and demonstrate through past history and review of the economical findings that that First Nation is going to bring a return to the investment into that First Nation going into developmental phase. It's been estimated that at least 10 times the return on that investment. By Canada investing into the First Nations to support them to become operational. Once it becomes operational, 10 times the return of the investment. And those investment returns grow every year. Brady Deaton Jr.: Do the First Nations vote on whether they want to accept the new developed land codes? How is the community participation in this process? Chief Louie: The community is very, directly involved. To [inaudible 00:10:40] the process is one thing. Then the First Nation, once it's gained entry into the developmental phase, it has to go through an internal process of ratification by its members of their land codes. Land Code is the laws that the community sets that follows the principles of the Frame Agreement and follows the legislation. That has to all be put together and the community is involved in that process, step by step. Both on reserve and off reserve. Any First Nation that has a minimum of 18 years of age and older and confident to vote is eligible to be involved. The First Nation community deals with all of its community member, which is out to everyone of the voting age and its able to vote. And says, "let's now make a decision. Do we do a majority of vote or ratification vote?". That community has to decide. The fact is that every First Nation member of that community has the right to vote, and it's encouraged to vote. That First Nation community must provide all of the information that is necessary for that individual member that's going to vote to make that informed decision. If it votes, if that community votes, "Yes", in effect you'll have a ratified land code. If it rejects the land code vote, of course, there is non entry into the operational phase. Brady Deaton Jr.: I think many of our listeners will be less familiar with the reasons why a First Nation might want to move and develop its own land code, instead of following the land code set forward in the Indian Act. I really appreciate and I think it'll be really helpful, could you just step back and discuss the Indian Act and why that constraints First Nations in a number of ways, including maybe economic development? Chief Louie: First Nation clarified that the Indian Act, that legislation is not allowed for land codes to take place. What the Indian Act does, and it's done so historically ... there're basically 34 sections in the Indian Act that deal with one form of administration over lands and resources. The fact is that the Indian Act divides the ministry of Indian affairs, the government general, the department of Indian Affairs has all the powers and controls over the First Nations' lands and resources. Yes, First Nations can have certain bylaws. But bylaw is a subset of laws that exist in Canada through the department of Indian Affairs. There's no inherited right that's recognized. If, for example, a First Nation say "Look we need to have a dog parking bylaw", it's jury can pass that bylaw in the chambers of the council, but that council must submit it to Indians Affairs for their approval. It's not ratified or approved, unless the Department of Indian Affairs says it can be ratified. This is totally different from a land code. A land code is such that it recognizes the First Nation as a law maker. It has the jurisdiction, without seeking permission of the department of Indian Affairs, minister or anyone else. It has the power to do things that is necessary to manage its lands and resources. Those powers are very, very extensive. For example, how development takes place, how leases are registered, how deep you put the water lines and the sewage lines, what are the building code restrictions, how it's going to be developed, how is the process going to take place as far as a law making, is it going to be first, second and third readings in the passage of laws. All of those matters that are [inaudible 00:14:36] to government falls into the hands of the community. It makes the community the decision maker, the jurisdictional body, who determine the affairs of the First Nation that affects its reserve lands and resources. That is absolutely, total differentiation between the Indian Act, how it's administered, how the First Nation would act with its land code in place. Brady Deaton Jr.: We're discussing the Indian Act, just to be clear, the Indian Act and the Federal Government doesn't currently allow First Nations to basically self-govern with respect to land. My understanding of that's correct? Chief Louie: That's absolutely correct. The Indian Act, the way it was developed back in the 1860's, 1870's, and amended from time to time, strictly recognizes the authorities of the government of Canada as represented by the governors, general or the minister of Indian affairs, or his or her agents to make the decisions over the affairs of the First Nation. The First Nation has certain capacities, that have been allowed under the Indian Act to make certain bylaws. But those bylaws, for example, must be approved by Canada through the department of Indian Affairs. In effect, there's no self-government recognition, no inherited right is recognized by First Nations. First Nation peoples are seem really as [inaudible 00:16:08] of the government, they're seem to be communities that must be supported by government, and that includes all of the affairs and the decision making. There is a complete difference between the Indian Act process and the land code and land measurement process that were currently discussed. Brady Deaton Jr.: Under the Framework Agreement, does the land still though remain under Federal protection? Chief Louie: Yes, it does. With the land code in place, the First Nation chiefs, at the time of conception of Frame Agreement, had agreed, and Canada agreed with those First Nations that the land would remain, what is referred to as section 91 (24) lands, that's 91 (24) of the constitution of Canada. It really recognizes the federal domain. The First Nation work within that federal domains. The provincial government has no law making capacity on the reserve, in so for as lands and resources are concerned, and that was the wishes of the First Nations at that time, in the mid 1990's, and remains the wishes of the First Nations today. It's very clear that the 91 (24) jurisdiction is the process that's been supported by the majority of First Nations in Canada. Almost at a 100 percent. Brady Deaton Jr.: If you enter into the Framework Agreement, can the land be sold to members outside the First Nation or there's certain rules of the Framework Agreement requires of all First Nations' land codes? Chief Louie: The individual First Nation has a choice to do certain things, it's [inaudible 00:17:40] to sells or leases its lands, if you do so internally. But one thing is very, very clear, reserve lands as such cannot be sold to diminish the reserve land size. That was a concern that was expressed by First Nations at the assembly of First Nations levels, and expressed as [inaudible 00:18:01] country from time to time, because in the past, First Nations have had things, like expropriation take places, roadways, hydro lines, seaways, you name it, lands cut off from their reserve lands. So, this process, fundamental process that recognizes, and the principle that's recognized is that lands cannot be diminished in size. As such, they cannot be sold to anyone that's a nonmember of that First Nation. It can, however, be leased, which allows for economic development, and allows for interest, it could be registered and protected, and allows for the economy to proceed on the First Nation. But that's the fundamental difference. It's a concern that was looked at in places like United States where, in the past, First Nations are tribes in the United States were allowed to sell off portions of their reserve lands to raise money for certain purposes. Here, land cannot be sold to diminish reserve land size. Brady Deaton Jr.: With the land codes that have been adopted, is there a significant variation amongst the First Nations, in terms of their land codes or are they relatively similar? Chief Louie: They're unique in the sense that there's no two First Nations that have identical land codes. There's always variations and changes. For example, some First Nations may choose to have land's committees that will be involved in the law making processes. It has to go through that committee, and the committee makes the recommendations and that's how laws are proceed ,and how laws may be administered without the involvement of the First Nation's committee. Other First Nations may decide that "no, we do not need committees", once we have land code in place, we have the process in place, First Nations may act much like, let's say, municipalities, where you have, let's say, a director of lands who will make that decision, and will keep the politics separated from the government and matters proceed. Every First Nation has a variation in one form or in other. Some will have historic land that needs to have protected for various religious purposes or cultural purposes, certain lands may have different statuses to the extent that they may not be certificated possession lands, but they have the recognized ownership level by certain individuals, and it has a method to allow for lands to be mortgaged through leases. Every First Nation is slightly different. Some First Nations have [inaudible 00:20:41]lands in common, that is the total reserve, there's no individual recognized land. Its land's held in common by every member of that community. Other communities have a mixture. There's reasons for the uniqueness of every First Nations land code. Brady Deaton Jr.: You mentioned certificates of possession sometimes I think about three primary sets of varieties on First Nations, I wouldn't mind if you kind of comment on certificates of possession, leases and customary rights. What are the kind of differences between those? Chief Louie: Let's take it from this perspective. A certificate of possession, first it's an instrument that is referred to quite often, that recognizes that individual member has certain beneficial rights that pertain to the land. It's a form of title, if you will, that says that person [inaudible 00:21:34] has that in their possession. And certain First Nations will allow 100 percent of the revenue proceeds from the land lease, for example, to go to that individual. Some communities will say "No, a percentage goes to the land in common,...
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Assessing agricultural policy in the twenty-first century: Who benefits from Agricultural Subsidies? What happened after tobacco quota ended in Kentucky? - October 25th, 2012
03/14/2025
Assessing agricultural policy in the twenty-first century: Who benefits from Agricultural Subsidies? What happened after tobacco quota ended in Kentucky? - October 25th, 2012
In this podcast Barrett Kirwan and I discuss his research on two issues crucial to understanding agricultural policy and rural economic development in the twenty-first century. Transcript Brady Deaton Jr.: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton, Jr. of the Department of Food, Agriculture, and Resource Economics at the University of Guelph. I'll be your host. Barrett Kirwan is an assistant professor in the Department of Agriculture and Consumer Economics at the University of Illinois. Barrett, welcome to FARE Talk. Barrett Kirwan: Happy to be here. Brady Deaton Jr: I think the issues that you are examining, ag subsidies and the effective quota, are really critical to understanding both the historic and the future effects of ag policy. I want to start by discussing your first article, which was published in the Journal of Political Economy. Barrett Kirwan: Okay. Brady Deaton Jr: Which examined the incidence of US agricultural subsidies on farmland rental rates. You make a point that a primary goal of US agriculture policy is to support farmer income. Why does it lead you to examine the issue of rental rates? Barrett Kirwan: The traditional theory, the story that I've always heard was that the subsidies get capitalized into the land value. I grew up on a farm in Idaho where we rented most of our land and so the idea that all the subsidies were getting capitalized into the land value meant that the subsidies was going to the landlord, who was not a farmer. It got me thinking about why are we giving all this money to landlords? I naturally looked at rental rates. Brady Deaton Jr: I think the idea of that the public wants to support farmers is generally accepted, but the idea that that support could be going to landowners, many of whom are not necessarily farmers, that may be an issue of more debate. Were you surprised when you started looking into the data on farmland ownership, farmers versus non-farmer owners of farmland? Barrett Kirwan: I was. In fact, I didn't realize that there were so many non-farmer owned acres. It turned out that during the time period that I'm looking at, about 45% of the farmland in the US is not owned by a farmer. It's owned by a non-farmer. I was surprised that the number was that big. It seemed to make the issue much more important. Brady Deaton Jr: Why then ... Let's talk a little bit about the theory. You mentioned that you had heard this story that the value of any increase in farmer income would get bid into the, or capitalized, into the value of farmland. Break that story down for me a little bit. How do economists generally make this argument. Why is that a story that you heard before? Barrett Kirwan: This I think was something I heard growing up just talking, listening to farmers, but then getting into economics, it was probably one of the very first theories that I learned that if you have an input into production and that input has no elasticity, it's unresponsive, but will the rents will ultimately go to that input. I think it may have been in my very first semester of microeconomics that I learned about Ricardian rents and this idea that ... Farmland was the example that was given and this idea that the more productive farmland that is given, earned, returns above what's the average land would earn. This idea that any productivity that the land has gets capitalized into this value, and if you think about subsidies, it's just, in terms of value, it's just adding to the value of what's being created from the land. Because the land isn't [inaudible 00:04:23], the subsidies get captured by the landowner. Brady Deaton Jr: When you were reviewing the literature on this, did you find a lot of empirical work that had researched this question? There was a theory here that if I have a more productive farm and I'm renting that out, that I'm going to charge more for it. I'm going to get more money for it, and if you have a policy that provides more profits, than I'm going to capture the value of that policy, but had there been a lot of studies that empirically examine this question? Barrett Kirwan: Surprisingly there haven't. There are a couple very early studies that actually looked at tobacco quotas [inaudible 00:05:05] a subject that [inaudible 00:05:07] we're going to talk about today, but they were looking at tobacco quota in terms of, as an asset, does the value of a quota get capitalized into the value too. The subsidy gets capitalized into the quota itself. Based on that early work, it confirmed what economists had presumed and it's funny, but it seems like that was about all they needed. From then on, it was just everybody knew that some, almost all of the subsidy would go to the landlord, and the amount of empirical research on it though was really quite small. It was a little bit surprising. Brady Deaton Jr.: It's somewhat surprising also that policies that were designed to help farmers would persist in light of that theory, especially when we started to understand that so much, nearly 50%, or you say 45%, of the farmland wasn't owned by farmers. I wonder if people just didn't understand the degree of non-farmer ownership of farmland or whether they really accepted that basic tenet. Barrett Kirwan: Yeah. I'm not sure. I think that was one of the things that was most disturbing to me, and even before I knew the extent to which the farmland was rental land, it just didn't seem right to me that ... It seemed liked decades you had agricultural economists testifying before Congress, telling them that these subsidies are ineffective, they go to the landowners, and Congress never really responding. I wanted to dig into that. Either way, because the theory is not true, that's interesting. If it's because the theory is true and somehow the landowners have more political power, and that's what's driving policy, that's interesting too. That was one of my key curiosities in getting into it. Brady Deaton Jr.: All right, what do we need to know? Now you study different policy periods. It seems to me the one you describe, and maybe you could just give us a basic overview of those policy periods, but it seems to me that in each case, you're concerned about explaining whether or not the landlord and the tenant could anticipate the amount of subsidy that would be paid and maybe you could describe that subsidy, and also the magnitude of that subsidy. Barrett Kirwan: Right. One of the big issues during this time period was the decoupling, as they've called it, of farm payments where it went from a period where the subsidy was dependent on the price of the commodity. If the price was low, the subsidy would be high, and vice versa, if the price were high. They turned it into a subsidy that was not dependent on the price and not dependent on production. The idea was that there's this niche timing in terms of you sign a rental contract in the spring, but you don't really know the price or the subsidy that you're going to receive until the fall. In the beginning when there was this uncertainty about the price, it wasn't clear that you would actually find ... The empirical result would actually be valid because you didn't know what the farmer was anticipating. As time went on, as the subsidy became less dependent on the price of production, it became much more certain to the farmer in the spring and to the landowner what the subsidy would be. Over time, you could see that the likelihood that the subsidy would get bid into the cash rental rate would have increased because the farmer would've been more certain about the subsidy that was going to be paid at the end of the year. Trying to I guess "fix" that problem at the beginning, and then using later periods to verify that that fix works, that was part of the work into the paper. Brady Deaton Jr.: Right. Just [inaudible 00:09:47] maybe one example, in the 1996 Federal Agricultural Improvement Reform Act, before that, how would a landlord ... What would a landlord and tenant have known about the subsidy, before that reform act of 1996? What would they have known about the subsidy that the operator or the farmer actually working the land would have gotten? Barrett Kirwan: Probably the most important, in my eyes, the most important thing that they would've known in the ... Not only was the subsidy dependent on the price, but the subsidy was attached to a specific acre of land, and the subsidy also depended on the productivity of that land. Before 1996, they might have a general good idea about the price based on future prices and their expected bases [inaudible 00:10:49] may have been able to form some pretty good expectations that way, but in terms of the analysis, knowing that you have a more productive piece of land that ... As a landlord, your more productive piece of land is being rented out. Not only can you charge more because it's more productive, but you could charge more because the subsidy is a function of that productivity. The subsidy's going to be even greater on the production land than it is on the less productive land. Being able to control for that actually, being able to account for the fact that a lot of the variation we see in the subsidy is caused by the productivity of the land. Early on, that was I think one of the key insights into answering this question. Brady Deaton Jr.: Right. For those listeners, there's a lot of effort in this paper given to the technical aspects of measuring them, and I'm sure we're not going to do it justice in this podcast, but there will be a link to this paper and the second paper we're going to discuss. It's worth taking a look at exactly, for those of you who are interested exactly how Barrett tries to take into account of these differences. After 1996, it was a little different, right? After the- Barrett Kirwan: Right. Brady Deaton Jr.: ... Fair reform. How is that? Barrett Kirwan: Right. After 1996, everything from the analyst's perspective got easier, but after 1996, the subsidy was just essentially frozen at the 1996 level. Now it was on a schedule that was supposed to decline, and by 2002, there was supposed to be an end of those subsidies, but because it was frozen and fixed, not only did the tenant and farmer know how much the subsidy would be, but everybody else did as well. It became more possible for other farmers to know how much the subsidy's going to be and start bidding against the farmer who already rents the land, and it's that competitive bidding process that one would expect that subsidy to get capitalized into the rental rate. Having great [assurity 00:13:04] that that was going to happen increased the likelihood that that subsidy would be captured by the landowner instead of the farmer. Brady Deaton Jr.: Right. After 1996, everybody knows what the subsidy's going to be. I'm a landlord and a tenant calls me up and gives me a rental price. We both then, with certainty, basically know what the farmer, operator, or the tenant is going to get in terms of subsidies. So does everyone else. Barrett Kirwan: Exactly. Brady Deaton Jr.: If they bid too low, someone else comes along and bids a little bit higher. You're really expecting then after this 1996 to have a much clearer insight into the effect of subsidies on rental rates, is that right? Barrett Kirwan: Exactly. Yeah, which solves as many of the technical problems. Brady Deaton Jr.: Right. Barrett Kirwan: I think it makes the conclusion the answer that I get. Very interesting. Brady Deaton Jr.: All right, let's get to that. Let's get to your conclusions and your answers, but before we do that, break down in general the data you got and the general method. I know you used a fixed [inaudible 00:14:17] method, but we're talking about cash rent and- Barrett Kirwan: Right. Brady Deaton Jr.: ... We're talking about things that happen over a different time period, so maybe just walk us through that. Barrett Kirwan: Okay. Part of I guess the fun of writing this paper was that I managed to get access to farm level data from the USDA. I had access to the micro files of the [inaudible 00:14:43] of Agriculture, which took a lot of work, especially since I had to be in a room in Washington, DC, a specific room, in order to use the date. I was at the time living in Boston. It made it a little bit tricky. Having access to those farm level data really allowed me to look at this relationship between the productivity of the farm and what the farmer expected in their subsidy. It turns out that that's really vital because if you ignore that and you just look at a county level map with darker shading for areas that get higher subsidies, it matches very closely to a map that looks at the rental rate for the land where a darker color would be a higher rental rate. Looking at that, it looks like there's a very clear relationship, but what that ignores is that underlying productivity of that land. By getting down to the farm level and being able to control more specifically for the productivity on a very specific piece of land, once you control for that productivity because this productivity is really what's driving the rental rate and it so happens that the productivity is also [inaudible 00:16:05] the subsidy, once you control for that, the relationship really falls apart. That was very surprising. I guess the funnest part was getting those microdata and then being able to do something that everybody knew that needed to be done and everybody would have liked to been able to do, but without those microdata through a time period, I had to use multiple years of the census and connect farms over time in order to be able to do this, getting those data was really the fundamental part of answering the questions. Brady Deaton Jr.: Okay. The key thing here is the amount of subsidy is going to be associated with the productivity and so is the rental rate, is that right? Barrett Kirwan: Right. Brady Deaton Jr.: You're able to control for that productivity, which other people weren't able to control for, and that's going to allow you to better understand who's capturing the incidence of this subsidy. Barrett Kirwan: Right. Brady Deaton Jr.: What did you find? Barrett Kirwan: I found that contrary to what has been presumed for decades, that instead of the full subsidy dollar going to the landlord, and I guess here I should mention that there are several different kinds of subsidies in the US, and I was focused on one specific subsidy, the one that we "decoupled." It was one that was really attached to the land. There's another production subsidy that's not attached to a specific piece of land, but just based on the farmer's total production. I was essentially ignoring that one. I got lucky because the time period of the investigation, those production subsidies were really small and almost all of the subsidy was coming through this land-specific subsidy. I found that instead of the landowner getting the full subsidy dollar, that in fact they were only getting something like 20 cents out of subsidy dollars. It wasn't even close. It wasn't even yeah, they get most of the subsidy dollar. It was so low it took me hours to actually ... I guess it's funny now that I look back on it, but it probably took me twice as long to write the paper because the conclusion was so different than I had anticipated or anyone else had anticipated. I had to keep going through it and checking it, and getting more data, and making sure that I didn't make a dumb [inaudible 00:18:45] mistake somewhere and make sure this is really what's happening. Only 20 cents of the subsidy dollar is getting passed through to the landlord via the rental rate. Brady Deaton Jr.: I guess I don't know if mentioned it, we should probably make it explicit. The subsidy works, it goes directly to the operator on the land, right? Barrett Kirwan: Right, yeah. I guess that's, yeah, that's important it turns out. Brady Deaton Jr.: Yeah, okay. Barrett Kirwan: If a check gets mailed to the operator, whether or not the operator owns the land, it gets mailed to the farmer who's physically growing their crops, and that's who receives the checks. The only way that the landlord, through cash rental rates, the only way the landlord could get the subsidy is by raising the rental rate. Brady Deaton Jr.: Right, but the theory had been, the theory is I think to some extent, that under these competitive conditions, under this inelastic assumption about supply of farmland, that the landlord would capture that subsidy. In a way, your finding is surprising from that sense, but I wonder from the other sense that we discussed earlier, from the political economy sense, the fact that these persisted for so long and the goal of that policy was to help farmers, maybe you solved a bit of a conundrum there. Barrett Kirwan: Right, exactly. It almost seems like everybody else was in on the secret except for the ag economists. The congressmen know that their constituency was okay with the subsidy and they weren't worried about it being passed onto landlords, even though Congress kept saying that no, it's really the landlords that are benefiting from this. One really interesting thing, as we thought about why this resulted, one interesting thing is whenever I've presented this paper, I always, and it's funny because every single time there's been at least one person who has come up to me after the presentation and told me a story about a relationship that they or their mother or their neighbor has with the landlord and how important that relationship is. Having this I guess cold or this market mechanism determining the rental rate, the stories that I kept hearing was no, of course it's not the market that's determining it. It's these personal relationships. That becomes really difficult to measure. Brady Deaton Jr.: Yeah, actually I should say your research has inspired several of us here to examine that issue in Canada. There's similar story in some respects. A great deal of the farmland is rented and a great deal, it appears with more analysis of the land that's being rented is not necessarily owned by people that other farmers identify as farmers. There's a lot of ... Maybe the issue of land ownership and non-farmer ownership of farmland I think is going to persist as a question continually as we try to develop ag policies that generally- Barrett Kirwan: Places like Illinois and I'm learning [inaudible 00:21:56] lived here for a few years, but the vast majority of land here is not owned by the farmer. As any time goes by [inaudible 00:22:04] even fewer acres are actually owned by the farmer. Brady Deaton Jr.: I found that data on that in your paper alone to just make the paper worth reading. It was just really a succinct gathering and discussion of that issue and [inaudible 00:22:17] subsidies and the relationship between the theory or abstraction of what's going on, and then testing our theory, which is really important, and then finding a finding that seemed consistent with what you would expect given the persistence of these policies to support farmers. Your story in some ways is a good news story. These policies have been passed on to operators. Former operators. I'd like to move to a second paper that you've written, which our...
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"Beyond the Indian Act": Examining the Potential Role of Fee-Simple Ownership - December 17th, 2012
03/14/2025
"Beyond the Indian Act": Examining the Potential Role of Fee-Simple Ownership - December 17th, 2012
In this podcast Dr. Tom Flanagan, myself, and students from the University of Guelph discuss Tom's research examining First Nations and private property rights. Transcript Brady Deaton Jr.: Welcome to FARE-talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton, Jr. Of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. Tom it's my pleasure to welcome you to FARE-talk. Tom Flanagan is professor of political science at the University of Calgary. He is the author of numerous books, many of which have won prizes. The book that we'll be discussing today he co-authored and the title of that book is Beyond the Indian Act, restoring aboriginal property rights. Tom, welcome to FARE-talk. Tom Flanagan: [inaudible 00:00:53] good to be here. Brady Deaton Jr: I should also for those people who will be listening to this podcast, this is a bit of an experiment. We're doing this podcast with Tom over video in a classroom setting where students from Land Economics will be participating in the podcast discussion. Tom, just to get the ball rolling, give us a bit of a background of property rights on First Nations and the consequences that have motivated your interest in this area. Tom Flanagan: Yeah. Well I think many of the problems that people point to that First Nations have - low incomes, bad housing conditions, various social pathologies, high rates of alcoholism and drug abuse and family breakdown and so on - a lot of these things have deeper causes in the absence of property rights. To give an example today is National Housing Day and Shawn Atleo the grand chief of the Assembly of First Nations published an editorial in the National Post this morning talking about the sad state of First Nations housing. He says there's a shortage of 85,000 homes for First Nations people on reserves. He also cites the Statistics Canada figure that 42% of existing housing is in need of repair. Now that's an astonishing figure, over 40% of housing is, and we're not just talking about a new coat of paint. Statistics Canada talks about needing repair they're talking about more serious structural features. Well, why is that? Well surely one of the main reason is that all the land on the Indian Reserves is owned by the government. Indians don't own the land, either collectively or individually. They can own a house but most don't. The houses are mostly provided for them by [banned 00:02:53] governments. There's never enough supply of housing and what there is, is not well maintained, in contrast to the larger society where shortage of housing is sometimes an issue, but pretty much a marginal issue. There's maybe 1% of the Canadian population at large that don't have safe, warm housing. So you can talk about housing as a problem, but the underlying problem is an absence of property rights which would enable a housing market to operate. It's housing markets that give us owner occupied or rental housing in the rest of the country, but those housing markets don't operate on reserves. So there's one example of how standard of living is impacted in a very real way by an absence of property rights. Brady Deaton Jr: So, if we were to look at the lay of the land on First Nations reserve areas today, what would we see in terms of those underlying property rights? There's leases, what other ... Tom Flanagan: Well there are some, there are sort of quasi property rights. There's very little of free holder or fee simple land of the kind that is the main property right off reserve in Canada. Fee simple does exist in a few special cases like on the [Iska 00:04:08] Reserve. But it's pretty marginal. So there are three types of existing property rights. One is customary rights which are widespread, but nobody really knows how widespread. Nobody keeps a complete record of them. But these are just based on occupation of land, often for generations, by families who may have houses or may have farmed it. But it's never been approved in any formal way by Band Council or the Minister. It's not enforceable in court. It may be recorded. Some bands keep registries of land, but if it hasn't ever been legally approved, it's not enforceable in court. Nonetheless, there's a lot of it and many people lives are based on it. Second form is the certificate of possession, which is formally approved by the Band Council and the Minister. There are about 44,000 certificates of possession in operation now on reserves. So that's a lot. And some reserves are almost entirely certificated like the First Nations, Six Nations Reserve close to, not that far from your university. And certificates are enforceable in courts. So they are a pretty strong form of title. The main limitation on them is that they can only be sold to another member of the same band. So there's virtually no market for certificates of possession. So that means that if you're on a reserve where certificates are accepted, you can get one and you can perhaps build a home on that piece of land, and you might even be able to get a mortgage if you can get the Band Council or some other third party to guarantee the mortgage. But the home doesn't become a savings vehicle. It's a place to live and you can leave it to your heirs. And that's good but it's - for most of us the home is the best investment we'll ever make because your wealth grows in it as the price of housing increases. But that doesn't happen where there is no housing market. And then the third form of property right is the lease. And the Indian Act has several provisions that underlie leasing arrangements. Certificates of possession can be leased and that's the basis of the prosperity of the Westbank Band in British Columbia is leasing of certificated land by individuals. Or the band can lease band land for major projects. There's lots of examples of that in Canada. It could be to casinos or hotels for golf courses, shopping centers, industrial parks, or residential housing developments. The lease is in some ways the strongest form of property, because once it's signed it's tradable in the market. It can be sold. And so there is a re-sale market for leases, so they don't have the weakness of certificates of possession. However the weakness of the lease is by definition it's time limited, 39 years, 49 years, 99 years, whatever. It's not as strong in that sense as fee simple ownership. The best guess is that under good conditions a 99-year lease might be worth about 80-90% of the value of fee simple ownership. But conditions aren't always that good. Some leases are written only for 39 or 49 years and they are worth quite a bit less than the fee simple value of the land would be. So anyway, these are the three existing forms of property rights on First Nations land. So the suggestion of our book is that the fee simple ownership should become a fourth option. Nobody would be forced to adopt it but ought to be possible for First Nations who want to, to have that chance. Brady Deaton Jr: Just for some of the listeners who might be listening in. When you think about fee simple, how do you define that or what's the kind of lay version of what you mean by that? Tom Flanagan: Well, fee simple ownership like any form of ownership is the right to use the land, have the right to exclude others from use of it and the right to dispose of it through sale or gift or lease or whatever. So it's a complete ownership restricted only by the laws of general application such as zoning laws or environmental laws, nuisance laws and things like that. That's the normal form of ownership of land in the rest of Canada so all the students I'm looking at probably - You're probably too young, most of you to own your own home but I suspect in most cases your parents own homes. And that would be fee simple ownership. And so it hasn't been available to people on First Nations land up to this point. So we would like to make that available as an option because it's a more flexible form of ownership. It's a better store of value. It appreciates over time because you can have a resale market for it. You can get a mortgage based on it. You can build a home on a reserve if you have a customary right or a certificate of possession but the bank won't give you a mortgage to do it unless some third party guarantees the mortgage because they can't seize the land because no outsider can own the land. But if the fee simple regime were introduced a bank would be able to seize land for non-payment of a mortgage as it would for anybody else because under that regime an outsider would be able to own land on an Indian reserve, which is presently impossible. Brady Deaton Jr: Alright. I'm going to turn it over to students for questions in a minute. But before I do that let me just ask you to maybe state the essential elements of the reforms that you and your co-authors are suggesting. Tom Flanagan: Well, the first step would be to pass legislation and that legislation is currently being drafted. It's called the First Nations Property Ownership Act. At one time we were hopeful that it might be introduced by the end of 2012. Now I think probably early 2013 is more likely. But anyway, the government is working on it. Once the legislation was passes that would make it possible for First Nations to opt into that regime. And that would mean opting out of the Indian Act with respect to the various land provisions in the Indian Act, which is a big part of the act, not the whole thing but it's a big part of it. So First Nations could choose to come under the new legislation. If they did that the first thing that would happen is that they would get a collective fee simple ownership to all of their reserve land, which at the present time is owned by the crown and held for the use and benefit of the people who live on it. This would make it possible for the First Nations as a collective entity to own the land on which it's lived. First Nations already do own some fee simple land collectively. For example, there was a piece in the news yesterday about the Musqueam Band in Vancouver what wants to do a land development project on what used to be University of British Columbia trust land. The Musqueam Band owns that piece of land in fee simple because it was given to it by the province as part of a land claim settlement. So there is some collective ownership, not a lot but there is some already collective ownership by First Nations of lands in fee simple. But this bill would allow a First Nation to own all its land in fee simple, not just sort of add pieces that they have picked up along the way. So they could own all their reserve land in fee simple. And that would mean they could do what they want with it without having to get ministerial approval. If they wanted to enter into a leasing agreement or a development agreement, they could do it on their own without having to get it approved in Ottawa. And then finally the legislation would also allow a First Nation to create individual titles in fee simple. Again, this would be optional. They wouldn't have to. But they could. And I think those ten or twelve First Nations that are interested in getting into this do want to create individual titles. Not for all of their land by any means, but for a part of it, mainly for housing purposes, perhaps other purposes as times goes on. And so individuals could then own land on an Indian reserve and they could sell it to whoever. Now there might not be a big resale market at first. I think people would wonder "Well what is it like to be an outsider owning a piece of land on an Indian reserve?" Well, the answer is it's kind of like if I decided to invest in real estate in Guelph. I have to take my chances with Guelph City Council, which can enact zoning by-laws and sets property tax [mill 00:12:30] rates and things like that. Well First Nations government would have the same kind of powers, local government powers and as an outside owner you'd have to deal with that government. So if the First Nations government can establish a reputation for competence and honesty I think over time external people would be willing to invest in that land, and there's no legal barrier to it in any case. So we can't say how quickly the market would develop. It would depend to a considerable extent on the behavior of the First Nations governments as to whether their behavior encouraged outsiders to buy in or not. Brady Deaton Jr: Okay. Let me ask students to ask any questions that they might have. Male Student: I just had a question about how you perceive the implications of an incompleted option of the ownership act in regards to the inconsistency in income disparities that may arise across the different First Nations that participate or not. Tom Flanagan: Well, if I understand your question correctly, we believe, we don't know because nobody knows the future, but we believe that the adoption of this act would benefit wealth creation for First Nations who adopted it. We think that their land would become more valuable. They could deal with it more expeditiously. They could engage both as a collectivity with Band land and as individuals with individual fee land. They could engage in economic transactions more freely so we think that this would lead to greater prosperity for the bands who adopt it. We also hope there'd be a demonstration effect so that other First Nations seeing the positive results might want to opt into the legislation also. It might in the short run produce some disparities between bands, you know those already exist because some bands like Westbank have been much more aggressive in using the opportunities that do exist under the Indian Act. These are somewhat limited, but they do exist and Westbank has been very aggressive in making use of those, and consequently has a high level of economic prosperity there - at least for those who own the certificates of possession. Now there is a kind of a disenfranchised group at Westbank that didn't have any certificates to lease. A lot would depend upon the initial distribution of titles. This would have to be - I haven't seen the legislation - It's still being drafted, but there will be a process for opting in. It will have to be approved by the band in some kind of referendum and I think that there will have to be an approved method for distributing land to make sure that it's not all grabbed by people who are politically influential within the First Nation. You know we don't want chief and council grabbing all the valuable land for themselves. So there would have to be some kind of more broadly approved distribution at the outset, and what happens after that? Well then you get into the market and trades become possible. Have I answered your question? Male Student: Yeah. You did. That was good. Thank you. Tom Flanagan: Okay. Female Student 2: I wanted to address the fact that some would view communal land and the right to private land ownership as being in direct contradiction of one another. If you believe this to be true, what is the reasoning behind your support of peaceable ownership regimes over supporting the rights of those who wish to share in communal property? Tom Flanagan: Well, we don't want to force anybody to adopt individual property. I would be opposed to that. Something like that was done in the United States in the Dawes Act in the 19th century and I think it turned out to be a big mistake. So our proposal is only for those First Nations that want to adopt a regime of private property to make it possible for them to do so. But I think it's important to recognize, and there is an historical chapter in our book, that prior to contact with Europeans coming to North American there was a wide variety of individual property rights among the native population. Most of the eastern part of North America was farmed - certainly the Southeast and the Atlantic seaboard and the central part up into Ontario, southern Ontario and Quebec, and the American Midwest, and the American southwest - There was high developed agriculture in all these places and with that went forms of - it's not fee simple ownership - it was, we understand that's a British concept, but there were forms of family ownership of farming fields. Similarly, in fishing people of the coast there was family and sometimes even individual ownership of choice fishing stations and spots, shellfish beds and things like that. There were individually or family owned traplines once we get into the era of the fur trade in the northern forests. So the cultural traditions of First Nations people include lots of forms of individual and family property. It was not all just communal. The closest to a pure communal model would be the buffalo hunting people of the prairies. And it's interesting that the reserves in the three prairie provinces have the smallest number of the certificates of possession I mean it'd be almost none, very few. There is probably a cultural mismatch there. But certificates of possession are very common in British Columbia, southern Ontario and southern Quebec where the way of life was more sedentary and there was a tradition of family ownership of certain real estate assets. So anyway, we think that there's a cultural, a good cultural fit, for private property for at least some First Nations. So we want to say that those who want to go that way ought to be able to go that way. The trouble with the Indian Act is that it imposes the communal model on everybody. Female Student 2: Thank you. So the next question is, if First Nations adopt fee simple ownership, what, if any, implications could arise relating to environmental degradation and how can we mitigate against or account for these potential environmental problems? Tom Flanagan: Well, I don't know. Your question seems to imply that individually owned land is more likely to be environmentally degraded than communally owned land. I don't really think the evidence supports that. If you want to go back to the famous parable of the tragedy of the commons, which I'm sure you've studied in your course, there's a couple of different ways of getting out of that tragedy. One is through collective oversight that we might say government regulation. But another is to privatize the commons and let it be individually owned so that owners have incentives to manage the land to retain its benefit for the future because they'll get the benefit. They're the owners. So I don't think there's any reasons to that individual ownership is more likely to lead to environmental degradation than communal ownership. But in any case our proposal envisions the existence of a First Nations government. This is a chief difference from the Dawes Act where the Dawes Act didn't provide for tribes in the United States to continue with some form of tribal government. The whole plan of the Dawes Act was to get away from tribal government. But our proposal recognizes the existence of First Nations governments and those governments would have a variety environmental regulatory powers, including zoning and nuisance legislation and setting environmental standards. They would have all the same powers that local governments have now under provincial legislation. They have the same kinds of powers. Now if they chose not to exercise them, I suppose it's possible that there could be environmental degradation. But they would have the tools. Fee simple would not take the land out of the control of the First Nations government. Individuals could have ownership just as I own my house in Calgary. But that doesn't mean I can do...
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The U.S. Farm Bill: Past, Present and Future Issues - August 19, 2013
03/14/2025
The U.S. Farm Bill: Past, Present and Future Issues - August 19, 2013
In this podcast David and I discuss the U.S. farm bill. He reviews the history of U.S. farm bills and the current political setting surrounding efforts to pass a farm bill in 2013. Transcript [0:05] Brady: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [0:22] [Music fades out, ends.] [0:25] Brady: Today I'll be talking about the U.S. Farm Bill with David Schweikhardt, professor of agricultural, food and resource economics at Michigan State University. David, welcome to FARE Talk. David: Thank you. [0:37] Brady: David, I want to talk about the current setting and the current dynamics around the U.S. Farm Bill, but perhaps before we start that, for this audience, tell us a little bit about kind of what the Farm Bill is and where are it's origins. David: Well, modern farm bills are rather large pieces of legislation. We give them the name Farm Bills as if everything that's in them had to do with farm policies directly at the farm level. But over time, farm bills have become very comprehensive in that they include a lot of different programs. They do of course include commodity programs, price supports and other programs for farmers. They include conservation programs for farmers that make payments for certain conservation and resource preserving practices. But it also includes a wide variety of other topics, all the way from nutrition programs such as the supplemental nutrition and assistance program, SNAP program, used to be called to Food Stamp program which is basically an income supplement for lower income persons. That was added in 1973. You have programs like Women, Infants and Children which is a nutrition program aimed at pregnant and mothers, pregnant mothers, and at children and infants. We have school lunch programs, which are aimed at feeding of school aged children. We have some elderly feeding programs, we have farmers’ market programs. Much of it is related to food but it actually encompasses many different parts of what we might call the food system, which includes everything from the input supply level all the way up to the retail level. And so there, we call the Farm Bill basically is a historical shorthand, but we, it encompasses much more than simply the farm level. [3:00] Brady: Alright, and these, you know, the origin, this is a twentieth century, in the 1930s this emerges, or? David: Right. The first Farm Bill was passed in 1933. It included basically two elements, price support programs for farmers and supply control, acreage control programs. And it had one simple objective; it had the objective of increasing farm income. That was the start of the policy, that was the end of the policy. So it was entirely focused around the farm. That continued basically through the late 1960s. In 1973 we had a significant change, we still had the programs for farmers, they were converted into income support payments rather than price supports in 1973, but the 73 farm bill was the first farm bill that included the food stamp program on a national basis, which again, is the forerunner of today's SNAP program and it's an income supplement essentially for lower income persons. So, in 73 we combined farm programs and nutrition programs. Then in the 80s we added several environmental and conservation programs aimed at a variety of environmental problems associated with agricultural production. Then in the 90s we added even more programs ranging from, you'll see amendments in the 1996 farm bill dealing with a variety of animal welfare issues. Crop insurance then in the 2000s began to replace or exist alongside price supports for farmers. And so, over time, this thing evolved basically in the same direction as society evolved. We added policy targets because society added policy targets. The first policy target back in 33 was a simple one, increase farm income. By the 2000s it had become increase farm income, but don't have too much effect on consumer prices, support incomes and food consumption for lower income persons, deal with a limited set of animal welfare issues. In economists’ lingo, we added an increasing number of policy targets. Now there's an old rule in economics called the Tinbergen rule, and the Tinbergen rule says that you have to have at least as many policy tools as you have policy targets. That no one, that if you have more than two policy targets you cannot hit both targets any more than you can hit two birds with one stone. And if you get to the 2000s where we have 5, 6, 10 or more policy targets, you're going to have a larger number of policy tools and it becomes a much more complex piece of legislation. So over time this has been a matter of legislation that has gotten larger in its scope because the problems that society cares about have gotten larger. [6:57] Brady: Alright, and so normally these bills are passed every five years, but we're not in normal times now. What's going on right now? David: Well out last farm bill was in 2008 and it was a 4 year bill, and as you noted, we usually write these bills for four or five years. So it's a four year bill, and so we were supposed to rewrite it in 2012. In 2012, the Senate agriculture committee passed a farm bill, and the entire Senate then took that bill up and passed it largely unchanged from what the Senate ag committee had passed. So the Senate got their job done in 2012. The House agriculture committee passed a bill in the middle of 2012 and the leadership of the House, the Republican leadership of the House never brought that bill to the floor. Why that was, we can go into a bit later, but they never even brought that bill to the floor for votes. So as we reached December of 2012, Congress passed a one-year extension as part of a larger budget package. We called it the fiscal cliff back in December of 2012. So there's a one-year extension. That brought us into 2013. In 2013, the Senate once again passed a bill. The House voted on what was essentially the 2012 House bill and it was defeated when a large number of Republican members voted against the bill because they considered the cuts in nutrition programs, especially cuts in the SNAP program to be too small. After that defeat on the House floor, the House leadership brought back to the House floor a bill which includes only farm programs, did not include any nutrition component. That bill passed on a very narrow vote, vote of about; I believe it was 216 to 208. Virtually no Democrat, very few Democrats voted for that bill, a handful of them did. So it's basically along party lines. So where we stand now is the Senate has passed a Farm Bill that includes both farm programs and nutrition programs. The House has passed a bill that includes only farm programs, does not include any nutrition programs. Now normally when both Houses have passed a bill, they then go to a conference committee that works out the differences between the two Houses, and they produce a final bill that is sent back to both Houses for final vote. That conference committee formation has not occurred and Congress is on vacation until after Labour Day. Speaker Boehner is saying that the House will take up a nutrition bill immediately after Labour Day. I have my doubts that that will happen, but we can talk about that later. [10:47] Brady: I want to get into some dimensions of this gridlock we talked about when we were recently together in Washington, D.C., about your thinking about a way of characterizing this gridlock. But before I do, just give me an idea of what we're talking about in terms of size of the farm bill. Do you know roughly about, you know, how much money are we talking about here? David: Well over, they score farm bill over a ten year period even though it only, legislatively, exists for a five year period. And, the House version, the version passed by the House ag committee and the Senate version both cost in the range, of say, 950 billion dollars over ten years [Brady: Okay]. So, we're talking about, Department of Agriculture budget then that would be somewhere in the range of 100 billion a year. [11:51] Brady: Alright, and let's compare that to maybe the budget, the defense budget. I imagine it's much smaller than the defense budget. But how does it, so I'm just in order to kind of put it in some perspective, it's smaller than the defense budget, but it's bigger than or comparable to, what budget might it be comparable to? David: Right. Well, if you look at the U.S. budget it's actually pretty simple. Defense, social security and entitlement programs such as Medicare take up about 75% of the U.S. budget. Everything else the government does is about 25%. If you look at farm programs, commodity programs plus crop insurance, that equals maybe 20 billion a year. Now that 20 billion a year, in addition to that 20 billion a year, then you'll have about 80 billion dollars mostly for the food stamp program. That's roughly the way the budget breaks down. If we look at that 20 billion we spend on farm programs, that is significantly larger than the entire budget of an agency like the EPA, the environmental protection agency. It's significantly larger than the budget of the Federal Bureau of Investigation, the FBI. So we're talking about a significant amount of money here in comparison to a lot of other agencies in the government. We're talking, it is small relative to defense or social security or Medicare, but it's large in relation to a lot of other things the government does. Like I said, that, you take away the big three of defense, social security and Medicare, and you've got about 25 percent of the budget left for everything else the government does, and agriculture is still a large chunk of that 25 percent. [13:59] Brady: Alright, that really helps me put that into perspective. So the stakes, you know, are relatively high, especially when you compare it to spending on other departments. So, what's your theory about, well I guess two things. One, I imagine this is kind of unchartered territory with respect to not being able to pass the farm bill? And two, why is, why is this happening now? David: Well, let's first begin, in terms of what's so different about this year. Farm bill politics in the United States has traditionally been geographic politics. And by geographic politics, that geographic politics was driven by commodity interest. A Democrat from a cotton growing region often had the same basic policy views on cotton policy as a Democrat, or excuse me, as a Republican from a cotton growing district. A Democrat from a corn growing district often had the same basic policy views as a Democrat from a corn growing district. Why? Because it was commodity interest that mattered. Alongside that commodity and geographic politics, you had beginning in 1973 this politics of an urban-rural coalition. And that urban rural coalition was built around a recognition by the agriculture committees at that time, that in an urbanizing society, which the U.S. was in 1973, the mass movement of people from agriculture into urban areas was pretty much complete. In this urbanizing society, you could no longer pass a farm bill that had nothing except price supports and other income supports for farmers. In an urban society, you began to get an increasing number of urban and suburban legislators who began to ask "What's in this for me? What's in this for my constituents? If it's all about subsidies for farmers, I'm not interested." And the agriculture committee at that time made the decision; we've got to have some coalition between urban and rural interests. And the agriculture committee at that time was the one that led the drive to build that urban-rural coalition, and that urban-rural coalition was around farm programs for rural areas and nutrition programs for urban areas. And so farm politics, under 2008, and especially since 1973 was driven by a) geographic interest and b) urban-rural coalition. What has happened with this farm bill in 2012 and 2013 is that that coalition appears to be under dramatic political pressure that is breaking down that geographic politics and that urban-rural interest. In other words, many rural legislators have decided that they are prepared to take on the nutrition programs on an ideological basis. Basically, and it's an issue of whether people who receive SNAP benefits deserve to receive those benefits. And if that part of the coalition decides that it is no longer willing to make that compromise, it's difficult to see where a farm bill comes from in this atmosphere. So what we've seen is a dramatic shift from the old geographic politics of agriculture to a new perhaps ideologically driven politics of agriculture. And that's a very dramatic shift for the United States. [18:43] Brady: And then of course, how does that play itself out then, in this gridlock? Because the Senate is controlled by a different party than the House is controlled? David: Yes. But the fact that the House could not pass a farm bill that included a nutrition program and now is talking about, well we're going to go back and pass a nutrition bill program, which I'm very skeptical that they're going to be able to do it, means that you have a House that has passed a bill that only provides for farm programs and a Senate that's sitting there saying "We want a farm bill that has both the farm programs and the nutrition programs." Now think about that way the House and the Senate are structured. By definition, the Senate tends to take a broader societal view on issues. Trade bills for example, often are treated much friendlier in the Senate than in the House because in the Senate, when you have a trade issue, a Senator hears from both winners and losers in that issue. If you look at a trade issue in the House, the members, because they represent smaller districts, tend to only hear from winners or only hear from losers. And that makes the politics of trade very different in the House. What we're seeing is the Senate is sitting there, basically saying "We expect to have a nutrition program in this farm bill. We can talk about the sides of the cuts that are needed in nutrition, but we expect there to be a nutrition." And the House is saying "We're not so such that we really want a nutrition," or a significant number of members of the House are saying "We're not sure we want a nutrition program in the House and we're hearing from our constituents that they want larger cuts in nutrition and we're listening to those voices." And so you tend to have a very different political structure in the House and the Senate because of the different geographic sizes of the two. [21:09] Brady: Now if they can't work out a farm bill, what happens? David: Well, now there's something called permanent legislation which was the 1948 farm bill, which stays on the books. Every farm bill since 48 is an amendment to the 48 legislation. If we don't pass a farm bill, then technically, if we don't pass a farm bill before this one expires, which is sometime in September, then technically we would revert back to the 48 legislation. The 48 legislation has dramatically different programs than what we have today. Today's programs are much more market oriented than they were in 1948. In 1948 they consisted of what would be very high price supports for commodities today, price supports that would be well above prices that we have today, and if that really came into effect you would expect that those price supports to establish a dramatically higher price floor, under the world price, under the world market price and the government would end up having to buy large stocks of those commodities. Now, that's a very troublesome scenario for a lot of members of Congress and one of the reasons that some people have speculated that Congress has kept the 48 farm bill as permanent legislation is that that scenario is so scary that it's a hammer that the ag committees can use every four years to write a new farm bill and get it passed. If you don't vote for this new farm bill the 48 bill comes in and boy is that going to be scary. Perhaps that's true, perhaps not. I don't think Congress, I think if we get into later in the year and we've not passed the farm bill, I think Congress will find ways to delay that 48 bill from coming back into existence because it would be disruptive. [23:32] Brady: Okay, so that's if, if they don't make something happen then you imagine they will pass some kind of legislation that allows them to delay having to move back to that 1948 farm bill. Is that right? David: That's what the normal process would be. If you don't pass a new farm bill you would go back to the 48 bill. I guess what I'm saying is I think Congress will find ways to stall the return of that 48 bill. It's a possibility we had in 2012, we had a one year extension of this farm bill. There's a possibility I suppose that there might be another 1 year extension. Now Senator Stabenow now, from here in Michigan, who is the chair of the Senate Agriculture Committee has made it very clear an extension is unacceptable to her. I think it would be unacceptable to a large number of Senators. They've passed this bill two years in a row, they've done their job and I don't think they're going to let the House off of the hook this year with an extension. Now, how did we get that 2012 extension? Well it got rolled into the fiscal cliff deal at the end of 2012, a large budget deal that had nothing to do with agriculture. It's possible we are going to have another one of these large budget debates and government debt limit debates before the year, this year is over. It's possible I suppose that another extension could be rolled into whatever that deal becomes this year but I don't think it's as likely as it was in 2012. Let me also say this, without going into the details, I think America, U.S. farmers are going to begin to work their pencils a little bit, and when they do, they're going to figure out that the provisions of the Senate and House bills are going to be much better for them than another extension. We're seeing commodity prices significantly lower than they have been the last couple of years. The 2013 bills, if they pass, will provide much more downside protection for U.S. farmers than an extension bill. [26:12] Brady: Okay, let's talk a little bit about that if you will. So, the proposed programs have this shallow loss type of [David: Mhmm] coverage in it. What does that mean? David: Well the basic principles of the House, both the House and the Senate bills that have passed are basically very similar. They move agriculture, U.S. farm programs from what used to be a price based payment system, that if prices fell, farmers received a payment, if prices rose they did not, or they received a smaller payment. That is being replaced by a revenue based system in which farmers would have a benchmark revenue guarantee, based on, say, the last two years average price and on the last five years average yield. And whenever a pay- whenever a revenue because of a decline in price or a decline in yield, whenever revenue fell, farmers would be below the benchmark, farmers would be eligible to receive a payment. I think farmers are going to begin to look at that and say that that looks a lot better to me than the old fashioned price based system that we used to have and I guess from a Canadian perspective, we've had these relatively high world prices the last two or three years with good weather, in the U.S. at least, corn stocks are likely to be...
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The Food Police: A Well-Fed Manifesto About the Politics of Your Plate - October 8, 2013
03/14/2025
The Food Police: A Well-Fed Manifesto About the Politics of Your Plate - October 8, 2013
Dr. Jayson Lusk and Dr. Brady Deaton discuss Jayson's most recent book - The Food Police: A Well-Fed Manifesto About the Politics of Your Plate, and his concern about government led efforts to promote local food, tax soft drinks, and diets in a particular direction. Transcript [0:05] Brady: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [0:25] Music fades out, ends. Brady: Today I'll be speaking to Dr. Jason Lusk about his recent book The Food Policy: A Well-Fed Manifesto About the Politics of Your Plate. Jason serves as Regents Professor and Willard Sparks Endowed Chair in the Department of Agricultural Economics at Oklahoma State University and also serves as a Samuel Roberts Nobel Distinguished Fellow at the Oklahoma Council of Public Affairs. Jason, welcome to FARE Talk. Jason: Hi Brady. Thanks for having me on. [0:53] Brady: Let's start off with just talking about who are the food police and what are they doing that concerns you? Jason: [Laughs] Well, I kind of like to think about them as the back seat drivers when it comes to food. So it’s sort of group of people that think they know better about how you and I should be eating, how farmers should be farming and, you know, it's not a huge group of people, but they've been incredibly influential in affecting how our cultural, how our nation thinks about food and recently also having some impact on public policy or at least public attitudes about public policy. And I think the challenge is, both, from my perspective, is the mis-characterization that is fostered about production agriculture on the one hand, and then also the sort of lack of recognition of what the economic research, and not just economic research, but science in general says about some of the policies that are being advocated. And I think that the unfortunate reality is that many of the policies that are advocated are going to be more costly than they are beneficial and sometimes do more harm than good. [2:05] Brady: That’s, before we get into some of these specific policies, which I do want to serve as the fulcrum, really, of our conversation, one of the things that I noticed at the start of your book is that their characterization, or who you termed the food police, a group of people that are commenting somewhat pejoratively about the current state of agriculture in North America, is very different from your own perception of contemporary agriculture. And I was wondering if you could draw that out a little bit. Jason: Right, so you know, the sort of popular narrative that most people have about food is that, it's been fostered by these folks I'm calling the food police, is that, you know, sometime in the 50s or 60s something went wrong. And that thing that went wrong, often the finger is pointed at agribusiness, and various technologies that agribusinesses developed and that led to this process of farmers becoming bigger. They claim there's corporatization of farming; small farms are being run out of business. Farmers can't get a break; they're being manipulated by these big companies. And at the same time, the consumers are getting fat, we're not eating as healthily as we once were, and this is all a result of this out of control, sort of corporatization of agriculture and it’s also a result of the farm policies that we have, subsidizing these big corporate farms and agribusinesses. Now that's the story that's told, and that's sort of the characterization that many people have about our food sector. And part of what I'm doing is pushing back against that a little bit. Some of that is true of course, but I think a lot of it overlooks some really important facts and misses some really important benefits. So, just to take a step back, you know, they, to read these popular writings about food, everything is bad with food. We have all these terrible environmental consequences, these terrible social consequences from small farmers going out of business, and then also these terrible health problems. And so, part of what I'm doing is saying, "Well let's just look at what is actually going on out there," and I think when you look at a lot of the statistics about the state of food and agriculture in this country, and in Canada, what you see are really positive signs. And now I'm not claiming that there aren't any problems, or that there aren't things we need to think about, but what I am saying, is that we need a sort of accurate picture of the world that surrounds us before we start advocating all kinds of changes. So, just to give some examples, you know, one is that life expectancy is increasing, it's been dramatically increasing over the past 100 years, but even in the last 20 years alone, while there's been all of these supposed health problems, life expectancy has continues to rise. In addition to that, and I don't know the statistics on Canada, but in the US there are actually more farms today than there were 10 years ago, there are more small farms today. The farms that do exist are making more money than they once did. It used to be the case that being a farmer was an occupation of a popper, but today the median income of farmers far surpasses the median income of, you know, regular households. That's not to say anything about the assets that those farmers hold too. So, financially, farmers are doing well off, and small farmers are also doing relatively well off. I'm sure they wish they were doing better [laughs] but they're doing well. And I think whenever we look at even other things like food safety, it's also getting better. The, you know, for example, the number of confirmed cases of E. Coli, for example has gone done significantly over the past decade or so. People in the US are eating more fruits and vegetables than they were in the 70s. Women are spending much less time in the kitchen than they did in the 60s. I think there is some shocking number, like 80% less time in meal clean-up and preparation women spend today than they did in the 1960s. Now I know some people like Michael Pollan, in his recent book Cooked, he's trying to get everybody back to the kitchen. I think that's a fine thing to suggest, but I think if you actually looked at the lives many of our grandmothers led, you know, it was not all that romantic [laughs] and to feed that family, they had to spend a lot of time in that kitchen. They didn’t have microwaves, they didn't have easy to prepare meals, so it really did take the bulk of a day getting ready for a meal and cleaning it up. And I think that's, of course there are a lot of reasons for this, but one of the reasons many women today can now enjoy working outside the home is because a lot of the tasks you used to have occupy a lot of the time for women are now obsolete, and I think that's a great thing. So, you know, I could go on and on but I think the overall picture that I'm trying to paint here is that the state of food and agriculture in our society is great, it's never been better, and it's never been better in the history of humankind. I mean the biggest challenge for humans, historically, has been finding enough food to eat. And yea, we have some problems now about maybe eating too much, but in my opinion, that's the lesser of two evils. We might need to think about ways we can get better at that but in a lot of ways, I think we're really enjoying absolutely amazing abundance [laughs] of food both variety and quantity and quality that's never been witnessed in human history. [7:24] Brady: In a previous podcast that we did with David Schweikhardt, we looked at the history of farm bills in the United States. And this history starts in the 1930s and contemporary, what we call the contemporary food system as you know, has built a lot of government policies, some which we might be more critical of than others. But in its initial, in its starting point, Dave Schweikhardt mentions in the podcast that really the main goal was to raise farmers income, that is was decidedly less than others and it was perceived as a social goal. And that sort of motivated many of these initial government policies, and that was the starting point. When I read the book, and I looked at a lot of the policies that you were critical of, it seems, perhaps unlike where we were in 1930s, that you just aren't buying the starting point of what the appropriate role for government should be. In other words, in the 1930s when these farm bills started, the objective of supporting farmer income might have been something that was generally perceived as an appropriate role of government. But that's something different from the set of policies like local bands on certain food groups, and fat taxes. You seem to be saying this isn't an appropriate role for government. Is that a fair characterization of the difference between, you know, the role of government historically in supporting agriculture and the set of policies that you tackle? Jason: Yea, I mean I think I would be critical even if some of those policies with the goal of supporting farm income back in the 30s. So, you know, in general some of those are sort of philosophical issues about what is the appropriate role of government. You know, should the government be involved in, sort of, redistributing wealth to those people who sort of, you know, out of economic favour with the times. And you know, some of those things are sort of philosophical issues that are a little hard to argue with but I think one of the things that I try to point out in this book is that once you kind of go down that road as it happened with farmers, it’s hard to get out of it. And indeed, I think that's what we've seen is we have these policies and they might have addressed a, you know, a need of the time in the 30s, but what you find is they actually had all kinds of unintended consequences even at that time. You know, one of the ways they tried to prop up prices back then was by destroying commodities, restricting the supply, and this was at a time, in the Great Depression, where there were big soup lines. So it was, you know, ironic sort of convoluted set of policies that persist today and in fact a lot of the arguments of the, sort of modern day foodies, the food police that I call them, are actually, you know, their problem is with those same policies and they blame them on a lot of the problems that we have now. I think, I'm not a fan of the farm policies, but I think they're ascribing all the problems that the, sort of, food police see to those policies is also misplaced. The research doesn’t seem to support that. But I think there is one distinction that is important, and a lot of the policies that I sort of take up in this book that I find, you know, problematic, things like fat taxes, subsidization of local foods, you know, Pollan’s new book Cooked, he's advocating for subsidies for people to get back to the kitchen, and these kind of things, is that I think at a fundamental level, these policies are being driven by the desires of a particular set of people who have a particular view about food. And this is a characterization, it's not true of all of them, but they tend to be middle-class, upper-middle-class people that have a particular aesthetic preference about food and how food should be produced. And my concern, is what they're doing is imposing those sets of preferences of everybody else in the country who don't have the same incomes that they do, the same desires that they do. It's all great to say that you want local, you know, heirloom tomatoes. That's fantastic if you can afford to do it. But to say that that's how everybody should be eating and that we should be spending our tax dollars to make those outcomes happen, I think is really mistaking the challenge that a lot of people are actually dealing with. And one of the things I try to remind readers of this book is that even though, yes, we have done a great job providing more food than we ever have using fewer inputs than we ever have, it's still remains the case that at least in the US, 15% of US households are food insecure. In the United States there's a record number of people on food stamps. And globally, which is of course where the bigger problem is, there's just under a billion people that the United Nations today says is starving. So, you know, being able to produce enough food inexpensively is, remains a big challenge and it will continue to be a challenge that population, we're supposed to add another billion people, most projections say, in the 25 to 50 years. And so being able to supply enough food in a cost effective and high quality manner is a different objective than the one of, you know, providing niche high quality food to those people that can afford it and that's sort of, I think the crux of thinking [laughs] or at least my critique of a lot of the modern, sort of fashionable food policies. [12:57] Brady: Alright, let's hop in to one. There's one that's very local, if you will. Currently in Ontario, Bill 36 which is being considered to promote local food establishes a local food week and it allows the minister to set goals to which public organizations should strive to in terms of their provision of local food, and also allows them to audit their material. Now, you're somewhat critical of these kinds of bills. You start of one of the things, and you kind of address some of the tenants that are often behind these bills, and suggest that they don't really stand up as much as advocates might suggest. And I thought could just go over some of those tenants. So one is that local foods are good for the environment. Jason: Right. So if you don't mind I might take one step back and just say [Brady: Yea] I don't have any problem with people buying local foods. In fact, I do it myself. I buy things from my local farmers market here in Stillwater, Oklahoma. My former students run stands at the farmers markets, so I think those are all nice things and there's nothing inherently problematic with it. But what I am taking issue with are these kind of policies like the one you’re talking about in Ontario that, you know, are going to restrict or subsidize activities or are going to require, there's been some proposals here in the States to require schools or hospitals to purchase a certain percentage of their foods locally. Those are the kinds of issues that I take issue with. And the reason I do gets back to the question you asked, Brady that you asked about, what is the appropriate role for government? You know, normally as an economist we have, you know, a set of quote unquote market failures that would sort of justify government intervention and I think the list that you're sort of about to lead us through here are all the sort of normal things people would say is this a reason for government intervention? And when I look at the actual evidence and the research on these topics, I just don't see them adding up. So the first question you asked me was, okay, surely we should subsidize local foods because they're good for the environment, right? That's a very common argument, and I think people think this, because what they think is well, if we're buying local foods those foods have travelled fewer miles, and so therefore there must be fewer environmental problems, less carbon emission, less energy use to get the product produced to market. And of course, that's partially true, but what that perspective is missing is that the transportation phase of the food delivery or the food production process is a relatively minor part of the overall energy picture in food production. In some, the research seems to suggest that about 80% of all the environmental consequences that occur, at least in terms of like greenhouse gas emissions, occur during the production phase, where the food is grown. And so what that says to me is that what you what to do are find places where you can grow the food most efficiently and then ship that food to market, because that shipping phase it consumers relatively smaller amounts of energy. I think one striking example of this is a study that was done several years ago and they compared the amount of energy that would be used if people that lived in London bought lamb that was grown in, around London, or if they bought lamb that was from New Zealand. And they actually found that the New Zealand lamb, those Londoners would be better off at least in terms of energy expenditures, buying that lamb that came from New Zealand. How is that possible to have lamb travel 10,000 miles and use fewer, you know, less energy? And the reason is because New Zealand is naturally endowed with all those things that make rearing sheep especially easy. Lots of grass, lots of sunshine and moreover, you put that lamb on a boat and shipping by boat is incredibly energy efficient. You’ve got to remember we had ships sailing the ocean before we ever had fossil fuels, and so you can get on the currents are really be able to transport food very efficiently that way. And so the argument that buying locally will save energy, I think it just doesn't stand up to the facts, and moreover, it could actually be worse because if you think about a lot of small farms, farmers driving small pickups to a market, actually will often generate more energy, will use of more energy or create more environmental pollutants than will one large semi-truck backing into a grocery store, for example. We're over [laughs], if you look at the amount of energy expend, that you and I expend to get ourselves to the supermarket, that is often a bigger energy cost than all, to get that food to the market in the first place. And that's just one argument, there are a lot of other agreements that surround there, but I think when you look at the whole picture, the one that emerges is we really want to think about growing foods where they can be most effectively grown and in that, if you're worried about environmental issues, is the way you want to think about it. [18:14] Brady: Another argument that is commonly set forward is while we want food security, or we want to make the agriculture sector more robust locally. You're somewhat critical of that suggestion as well. Jason: Yea, I think it's a little short sighted, to think in those terms. Now, you know, there’s one argument that farms should maybe be more diversified. Okay, that's fine and good but that doesn't necessarily mean it has to be local. But, you know, one of the problems with this sort of food security argument is, you know, the nature of production agriculture is that when something, you know, it's cyclical, it comes in seasons. And so what happens is all the produce in an area is likely to come to market at about the same time, so you have these series of times in the year when there's a glut of food, whether its corn or potatoes or tomatoes or whatever it might happen to be, and so, yea, you've got a lot of abundance at one time of year, but you don't at another time of year. Not only is that wasteful, cause what ends up happening, and if you look at the data this is what happens in a lot of farmers' markets, they throw out large amounts of produce, so it's not particularly good for the environment. But if you go to bigger production regions where you have big processing plants for example, packing plants located next to the fields, than that kind of waste is not nearly as likely to happen there. But the challenge with this sort of food security argument is, you know, what happens if a drought occurs, or a hail storm occurs and destroys the crops in a region? Then you might say, “Oh we...
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Tenants and Landlords: Who benefits from U.S. Agricultural Subsidies? - January 5, 2014
03/14/2025
Tenants and Landlords: Who benefits from U.S. Agricultural Subsidies? - January 5, 2014
Barry Goodwin and Dr. Brady Deaton discuss Barry's research on the effect of U.S. subsidies on U.S. farmland values and rental rates. They focus their discussion on the effect of U.S. agricultural subsidies on rental rates. Transcript [0:05] Brady: Welcome to FARE talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton Jr., of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [0:23] Music fades out. Brady: Today, Barry Goodwin and I will be discussing his research on the effect of US government subsidies on US farmland values and rental rates. Barry is William Neal Reynolds professor in the departments of economics and agriculture and resource economics at North Carolina State University. Barry, welcome to FARE Talk. Barry: Thank you Brady. Good to be hear. [0:45] Brady: I should note to listeners that today's discussion will orbit around a paper that Barry and his colleagues have written, and the title of that paper is The Buck Stops Where? The Distribution of Agriculture Subsidies, and a link to that paper will be made available. Barry, I love the way you start this paper, and I'm just going to throw the question that you pose to your readers, a question that you took from a news report, and I think it's an interesting way to start this podcast. And the question is, what do former basketball star Scottie Pippen, publisher Larry Flynt and stockbroker Charles Schwab all have in common? And what's the answer to that question, and why is it important? Barry: Well they're all beneficiaries of farm program subsidy payments, so, and they're not, you know, individuals that we would associate as being involved in production agriculture. You know, makes for an interesting news story, to find these different individuals that are very wealthy and very influential, and yet are receiving farm subsidy payment cheques. [1:55] Brady: And somewhat related to this, is I was looking at Paul Barkley's centennial history of the American agriculture economics association, and he's talking about four running meetings that four runners of the association, in particular looking at the economics society, and he talks about a session that was put together to examine the rapid increase of the system of land renting, the absorption of small holdings by wealthy land owners, and the abandonment of farms. But what's interesting about that is that it was a session that was put together in 1897 [laughs]. Barry: Wow, that's fascinating, yea. I have seen that but it’s, I Believe the farm ownership peaked at some point there back in the early part of the last century, so the number of farmers and that sort of thing has been sort of on the downward trend ever since, so. Brady: Now the numbers, one aspect of this question is, it turns out that a great portion of farm land in the US and I believe the phenomenon is relatively similar in Canada, is owned by people that wouldn’t be considered farmers, or non-operators. Barry: Yea, that's right. I mean it's, and even more fundamental to that is the fact that such a high proportion of farm land is operated by a tenant not the owner, and you know, I think in the US now it's approximately 40%, but if you go into some of the main production areas like the middle of the corn belt, I think it goes even much higher. So, it's, you know, an increasingly prominent feature of agriculture in developed countries, in the US, I know it is very similar in Canada. And so, there's that part of it, and then there's the question, well who are these landlords? Are they other farmers? Or I think what we generally think of, you know, sort of think of a anecdotal story that you might be familiar with, it's some retired farmer that's living in the area and renting out their land to their neighbours, but USDA did look at this back, I believe it was about 98 or 99 in one of their land owner surveys, and the found, you know, some really interesting findings that a lot of landlords are retired farmers, but an awful lot of them don't live near the farm, they're not retired farmers, they're you know, retaining ownership of this land that may have been in the family, but they are not involved in production agriculture to any tangible extent at all. So, you know, some very interesting questions. [4:34] Brady: We did a survey actually in southern Ontario trying to figure out that question to, and we found very similar results. Clearly widows and widowers are, that's a big category, and retired farmers. But there's a lot of people, particularly in southern Ontario that are what are identified as residential land owners that may live on the land, but aren't kind of actively farming, and maybe commuting to another job. Barry: Exactly, yea. Brady: So this is a big question, and, you know, there can be pros and cons, I guess, in a variety of ways, but you are really looking at the transmission of the agriculture subsidies to the land owner as well as the tenant. And, I guess, talk to me a little bit about what the debate is, or what the kind of thinking, the general thinking of that, and then we will kind of go over maybe some of your general results and then move into the more specifics of your paper. But what would be the expectation of how that would play itself out? Barry: Yea, so, you know, just to start with, land value, like any other asset, land arises value from the stream of incomes that it is going to earn in the future, and there is some uncertainty associated with those incomes and one thing we do look at in this paper and some others that we've done is really just to consider the fact that different sources, different policies, different types of income may have a, you know, different degrees of uncertainty associated with it, so how they're going impact asset values could differ as a result of that, but you know, the big concern right now, whether it’s a concern or just a, you know, a feature of agriculture, is the fact that high prices have driven up land values tremendously. You know, it’s just been in the last five to ten years we've seen just a real increase in land values, and that's of course, a capital gain to the land owners, it's, you know, a cost to somebody who's wanting to get started in agriculture and acquire this land, but there's a lot of issues that relate to the fact that these assets have continued to gain value. And then there's also the question of who are these policies really intended to provide benefits to? The legislation requires, in the US, that if it's a cash lease, that the subsidy cheque goes to the operator, the tenant if it’s a tenant operator, and because they're technically the ones who are holding all of the production risk, that's the way it’s always done and has been done. And, if it’s a share lease, which is becoming less common in most areas in the US, but if it’s a share lease, then the subsidy cheques would be divided according to the terms of the share. But, you know, one important question is, if the cheques, the cash leases, which are the most prominent way land is leased, if the cheque is going to the tenant, does that mean that the landlord is not benefitting from that? And the fact that so many landlords really are quite far removed from production agriculture now, is that the intent of the policy? Or is that just, you know, a consequence of the way the policies are distributed? It's an important question as to really, if it’s a cash lease sort of arrangement, does the landlord essentially raise lease rates to capture some of those additional benefits when policies change. And we believe we do, and I think the literature is pretty clear on that. The debate is over how much of that dollar of subsidies stays with the operator and how much goes back to the landlord. [8:28] Brady: Right. So, the land owner is sitting there, and they become aware of a government subsidy that is going to the tenant. I guess the question is, do they capture that full subsidy or to what extent is it shared? And you kind of, your research focuses not only, in this paper, on the total effect of say government subsidies on farm land values and rental rates, but also you’re able to break apart the different ag programs and see if there's differences in these ag programs on how they affect rental rates and land values. I think that's pretty interesting. Barry: Yea, and again, that goes back to, and we have another paper back in, oh I can't remember, 2003. [Brady: 2003, I think. Yea, the H.A., yea] Yea, looking at the, really how we've modelled these, you know, land value determinants and that sort of thing. And what we look at there is the fact that, it’s several different things. but different sources of income, if they have different risk associated with it, and certainly policy carries its own risk in terms of whether it will be eliminated, I think, you know, we've seen some pretty big adjustments to the fact that direct payments are gonna, very likely be eliminated if we ever do get a new farm bill in the US. But if something is very uncertain, and the operator is risk averse, then they're going to discount that, value of that, going into the future with a higher discounting rate, and it’s going to have less of an impact on land values. What we've looked at is the fact that if you don’t recognize that your models of land value, and the degree that benefits are capitalized into asset values are really going to be flawed, you know, because different policies will have different effects, essentially, so. [10:32] Brady: You emphasize in your paper, over and over again, that these land values, for example, are based upon these expectations, and these expectations may vary, not along across what the market returns are, but also with respect to this sort of different portfolio government payments that come in. So, what, in general, what would you say is your big finding, and then maybe we will step back and talk about some of the particular aspects of the study. Barry: Yea, well, one issue related to this, that you mentioned, pertaining to expectations, and again, it goes back, somewhat, to this earlier paper, but there' another econometrics type problem that arises that really just has to do with the nature of the data and the fact that it tends to be very systemically correlated in, across a lot of farms in a given year. So, the implication is, you know, you'd like to say “Well I'll look at what my payments were last year, and that's going to give me a good idea of what they're going to be next year, and the year after, and the year after,” and that might work very well for something like direct payments, that are pretty much set for a certain period time. But if you are talking about returns from disaster payments or, you know, price support systems sort, especially ad hoc support, that's not part of the standing legislation, you know, what you actually observe in one year, or another year, or the past five years, may not be a very good representation of what you'd expect to see over the long run. So, it’s another issue that I think, you know, causes us to take another careful look at the way land values have typically been modeled in the past. So, I think that's one thing that the paper brings out, probably more so in the earlier work that I mentioned. I guess the real point of controversy with this paper relative to some of the others, has to do with how, in a cash lease arrangement, how a payment is actually shared between a landlord and their tenant, and it goes of course to the tenant in a cash lease, but then the landlord extracts a portion of that back in terms of a higher lease rate, and those adjustments take place over time, and you know, it’s a moving target for the producers and the landlords and that sort of thing, but I do know, from some of the work I've done with outreach, that farmers have, you know, felt these pressures from landlords, especially when policies change quite a bit. In 2002, we got, I was up at Ohio State at that time, but we got a lot of calls from growers and they were, you know, having to renegotiate their lease contracts. So, other work has found that, I think we find anywhere from a 39 or 35 cents goes to landlord, or stays with the tenant rather, or no, goes to the landlord, I had it right the first time, about 35 to 60, 50, 60 cents, something like that, and it just varies across the polices of course. But other works found that landlords get a much smaller amount of that. And some fine work that Barrett Kirwen did that came to different conclusions, but you know, it’s an empirical question and I think it just depends upon who you are looking at and what the market characteristics are at that point in time, so. [14:13] Brady: Alright, well let me ask, we had Barrett on an early podcast, we were talking about his estimates that the landlord, you know, would get, I forget, somewhere 20 to 25 cents, let’s say, and so that would mean that the tenant was getting a substantial portion of the government dollar, let’s say that marginal dollar paid by the government. And you find a much higher, I think in general though, you have like you mentioned you have a lot of sensitivity analysis, but you find a much higher return to the land owner, which implies then, that as you suggested, that the tenant is getting less of that. So if the tenant, I mean to me, the magnitudes are really important here, right, because if the tenant isn't getting, if the intention is to help the producer, or who is let’s say, a tenant, and the entire subsidy is being passed to the land owner, or most of it, then that has a very different policy implication, than I guess one in which they are getting the majority of the subsidy. Do you lean towards it being, you know, you know, closer to the majority, or how do you lean in terms of the magnitude? I know Barrett’s, yea... Barry: Yea, I mean I think, you know, I think, of course I would feel like our estimates are close, just you know, we can't set our biases [Brady: Sure] completely aside on things, but a bigger issue, and taking a step back for a second, I think that as economists, as empirical economists, we really don't have still a real good handle, we know anecdotally how these markets are functioning, but we don't have a really good handle on, you know, exactly what these land transactions entail, because there’s tradition involved, there's social linkages, there's, you know, proximity considerations, there's all sorts of arrangements that exist there, and we would like to say, “You know, this is a perfectly competitive market,” or “one side or the other has the advantage,” and I think its probably just a mix of all of those things. It's far from being a perfectly competitive market, because I think, you know, these things are negotiated by a small group of players. So there’s probably some game that would represent this in some way, but I'm not sure you could apply it to every single circumstance. So, I think that's one reason you could see differences [Brady: Mhmm] in some of the results. The period of study has a lot to do with it to, and it goes back to this question of what are the policies, and you know, one thing that really I think we have a difference of opinion on, on some of the research, is some of the assumptions about what the 1996 F.A.I.R. Act in the US really signified and meant, and what the policy environment was at the time, and you know, thinking back, it was a nice time to talk about cutting the support because prices were strong and, you know, the fixed payments were, seemed like sort of a temporary measure to gradually get the government out of agriculture, but we all know what happened, just, you know, a year or two later when the Asian financial crisis sort of tipped markets in a way that caused prices to fall, and congress was very, very quick to jump in with support, price supports, and it’s also the case that direct payments were not the only thing going on right then, there was a whole other range of policies. The F.A.I.R. Act didn't eliminate price supports completely, and so, you know, to say that this represented some sort of natural experiment I don’t really agree with that because I think the conditions were such that it made the policy change endogenous to what the market situation was, and what the political situation was. So, I wouldn’t characterize it as an exogenous shock to markets, and I don’t believe farmers for a minute thought that the government wasn't going to jump in if things turned south for them, as they did, and as they typically do, and as congresses always been a, you know, quite willing to do to get out the cheque books. So, that's one of the important distinctions. That's a very long winded answer, but [Brady: Yea, no, no, no] you know, I think, you know, my challenge to some of the younger researchers out there is, you know, help us figure out these contracts and these rental arrangements, because they are very sophisticated, they involve a lot of cost sharing, they're generally hybrids now between cash and share leases, and you know, a perfectly competitive land market really doesn't fit the local situation where these exchanges take place. [19:26] Brady: I think that’s, you know, that's really one of the great things about, you know, the profession of applied economics of agriculture economics, that there can be general agreement on the, you know, on the theory but there's a lot of importance to playing these, getting these magnitudes right. I mean the difference between the majority of it going to a land owner, if that’s not the intention of policy, versus the majority going to a tenant, have a lot, you know, have a potentially, in the long run, a lot of implications for how we perceive and support ag policy. On this idea of expectations, one thing that I find just terribly fascinating about your paper, and also builds on what you just mentioned about what people thought at a given time was going to happen to government, is it you who find that the marginal contribution of a dollar to farmland values is greater than the marginal contribution of say, an increase dollar in the market return, in the returns to the market to farmland values. And at first blush, that seems surprising, but when you get into this notion of expectations, its, it kind of makes sense. Can you talk about that finding a little bit? Barry: Yea, I mean, I find it still surprising a bit, and you know, like an empirical research, there's some, the results are driven by the data and the analysis that was done, and the assumptions, and so, you know, to be very clear about that, I would have expected a bigger role for the market. But there is an awful lot of uncertainty associated with, especially looking over this period of time, when these data were collected, associated with the stream of income that comes from the marketplace. You know, the median farm in the US and a lot of this has to do with how you define a farm, but I think there adjusted gross revenue each is about negative $15,000 a year or so. It’s, you know, a lot of farms operate with a negative margin, and there's good reasons for that having to do with the policies, and again how farms are defined and taxed, tax allowances and some of the special accounting privileges that farmers get. But, you know, if you look back in time, things have been a little different since '07 or so, but you look back, yea there has been a lot of uncertainty associated with market earnings, and maybe less so when you compare it to something like a direct payment or even a loan...
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Africa, Land and Economic Development - August 28th, 2014
03/14/2025
Africa, Land and Economic Development - August 28th, 2014
Dr. Thom Jayne and Dr. Brady Deaton have a conversation focused on economic development strategies for Sub-Saharan Africa and contemporary issues regarding land use and land ownership in Africa. Transcript [0:04] Brady: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [0:24] [Introductory music fades out] [0:24] Brady: Today is August 28th, 2014 and I will be speaking to Dr. Thom Jayne about agriculture, land pressures, and economic development. Dr. Thom Jayne is a widely respected and well-published professor of international development in the Department of Agriculture, Food and Resource Economics at Michigan State University. Thom, welcome to FARE talk. Thom: Hey Brady, glad to be with you. [0:45] Brady: Thom, you and your colleagues, Derrick Heady and Jordon Chamberlain, recently edited a special issue for the Journal of Food Policy, and the title is Boserup and Beyond: Mounting Land Pressures and Development Strategies in Africa. Generally speaking, what motivated you into this area of research and what in particular is motivating this issue? Thom: Mhmm. That's, Brady, if I, there's sort of a proximate reason, and um, there is a more long standing set of motivations. So if I will maybe start with the longer one, it kind of goes back to how I got into this business working on Africa and agriculture. I was a peace core volunteer after I got out of graduate, undergraduate school in the early 80's and I had an interest in seeing how two-thirds of the rest of the world lived. So, I got my fill of that for two years in a rural village in Ghana, and I was there to help them with agriculture but it became quickly apparent that they knew so much more about agriculture in the tropics than I did. One of the things that really impressed me from my two years there was how their people working in communities, how their hardest efforts could be undermined by a politician in the capital city just by the stroke of a pen. And that's sort of what made me realize that any attempt to do something useful for, you know, to deal with problems of hunger and poverty in Africa, I felt anyway, that I needed to get back into a, sort of a, position where I could speak to policy makers. And that's how I ended up getting into graduate school. But the observation that I came up with after two years in Ghana was that well, I think our textbooks and conventional wisdom about Africa, rural Africa anyway, is that these communities are fairly egalitarian and that land is relatively plentiful. It's not like Asia where you have these really densely populated areas. What it, even in the 1980's, I could see that there wasn't, that really wasn't true. People were constrained in the amount of land that they had, and it seemed to affect their potential to really expand and grow and so forth. You know, sort of the more proximate reason of that, is that having looked at almost every nationally representative data set in Africa, spanning 10 or 12 countries, now that I have really delved into, in every single one of them, we see this huge heterogeneity in land holding size. So most small holder households in Africa may have a hectare or less, whereas a small proportion of households may have 5 to 10 to 20 hectares. And, almost all of the marketed output will come from that top ten per cent of households, so much so that maybe two-thirds of African households sell almost nothing and many of those households are actually net buyers of food in the sense that they may sell something, but they end up buying back more than they sell. And, all of these indicators of welfare, asset wealth, consumption, incomes and so forth, very much seem to be correlated with variations in farm size. And another one of the kind of paradoxes that got us into this work, Jordan and I have talked about this at length before we actually started setting up the special issue, is that when you fly over Africa, and land in one of these capitals, and you look down and there is so much unoccupied land, it looks like it is so sparse. And yet, again, rural households often tell us in surveys that their limiting factor of production is land, and that they can't seem to expand or get access to more land. So there is this paradox of land scarcity amid the apparent abundance. So those are some of the motivations that we had getting into this special issue. And of course, there has been so much done on this, you know, previously, and we wanted to give a nod to Ester Boserup and the seminal work that she has done, and she kind of hatched a cottage industry of subsequent work on this by some of our luminaries in agricultural economics and the economics field including people like Hans Binswanger, Prabhu Pingali, you know, so many other people have done work on trying to explain how land intensification and you know, changes with population growth. [6:20] Brady: And who was Ester Boseup, why is she in your title? Thom: Mhmm. Okay, right. So, in 1965, Ester Boserup wrote a piece that took on Thomas Malthus. And you know, Thomas Malthus seems to have a bad name these days because of his, you know, his pessimism about the fact that population growth would outstrip the ability of the world to produce food, and so there would be these dire consequences down the road as the world became, you know, more populated. So what Ester Boserup tried to turn that around and said, well it's true, that as population density rises it's going to increase the demand for food, but she pointed out that communities tend to respond, much like the induced innovation theories of Vern Ruttan and so forth, and Hayami, communities respond to rising population pressure by intensifying on the scarce factor of production. And so as farm sizes shrink because there is subdivision and more allocation of land, and you know, you reach the land frontier. So Ester Boserup was saying that people would apply more fertilizer, they'd put more labour per hectare on the ground, they'd get more weeding done, so there would be certain forms of intensification that would allow food production to keep pace with population growth. So, that's been widely accepted and empirically validated in most areas, but we start to see that at very high levels of population density, that relationship seems to plateau, this relationship between population density and productivity. So, we're noticing that yes Boserup premises seem to hold, up to a certain threshold. And then beyond then, she never really explored whether this could go on at infinitum, could population density just continue to increase, or, you know, would something else have to happen? And actually, she did sort of talk about the need for off-farm employment to sort of kick in and transform these economies from agrarian societies into industrial ones. So I think most of her writing sort of assumes that once population density gets to a certain point, you're going to have people migrating into urban areas to sort of relieve the pressure. But, you know, one of the defining features of Africa, over the past, you know, 20 or 30 years or so, has been that the industrial non-farm growth has been very limited. And so this is you know, probably discouraged people from leaving rural areas and going into urban areas, even though urbanization is proceeding at a very rapid pace, it would probably be much greater if urban areas were experiencing more rapid employment growth in the non-farm sector. So, anyway, what we're finding is that beyond population density, rural population density of about 500-600 persons per square kilometer of arable land, we see that there's signs that intensification does not increase, and in fact, in some areas it declines. This may be related to over mining of soil, degraded soils, we're noticing that in many densely populated areas fallows have basically disappeared. In Malawi for example, southern Malawi, one of the more densely populated areas of Africa, there are no fallows anymore. So farmers are just intensively, year after year after year, cultivating their plots, and they're putting the same crop, they're not even rotating their crops very well because they have such small farm sizes and they need to grow their staple crop, which is maize in that area, to feed themselves. They end up, year after year, putting maize on that one hectare of land, so there is something like a social trap going on where in the short run, households are doing what's in their best interests, which is, you know, growing as much food as possible on their small plots, but the long run consequences of this are declining systemic productivity, you know, of the whole system which certainly, you know, does not bode well for kind of, future scenarios, unless there's major growth in the non-farm sector. You know, which, you know, there is some signs in recent years, that this, you know, could be picking up. But these are the scenarios that we are trying to address and deal with in this special issue. [11:52] Brady: One of the, one of the really interesting things that you mentioned that I wouldn't mind expanding on a little bit is the, that you have this concern about population densities, and in many other countries, despite the general availability of land throughout Sub-Saharan Africa, for most of the countries, and in particularly in some of the regions within those countries, population is very dense, and so you are really, the land constraint, or the problems associated with the land constraint that you mentioned, are pronounced in those areas. Is that correct, and if so, what are some, you mentioned this in the beginning but, let's go back into some of the issues that are also influencing the land pressures, including some of the issues that you examine in the special issue of foreign direct investment in land. Thom: Mm, okay. So there's, there are two Africas, at least [laughs]. One is the one that, that you see when you fly over Africa. Most parts of Sub-Saharan Africa are very sparsely populated and the majority of land is that first Africa. But then there is the Africa that most rural people live in, and most rural people live in densely populated areas, that's the other Africa. So one percent of the rural land in Africa contains 21% of its rural people, and 20% of the rural lands in Africa contain about 85% of its rural people. So it's incredibly concentrated, and the reasons for this are several. It has to do with high land areas in the region are generally of higher agro ecological potential, so people have kind of historically, settled in areas that are, you know, fertile and rain well. Colonial policies in a number of countries, have, you know, exacerbated that concentration of people on the small pieces of land, especially in, um, Southern Africa, kind of, where there were Colonial settlements, Zimbabwe, Zambia, Kenya, Malaui and so forth, South Africa of course. And there are other factors that geographers have, um, nicely dealt with, about why this region is so nucleated, as you will. But, so, this has led to the kind of, um, paradox, that I think we talked about at the very beginning, that we are trying to uncover, of how could it be that so many small holder farmers complain of not being able to have access to land and expand, despite the fact that there is obviously so much unutilized land in the area. And, when you look at the agricultural development strategies, and even the rural development strategies of African governments, they almost never acknowledge this problem of land constraints. SO there are based on an implicit assumption that African farmers will be able to grow and expand and you know, they obviously talk about yield growth, and yield growth would be the most desirable way of um, expanding food production because it wouldn't involve the environmental cost of expanding into forest land and so forth. But, um, anyway, most government strategies do acknowledge the need for area expansion, uh, about 80 percent, 70 to 80 percent, of Africa's food production expansion over the past forty years have been in the form of area expansion. So, um, there almost seems to be a collision course here, where development strategies are based on certain premises which in reality, uh, may not exist. And so, we're trying, you know, have government because increasingly aware of the fact that area expansion in certain small holder areas where much of the rural population lives is not really a feasible option. And, in our special issue we tried to outline what are the, sort of, behavioural responses that people are taking in response to rising population density. And we identified four of them. The first one of course is Boserup's intensification. We're seeing some evidence of that, but, you know, there are two kinds of intensification, land intensification. The sustainable type and the unsustainable type. And we are seeing signs that much of rural Africa's intensification and response to rises in population density are of the unsustainable type, just reducing fallows, soil mining, more intensively cropping, um, farm land. There's, we are seeing very little response in terms of input intensification, fertilizer. Very little irrigation response, so there are some problems there. So that's the first behavioural response of the four. The second one is diversification into rural non-farm enterprise, so still staying in the communities that they are, and, you know, what's the scope for increasingly diversifying into non-farm employment. There's some signs of progress there, Africa's rural population is increasingly, you know, its income shares from non-farm is rising, but still much of the non-farm employment jobs that we are seeing people in are pretty low, low return, informal sector kind of poverty activities. Petty trading, hawking, um, you know, basket making and so forth. So then the third response that we are seeing is migration to urban areas. And that's occurring at a fairly rapid, plate, pace, in many parts of Africa. And not so rapidly in other places. So of course this sort of depends on the, you know, using the Harris-Todaro sort of framework, where labour is migrating to wherever it's the expected returns to labour are highest. And the, the prospects of migrating to urban areas are very much limited by the expansion of job growth, you know, in urban areas, which is a major problem. And then the fourth and final behavioural response that we lay out is, um, one that's been relatively hidden and under emphasized by research, you know, to date, and that's rural to rural migration. But it looks like rural to rural migration could be the most important response of all in some areas. And there's some evidence in places like Zambia and Mozambique that rural to rural migration is, you know, very important. We're seeing manifestations of that in terms of deforestation on the frontier, land conversion to agriculture at a very rapid pace. So this is basically people moving out of the densely populated areas, into the more sparsely populated ones and trying to make a go of it there. So those are the four responses that we, you know, are trying to document. The, one of the political angles here is that when you look at this rural to rural migration we are seeing the rise of a unique class of, even though the international media has identified foreign direct investment by international firms as, you know, part of this land grad, that is occurring in Africa, and that is, I don't want to mitigate the importance of that, it does seem to be occurring at a fairly rapid pace. What we are finding is that an even more rapid set of factors associated with medium scale farmers. These are domestic urbanites, largely urban people, who are finding land to be a profitable investment. So it seems that an even more important, source of land acquisition is among this group called medium scale farmers, who are farming between 20 and 100 hectares of land. And, when you look at who these actors are, they're, they tend to be not farmers at all. They're mostly urban, salaried employers, people in the public sector, in the private sector, but people with money, probably in the top 5 to 10 percent of the income distribution in urban areas. And ever since 2008 or so, they've found that land is a pretty attractive investment, not only for speculation as land values rise, but also because they can hire someone else to produce to be a manager, and to produce food for them, and that is a fairly high return activity. So we're finding that, that this, this class of medium scale emergent farmers over the past 10 years or so, has acquired land at an even more rapid pace than the large scale foreign investors. So combined, the, these two groups, are really transforming the whole farm sector in many countries. This medium scale group actually controls more land than the entire small holder farm population in three out of the four countries that we have look at specifically. So, they're a force to be reckoned with. And another thing that is interesting is how they are shaping the political economy of agricultural policy. Many of the farm lobbies of these countries, which are historically set up by colonial farmers, large scale, white farmers, these lobbies have now been taken over by medium scale African farmers, many of whom, as I keep reiterating, are actually urban based people. And, they have succeeded to some extent, in shaping agricultural policies, at least in some countries, to suit their interests. They input subsidy programs that are conferred to relatively large farmers and most of the survey data that we have shows that they are major beneficiaries of input subsidy programs where those programs are operating. And we also see, just like in the United States, you know, especially, you know, in the 1970s, 80s, 90s, when world prices were not that high, there was a, you know, price supports that were designed to, you know, improve farm incomes and provide incentives for production. Well, that's done in many countries in Africa via marketing boards, and, so the ones who can capture the greatest benefits from the price supports of these marketing boards are the ones who sell the most, and of course the ones who sell the most are households that have 100 hectares or so, which is, you know, quite a large farm by, um, most, by standards in most parts of Africa. [24:18] Brady: Do we conflate all foreign direct investment with kind of land grabs, or how do we separate that issue, or how have you been thinking about that issue? Thom: I can say a couple of points here. This first one is that, um, yes, some foreign direct investment has most likely had positive welfare effects on most communities in, in the countries where they have occurred. I think that that, that we can point to successful examples of large acquisitions that have had positive effects. Some of the research, especially research that is being done in Southern Africa, is documenting the spill over benefits. So, spill over benefits in the sense that, once a large scale farm starts operating, is there evidence that, that kind of knowledge and marketing services and the availability of farm inputs, do these things improve in the areas around it because the large scale farm attracts other private investment, and in value chain development, input supply and so forth, that has spill over benefits to small holder farmers that are operating nearby. I've seen some evidence that the answer is yes, to that. So then on the other extreme there is probably also, good evidence that some large scale acquisitions have been detrimental in...
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Wind Turbines and Property Values in Ontario: Public Perception and Empirical Evidence – November 18th, 2014
03/14/2025
Wind Turbines and Property Values in Ontario: Public Perception and Empirical Evidence – November 18th, 2014
Dr. Richard Vyn and students at the University of Guelph in Dr. Brady Deaton's 4th year course in Land Economics, discuss Dr. Vyn's recent journal article, "The Effects of Wind Turbines on Property Values in Ontario: Does Public Perception Match Empirical Evidence?" Transcript [0:04] Brady: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [0:24] [Introductory music fades out] [0:26] Brady: Today is November 18th, 2014, and we will be speaking to Dr. Richard Vyn about his research examining the effects of wind turbines on property values in Ontario. Dr. Richard Vyn is assistant professor in the Department of Food, Agriculture and Resource Economics at the University of Guelph at the Ridgetown campus. Rich, welcome to FARE Talk. Richard: Thanks Brady, happy to be here. [0:50] Brady: Rich has written an article recently that has appeared in the Canadian Journal of Agriculture Economics examining this issue, and for those of you tuning in, we will be doing this podcast in a different way, in the sense that we are in a classroom at the University of Guelph, looking and talking with students about this issue, and they will be asking the questions to Rich about his research. So let me begin by handing over the microphone to one of the students who will begin asking the first question. [1:24] Student: Hello Richard. Before we focus on the effects of wind turbines on surrounding property values, can you give us a general background of wind turbines in the province? Richard: Sure, yea. The wind energy industry in Ontario has been developing at a fairly rapid pace, and that has come about for a couple of reasons. One of the main push, the primary push behind this would be the Ontario government with the Green Energy and Green Economy Act and that sort of spurred the push to get more energy from renewable resources. So we have seen a considerable expansion in the wind energy industry as a result. This has led to a number of issues, and we have seen this most recently, there was a study that was put out just last week by the government that looked at the impacts of the wind turbines on health, and they didn't find anything significant there in terms of some obvious linkages between health issues and the wind turbines. But, there still are some concerns. They raised the issue of the annoyance factor. Either way though, this has certainly led to a lot of controversy in Ontario. There is a lot of local residents that have complained about the impacts, either on health or on property values, on the inability to sell properties. Which, all of the issues are kind of linked. But ultimately, it has led to this escalading controversy about what the impacts of these wind turbines are. Added to the mix is the fact that a lot of places where wind farms are put up, the municipality can't really reject it. They can be called unwilling hosts, but ultimately it is up to the province to decide whether or not a wind farm application is going to go through. So that's sort of a bit of the background that's led to these concerns about the potential impacts on not only health, but also on property values and that's sort of led to my interest in this subject area too. To see, we have all of these concerns that have been raised, and you look at any story in the popular press, there's a lot of concerns that are expressed there, so what is actually happening? That’s kind of what I wanted to take a look at. [3:41] Student: Can you tell us a bit about why your study focused on the Melancthon township? Richard: Yea, the Melancthon Township, yea. That's where I started because that is what I had data for. It was data that included farm sales and rural residential sales. The time that I did the study I didn't have data for anything beyond that township, at least in terms of where a wind farm was actually sited. I do now, and so that's kind of what I am looking to do in the coming months, is kind of expand this research. But for the current study that we are looking at, yes, it was just for the Melancthon Township. It was one of the first industrial wind farms that went up in the province of Ontario, and kind of made a good place to start in terms of assessing the potential impacts of the turbines on property values. [4:29] Brady: Now Rich, correct me if I am wrong, but when you are talking, Melancthon township would be a township in Dufferin County [Richard: Yes] kind of bordering Grey, is that right? Richard: Yes, Grey country is next and also bordering Wellington County. Brady: And this is primarily an agricultural, rural township? Richard: It is primarily rural, yes. There is, the wind farm itself is situated pretty close to a small town but there are no large urban centres anywhere within visibility of the wind farm. [5:00] Student: Sorry. Your paper reviews previous research on the effects of wind turbine on property value. So our question to you is if you can review any of this previous research to us. Richard: Sure, yea. There has been a number of studies that have been conducted, looking at the same issue in other jurisdictions and the results of these studies have been largely mixed. We haven't seen any particular trend that has tended to occur amongst these studies. Some studies have found evidence that yes, there are significant impacts of wind turbines on property values, where others have not found any significant evidence. So, we have seen, yea, a fair bit of mixed results in the literature, and because of that, it becomes necessary to conduct research on specific wind farms if you kind of want to have an idea as to what the impacts actually are. You can't just rely on results of other jurisdictions, just because those results, you know, with both positive and no significant impacts, it is hard to tell what exactly the results might be, for in the case, the Melancthon wind farm. [6:03] Student: The, some of the previous research used willingness to pay as one of the methods of analysis. Before you get into your method, the hedonic method you used, would you be able to shed some light on the willingness to pay method? Richard: Sure, yea. The willingness to pay is basically more of a survey approach in many cases, where they'll go to local residents, and they will ask "What has been the impact?" or "What do you perceive to be the impact of these turbines on your property value?" or just to the general public, they may ask, you know, "If you were to be sited next to this wind turbine, what do you think the impact would be?" So this approach looks more at, what people think is the impact, rather than looking at any sales data. Now if you go back to the previous question, looking at the results of previous studies, there is a difference in the results when you compare certain types of studies. So, you mention the willingness to pay studies. Those studies are more likely to produce evidence of a significantly negative impact on property values, whereas studies that use sales data tend not to find evidence of impacts on property values. So there is that difference in previous studies. [7:25] Student: Hi Dr. Vyn, My name is Vanessa Cipriani. My question to you is, can you explain the method that you used in this particular study, in order to find out the effects on property values? Richard: Sure. I used the hedonic method, which is a regression approach where you basically make the price a function of the set of attributes that the property has. So, you know, if you have a house on the property it would take a whole bunch of the individual attributes of that house, you know, the square footage, number of bathrooms, number of fireplaces, look at the size of the property itself, the value of any other buildings on the property, sheds and so on. Basically, you take as many possible attributes and it basically determines how much value each attribute contributes to the total value of the property. So that is an approach that has been used for a lot of different valuation studies. It tends to be a fairly effective approach in identifying what the value is associated with a specific attribute. So in this case, I am looking at not only the attributes of the house itself, also the location, you know, how close is it to a city, and then also how close is it to a turbine, or trying to find some attribute that accounts for the potential impacts of turbines. So this approach has been used for other types of studies where you are trying to find, for example, the impact of living close to toxic waste sites, if you are living close to high voltage transmission wires. A whole bunch of different amenities, or perceived disamenities, to determine what the impact might be of living close to those types of sites. [9:15] Student: Were any of the attributes you chose particularly unique to your study, versus other wind turbine studies? Richard: Well, the method I used to account for the turbines itself was a little different than had been performed in previous studies. Typically the previous studies looked at either the distance to turbines, or distance from the turbine to the property in question, or they looked at the visibility. I kind of came up with a metric that combined those two, because if you think about it, well, the distance to a turbine might affect the impact that it has on the property, but on the other hand, if the landscape is such that you can't actually see the turbine, than conceivably there wouldn't be as much of an impact relative to a property just as close where you can see the entire turbine. And then, similarly, if you can see the full turbine, but you're 3 kilometers away, likely the impact would be greater for a property than can see turbine that is just 1 kilometer away. So I try and account for the relationship between those two factors in this study. I also did use each factor, the proximity and the visibility separately in assessing the effects of turbines. [10:30] Student: You touched on this township as being one of the few that had the necessary data. So my question is, what data was necessary to run this study, and where and how did you get it? Richard: The data I used is property sales data, and the reason that this was the one, or at least at the time, the one county where we had sales data, was just based on the data that we received, Brady and myself, from the municipal property assessment corporation. As we have, as part of the University of Guelph, have a data sharing agreement with the municipal property assessment corporation for sharing back and forth of data. So they will send us property sales data, which we can use to run some of our analysis, and we in turn have provided them some additional data that we have created based on their sales data. But ultimately, running this analysis depended on getting that property sales data from MPAC and it included not only in Dufferin county, but some of the neighbouring counties property sales data there as well. So MPAC had provided rural residential sales data as well as farm sales data. And again, this is something that hadn't been done previously, looked at kind of comparing the effects on farms versus properties that are used more for residential purposes. The hypothesis that would be that, you would expect to see more of an effect on residential properties than farms. Farms are purchased, not only to live in but also to generate an income, where you may not expect to see as much of an impact, or as much value derived from the view. I should add that while the municipal property assessment corporation provided the data, the conclusions that came out of the studies are not necessarily the views of MPAC. [12:14] Student: Hi Rich. Megan Moore speaking. You mentioned some key variables like proximity in your paper, and I was wondering how you measured those key variables. Richard: Yea, the proximity variables are measured using geographic information system software, which we ourselves didn't generate; we have somebody who takes the location of the property and in some cases, the location of the city, or the location of the turbine, and generates the distance in meters from the property to each of these locations. So, using the or the distance to the nearest city was based on the road distance. So the most likely path you would take from the property to the city, how many kilometers is that, or how many meters is that. And, a lot of studies that have looked at property values will include some type of location variable, where you would expect the closer you are to an urban centre, the higher the value would be. So a similar approach is used for the distance to the turbine, except in this case, we looked at the straight line distance. So, how far was it from the property to the nearest turbine? So this required having the coordinates, the GIS coordinates for each of the turbines, and then for each property in question, and then using those coordinates to generate the distance between them. And this is sort of an approach that is being used more and more in property value studies, the use of GIS. There is, you know, the data availability there is rapidly increasing, and it really adds to the study, makes it a lot more robust, instead of just estimating what a distance might be. [13:59] Student: Hi Rich. Clarke Stewart. I was wondering if you could review for us some of your key findings from your research, and tell us how they differed from your original hypothesis. Richard: Sure. Now when I started this study, I mean I had heard some of the stories of what people had said were happening to their property values as a result of the wind turbines, and so reading about some of these accounts made me think, well, if this many people are suggesting that these impacts have occurred, than there must be something that would be picked up by the results of this study. That hypothesis wasn't supported by what I found however, when I looked at both rural residential and farm properties, I found that no significant impacts were observed, you know, either by looking at the proximity, or by visibility, or by combination of those factors. So, that was, in a way, based on what we have heard, a little surprising given the rhetoric that has occurred around this issue in Ontario. We may have expected to see more of a negative impact, especially in close proximity to the turbines, but that didn't take effect in the results of this study. What we found is that there is no significant impacts, you know, if you look at the impacts that are there, positive or negative, there is slight either way, but nothing that's statistically significant, so that was a little surprising. But, and not in line with what we've heard from a lot of the news stories, but also its important information to have I think. I think, and that was another reason why I wanted to conduct this study, was, you know, we have heard a lot about what people are claiming to be the effects, but when we look at the actual sales data, what is it telling us? And in this case, the sales data is suggesting that there are no significant impacts of the wind turbines in this case. [15:58] Student: You mentioned that there were no significant impacts. How robust were these findings, and were these findings different for residential and agricultural property values? Richard: Well first of all, they were not different for rural residential or for agricultural property values. In both cases, there were no significant impacts. In terms of the robustness, I did look at a number of different model specifications to try and ensure that the results were robust. So, I looked at different specifications of what the post turbine period would be. So the post turbine period refers to the period of time in which we would expect impacts to arise. And this is one of the trickiest variables to specify, because when exactly would the impacts begin to arise? That depends on what information is out there. I mean, obviously, when the turbines are actually up, you can see them, and you would expect impacts to occur from that point onward. But what about before that? You know, there is, there can be an announcement effect. So I looked at a number of different specifications for the post turbine period. I didn't find any differences across these different specifications, but basically, I looked at, first of all, the impacts starting at, you know, the time that construction began. So, at that point in time, everybody could kind of see where these turbines are going to be located. They may not be up yet, but, if you are buying a house in the area you can definitely see where they are going to be. I also looked at the post construction period, so when all of the turbines are actually up, and you can see them all. So looking to see, or specifying that as the post turbine period. And then also looking at the post approval time period. So as soon as we know this project is going forward, things are starting to move ahead, then people know that there is going to be turbines there. So, it is possible that the impacts will start at that point in time. So for each of these scenarios, I didn't find any evidence of significant impacts. I also looked at a number of other ways to specify the model. I looked at just repeat sales, so basically where property is sold earlier in the time period that the data covers, and then is sold again at a later point in time. The ideal scenario is where we have one of these sales occurring before the turbines went up, and one occurring after. It makes for a great way to determine whether there is going to be significant impacts. And again, the results are the same. Now the number of sales in close proximity is relatively low, not that it is lower than anywhere else, but just when you are looking at a 1 kilometer band around, you know, the turbines, the number of sales is not huge in the post turbine period. And so this may influence the results to some degree. There is other more recent studies that have just come out this year that have included a much larger number of sales in closer proximity, and finding the same results, in fact. But that can be seen as a limitation of the study, the fact that the number of sales is not as high as we would like it to be. [19:18] Student: What do you think are the future needs to research within this area? Richard: Future needs of research in this area? I think that we really need to continue to look at it for individual wind farms. It wouldn't surprise me if we do find, at some point in Ontario, we do find evidence of negative impacts of wind farms. The reason for this is just given the increasing attention this issue has drawn, and just how people value properties. I mean, a lot of the value you place on a property is relatively subjective. So why does one property, you know, exact same house, you put it in a different location, why is the value any different? Because of how people perceive the differences in those locations. SO in the past few years there have been a big increase in the amount of concerns that are raised, the public press articles that are expressing these concerns, and more and more people re hearing about these potential impacts. And so I'm wondering if this will eventually translate into observed impacts on property values. I mean in one sense you can only hear about these impacts again and again for so long before you actually start to believe that these impacts do actually exist. And it's not beyond the...
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GM Crops and Twenty-First Century Agriculture – March 11th, 2015
03/14/2025
GM Crops and Twenty-First Century Agriculture – March 11th, 2015
Dr. Rene Van Acker and Dr. Brady Deaton discuss GM crops. The podcast develops an understanding of contemporary and historic issues associated with the first "wave" of GM crops. They also discuss contemporary controversies and institutional issues associated with GM crops, as well as the future of GM crops. Transcript Brady Deaton: (0:04) Welcome to FARE talk where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. [Music ends] (0:26) Brady: Today is March 11, 2015 and my name is Brady Deaton of the Department of Food, Agriculture and Resource Economics. Today I will be speaker with Dr. Rene Van Acker about GMOs in agriculture. Dr. Rene Van Acker is professor and associate dean of the Ontario Agriculture College at the University of Guelph. He is the Department of Plant Agriculture. He has published over 100 peer reviewed works. His research focuses on the co-existence of GM and non-GM crops, which makes him a perfect guest for today's discussion. Thanks for being here Rene. Rene Van Acker: Thank you very much for having me. Brady: (1:04) The other day, at Environmental Symposium, I heard you answer a student's question, and the question was, "If I walk in a grocery store, what products are GM products?" Rene: Yea, and that's a very good question, and the reason I think it is a good question is because, I think people are unsure as to what is GM or not GM in terms of food. Brady: And I should say, when I say GM, we are talking about genetically modified. Rene: Right, genetically modified organisms or genetically modified crops that are then used to make foods, or genetically modified crops that are ready to eat foods. And on that later point, the vast majority of GM is in field crops. So things like corn, soybeans, in the case of Canada, canola for example. Those will be the key GM crops. Sugar beet would be another one. Very few of the items in the produce aisle would be GM, so papaya, perhaps, papaya sourced out of Hawaii would be GM. Perhaps some squash, although not all. Perhaps some sweet corn, although not all, and that would be about it. There is a pending deregulation of a GM apple, a non-browning apple, which has been deregulated in the US but not in Canada. So that may, in the future, appear on grocery store shelves, but not currently. So, the items that would be derived from GM crops would be things like margarine based on soybean or canola oil for example, or processed foods that contain some element of corn. Those would all be derived from, ingredients from GM crops. And consumers are sometimes wondering about that, and I think they have a perception driven, I suppose, by the media, that everything in the grocery store is GM, and that's not true. And an interesting point, in fact, is that none of our cereals, other than corn, if we consider that a cereal, are GM, so wheat, barley, oats, none of those are GM, rice is not GM, yet. So I think that also sometimes surprises people, they think everything is GM, just GM. Part of that confusion might also be that people know that varieties are bred to superior in some way, disease resistance, better yield, etcetera, and bred varieties, or cultivars, are not GM per se. Genetic modification can be used as a tool in breeding, but it falls under breeding, it is not breeding, and so I think sometimes that confuses people too. Brady: (3:48) Well that's a good point. So genetic modification is some form has been going on for some time. What really distinguishes the way we talk about GMOs starting in the 1990s, with I guess [Rene: Right] the first GMO product was the tomato [Rene: Right] was it the tomato [Rene: Flavour Savour tomato], Flavour Savour Tomato, which didn't make it [Rene: Didn't make it very far, no] but not because of the response to GMOs right, more because it just wasn't Rene: It just wasn't, yea, it just wasn't as effective a product as they thought it would be. Brady: But so, something happened in the 1990s, that was kind of different from the kind of changes in genes that have been going on in agriculture I imagine for some time. Can you walk us through that a little bit? Rene: Yea, and I think that's a very good point, and fundamental to why people are concerned about GM or not. So we have been selecting for bio-types or selecting for cultivars, in agriculture for a long long time. One might argue, you know, for over ten thousand years, since we have been farming, since the human race has been farming. But selecting and traditional breeding is different from GM or genetic engineering. And when we talk about GM, colloquially, genetic modification, we are referring to genetic engineering. And genetic engineering, we take to mean, recombinant DNA technology, and that is a very specific technology that was developed in the 70s, in the US, University of California, San Francisco, in fact, and what it does, it is technology that allows for discreet pieces of DNA to be isolated from one organism and then moved into another. It allows us to move DNA, pieces of DNA, across species boundaries. With traditional breeding, you don't have that ability. One of the traditional definitions of a species is that you, there is central compatibility among individuals in that species, and so you can cross-pollinate to use a colloquial term. With genetic engineering, we are not bound by that. So we can take a piece of DNA from a soil bacteria for example, and then transfer it into a plant or take a piece of DNA. The classic proof on concept was in the mid-80s, where they transformed a tobacco plant with genes from a fire-fly that allowed the tobacco plant to glow in the dark. It wasn't useful, but it was a very compelling demonstration of the power of that technology, and that's the key, is that it is a very powerful technology that allows us to move pretty much any piece of DNA from one species into another. So that opens up the possibilities in a way that we could have never imagined before, and it allows us to go way beyond traditional breeding. Plant breeders are excited by this, because they are always looking for genetic variation, to try and achieve certain ends, let’s say disease resistance, for example. So if they can find genes in another organism, beyond the species they are working with, to help them to achieve that, they think that’s great, and it can be great. People who worry, worry because we have never done this before. This may happen in very rare cases, in terms of this kind of broad crossing over of DNA from one species to another, maybe it could happen from soil bacteria, for example, into plants, very rare. So if we do this commonly, people start to ask questions like, "What are the unintended effects? What are the things we don't understand about doing that?" And so, you know, there is fear around that. To counter that, we have quite a bit of empirical evidence now, that shows that there are no apparent unintended effects of doing that, as we have been doing it. Brady: (7:54) I think it is interesting to work through, maybe, for listeners, the first, what is often referred to as, the first wave [Rene: Right] of GM seeds, or GM crops. [Rene: Yep]. So, would you mind that and [Rene: Yea] and then talking about that a little bit, thanks. Rene: Yea, so, and that's a good point. GM technology also changed the business, the seed business, because suddenly, in the seed industry, our technology developed in the industry, in agriculture became much more interested in plant breeding because of this new possibility. They also became much more interested in it because, with GM technology came the possibility for absolutely identifying your product. With recombinant DNA technology, development in the 70s, by the late 70s, there had already been a patent put onto a genetically modified bacteria. And so the possibility was there for patenting genetically modified organisms, and so the seed industry became interested in that. And that also drove the first wave of traits, the nature of those traits, because the seed industry understood that the customers were farmers. And so the first wave of traits were traits that would interest farmers, and so they were agronomic traits that provided operational benefits for farmers. And the two that are still, essentially, the predominant GM traits we have out there, almost the only GM traits we have out there are, would be insect resistance and herbicide tolerance. So the Bt trait is an insect resistance trait, and then, the Round-up Ready trait is a herbicide tolerance trait, glysophate resistance trait is also a herbicide tolerance trait. Those are the primary traits out there. Brady: So just to get back to [Rene: Yea] your notion of what makes GMOs distinctly different [Rene: right] from the cross-breeding techniques that used to go on, Bt has I understand it is a bacterium Rene: from bacillus genus bacterium, and so they extract the gene that then codes for what is called a cryo-protein, that resides in the gut of the insect, and in short, kills insects of a certain type, Lepidoptera. For example, the Round-up Ready traits was also derived from a bacteria, soil bacteria, genes that conferred resistance to glyphosate herbicide, common trade name Round-up, and so we were able to achieve those things, we were able to achieve those things using genetic engineering techniques, that they could not have done in other ways. But the traits were relevant to the direct customer, which was the farmer, and there was a rapid adoption of those products by the farmers, because they did offer real operation benefits. Brady: (11:04) Let's talk about that. So with this first wave, it's widely adopted in countries like, with soybeans and corn, countries like the United States [Rene: Canada and the US]. What do we know from twenty years, or? Rene: I think this is the twentieth season, yes. Brady: What do we know about the health and environmental consequences of this first wave of genetically modified crops? Rene: Well of course, these crops do undergo scrutiny in a deregulation process by government regulators, both the US and Canada. And so it's not like their just released without any consideration what so ever. SO regulators looks at what the possible environmental effects might be of a trait like the Round-up Ready trait in soybean. And their determination was that there was relatively no environmental risk, or no environmental risk from these things being released. And that’s likely true. If you look at the trait, Round-up resistance for example, how does that trait function in individuals in the environment, and what one might have to look at is how does that trait function in the environment in the absence of Round-up, in that environment. So there would be no selection for those individuals outside of the field where Round-up is applied, and so those traits would essentially be neutral in wild-type populations or in the environment, and so they wouldn't necessarily pose any environmental risk. For the Bt trait, that may not be true, you know, because the Bt trait does impact insects that feed, there is some controversy on what trait the Bt trait was having on monarch butterfly populations in the US and migrating populations of monarch butterfly. Because it is a non-discriminating trait in terms of impacting insects. Having said that, the environmental assessment of the Bt trait, was that the impact would be low, and in fact the scientific literature shows that although there can be some impact the impact would be very low. People do worry about other traits that may be coming into existence, and whether those other traits may have real environmental impacts. In terms of human health, the same is true. These traits are put through feeding trials for example, they are assessed in Canada by Health Canada, for example, and assessments are made as to whether there would be any impact to human health of consuming these. By in large, these traits don't impact the food products that they are a part of, at all. There is no DNA remaining in the food products, or the DNA is fully denatured in the food products that we derive, let's say margarine from soybean oil for example, or from canola oil. So there is no remnant, really, of the modification and so there is no impact on human health and there is no reason to think there would be. There have been a few studies, very few studies, looking at feeding whole-grains, so whole corn, ground, or whole soybean, ground, to rats to see if there is any effects. The studies, I would say, are at best non-conclusive, if we take them in a meta sense. There are not very many studies, but if we take those in a meta sense, it looks like there is really no impact of feeding things raw, and humans never eat these things raw like that anyways. So, I would say, the current consensus out there is that there is no human health risk from GM crops as we currently have them. Brady: (15:01) What's interesting is that this concern is still, in some ways, has been from the very outset of the GM crops in the 1990s, till today, has persisted, and the concern that I am saying is really on the consumer end of it, despite perhaps, the preponderance of scientific evidence, with respect to, and I know you were limiting your comments [Rene: Right] to really the first wave of what we've been able to [Rene: Right] observe. And is part of that because when they first, when the groups first provided these seeds they targeted farmers. Farmers were readily adopted, but most people, the vast majority of people, are consumers, and they didn't respond the same. Why do you think that was? Rene: Yea, it's a very good point, and you know, it has caught companies like Monsanto, for example, off-guard. Monsanto's customers are farmers, so they do not sell directly to the consumer, in fact in the US, fewer than half of Americans even know who Monsanto is, which seems surprising to people like you and me, I know, but it is because they are not a business to consumer company, they are a business to business company, the other business being farmers. Brady: (16:21) So let's just back up, [Rene: Yea] I hadn't thought about that, but since we have listeners who may not know who Monsanto is, who is Monsanto? Rene: Monsanto is the world's largest seed company. Brady: Not the only one right? Rene: Not the only one, no, no. They were a pioneer in commercializing GM seeds, GM technology and GM seeds. And so they have become the target, the poster company for those that are anti-GM, anti-GM activists, and yet, it is not necessarily justified, because they certainly are not the only seed company that is producing GM seeds, but they were the pioneer, they were the first and you know, Monsanto has a long tradition of being an avant-garde technology company, and they have a lot of pride in that, and so sometimes they are viewed as being aggressive in that regard, which I fans the flames, I guess, for activists groups. The other thing that has happened is that activist groups I think have recognized that there is a lot interest in the GM issue, and so one might argue that they have demonized, sometimes literally, demonized, Monsanto, and created a target for them to use to compel consumers, to compel people to pay attention to their activism or pay attention to their organization that is active against GM. But what is the evidence that is driving that, there's not much, it's pretty thin, I would have to say, and yet they can still appeal to people, because it is such a novel technology, because it is related to a food, and because it is somewhat esoteric, that the nature of the technology, they can readily, easily, cultivate fear amongst people, because people don’t understand the technology and so they can fear it, they can fear what they don't understand. So you know, you can have a short equation. Esoteric relatively unknown technology that is being used on your food, that alone [laughs] is sufficient to cause concern amongst people who don't know anything about it. Brady: (18:44) And in particular, the first wave isn't targeted to them right? [Rene: Absolutely]. So if your columns say new product [Rene: Right] it’s got a novel technology, that is difficult for people that aren't, for example, plant scientists to understand, and then when you pick it up it's not clear to you exactly how it's delivering a product. So it seems like a recipe for a little bit of a problem from the start, in a sense, the design. Rene: Absolutely and you know, and what is Monsanto to do. They have a hard time presenting a value proposition to the consumer who can readily say "Well look, the operational benefits you are providing the farmer are neither here nor there to me, I don't really care, I just don't want it." [Laughs] And, you know, they can, they have right to that proposition. Brady: Just to review, so that is the ultimate kind of demander [Rene: yes] on the other end. The producers that they were selling to readily adopted. What were some of the things that made that so attractive to farmers? Rene: Yea, and these are real things. This isn't made up stuff. We in fact did some work in Western Canada, looking at farmers’ adoption of GM canola, Round-up Ready canola in particular and... Brady: (19:55) So Round-up Ready is... Rene: Is canola that is genetically modified to be tolerant to glyphosate herbicide, or trade name Round-up, Monsanto’s trade name, Round-up. So you can spray your canola, with Round-up herbicide and pretty much kill all the weeds, and Round-up is very effective herbicide, extremely effective herbicide, and relatively environmentally benign herbicide as well, compared to many other herbicides. So, the value proposition for farmers was very easy for them to understand. They understood Round-up, but they have never been able to use Round-up over top of a crop, because Round-up kills most crops, pretty much all crops, that we commonly grow. So to say to a farmer "You know Round-up, you know how effective a herbicide it is, it's super effective. We are going to modify your canola crop, and then you can spray Round-up on your canola crop and kill all the weeds." That's all you had to say to farmers, and they were like, "What? [Brady laughs] Okay, sign me up," because and not only that, but in canola in particular, somewhat in soybean, but less so in soybean, weed management was challenging for farmers, they were having to use typically a soil applied herbicide and then one or two in crop herbicides to gain, I would say, good at best, good weed control in canola, and to turn that around and say you can do no soil applied herbicide, one shot of Round-up, and you're done, completely changed everything for farmers. They, not only that, but canola was a crop they wanted to crop more of because it was lucrative for them, and so to make it a lot easier for them to do that, really changed things for farmers. The last piece was that it also facilitated farmers growing canola in a reduced tillage, or direct seeding manner, because they no longer had to have the soil applied herbicide, so taking that out of the equation made it much easier for them to grow canola with a direct seeding system, which is what they were all moving to anyways. So you pull all of those things together and you have a very attractive value proposition for farmers, and it took them like five second [laughs] to compute that. Brady: (22:18) About the reduced tillage, just to back up [Rene: right]...
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What's The Buzz? A Discussion of Bees and Neonics - June 27th, 2016
03/14/2025
What's The Buzz? A Discussion of Bees and Neonics - June 27th, 2016
Dr. Cynthia Scott-Dupree and Dr. Brady Deaton discuss the science that informs understanding of the relationship between bees and neonics - a pesticide that has recently been made subject to new restrictive regulations in Ontario, Canada and elsewhere. Transcript Brady Deaton: [0:04] Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [music ends] Today I'll be talking to Dr. Cynthia Scott-Dupree and we'll be discussing the science that informs our understanding of the relationship between bees and neonics, a pesticide that the Government of Ontario has recently made subject to new restrictive regulations. Cynthia is the Bayer CropScience Chair in Sustainable Pest Management in the School of Environmental Sciences at the University of Guelph. For the sake of full disclosure I note that Bayer produces neonics, I also note that Cynthia is a well-published researcher in the broad area of pest management and in the specific area that we are going to discuss today. Cynthia, thanks for coming and joining me at FARE Talk. Cynthia Scott-Dupree: Thanks so much for inviting me. Brady: [01:02] You're welcome. Alright so let's see if we can just kind of delve in and I'm not sure the best place to start but maybe we'll just talk about neonics and try to break that down and then we'll talk about bees and then let's try to talk about the science, so we'll have some of our terms. So, neonicotinoids and neonics, can we use those interchangeably? Cynthia: Ah yes, neonics is much easier to say than neonicotinoids or neonicotinoids or whatever you want to say, so let's just call them neonics. Brady: Alright then even within neonics there's three of them that are typically talked about and they have pretty complicated names too. Is it important that we understand that there's more than one kind of neonic out there? Cynthia: [01:41] There's certainly several different neonics and there's actually different families of neonics and within those families their toxicity to bees can vary a lot, so again just within the neonicotinoid or neonic family it's complicated, but the ones they speak of most are imidacloprid, which has been around the longest and I would dare say that most of the research studies that anyone wants to read on them has been focused on imidacloprid. The second generation or newer neonics that are also seen, talked about in these research and other articles is clothianidin and thiamethoxam. But instead of just talking about those today I think we'll just talk in general about neonics. Brady: Okay but even in the headlines I probably read I probably could have been referring to a study that was looking at a particular one of [Cynthia: Yeah] those neonics rather than all and that could be important to [Cynthia: Yes] some of those differences. Cynthia: [02:45] It's true they have different toxicities but I think the more important thing here is to understand some of the basic characteristics of neonics and how they are used in an agricultural setting. For example, neonics can be used as a foliar so they can be sprayed on a crop. They can be used in furrow so they can be sprayed in the furrow when the seed is planted. They can be used as drenches, but more commonly they are used as a seed treatment and this is because neonics have a special characteristic. They are a group of systemic insecticides and this means that when they are applied to the plant they move upwards through the plant so they are in all parts of the plant tissue, and in the sense that we are today talking about impacts on bees, what can also happen is that these neonics will then become concentrated in the reproductive parts of flowering plants and that would be in things like the pollen, and certainly also the nectar because that's what bees will forage on. So you'll get residues moving to these sites, and that's the interface where these beneficial insects can be exposed to the toxins. Brady: Alright, just step back a minute. You know we think about bees providing honey and they also are an important pollinator and that's an important input into agriculture production, but so is pest management, right? [Cynthia: Certainly]. Since the plagues of Moses we know that to have food we have to control pests and so [Cynthia: Absolutely] neonics are an insecticide that do that. What came before? How long have neonics been around? Was there another pesticide that they replaced? Is that important to the story? Cynthia: [04:36] I think agricultural pesticides as we know them today were introduced after the Second World War. A lot of the chemicals we now use in agriculture were developed in terms of chemical warfare, and then afterwards after the Second World War they realized the potential use of them in agricultural applications, and so there’s a whole raft of classes of insecticides specifically or pesticides that have been introduced over the years. We won't get into those, but the more recently introduced group since about the 1990s, early 1990s, would be the neonics, and as I say the characteristic of systemicity or being systemic is quite unique to them. I won't get into a description of the particular characteristics, but the fact that they move through the tissues is valuable. Another form of applying chemicals, pesticides to crops is seed treatments, and I think I should spend a bit of the time talking about seed treatments I don't think a lot of people will understand this. Brady: Yeah let's do let's talk about the seed treatment, because that adds the value right, to... Cynthia: [06:04] Yeah. Well, seed treatments I've been a proponent of seed treatments for a long, long time because what you do with the seed treatment situation is you take a tiny little seed and you actually apply the treatment on the coating of the seed, and as the seed grows into a plant the insecticide, the neonic, moves through from the coating on the seed into the tissue of the plant, and therefore it's there from the beginning, so if you have insect pests that attack those plants from the time they germinate and they're just tiny little seedlings when they're very, very vulnerable they will be protected, certainly an advantage. The other thing is that when you utilize the seed treatment versus a foliar treatment where you're spraying a lot of product with water all over the crop and everywhere else, a seed treatment uses a tiny, tiny fraction of the amount of active ingredient that would be the toxin. And so it's advantageous in that way because the environmental impact is much reduced and certainly the people applying these treatments are much safer with a seed treatment than a foliar application. Brady: Okay so I want to hit that back again make sure I understand it. So prior to this ability to treat the seed I guess if I all of a sudden saw a pest that was threatening my crop then I would have to go out and spray a foliage application and that had a different set of environmental implications. This way pre-emergent I can coat it and [Cynthia: It's protected] deal with the pest ahead of time, so it's almost an insurance policy. Cynthia: [07:50] It is an insurance policy that in itself makes it a difficult situation because the whole entire seed treatment industry is a complicated one. A grower needs to buy treated seed in the year prior to planting, so by October of this year for example, growers would be buying treated seed to plant in the spring of 2017. So it's really difficult to predict what kind of pest you're going to have in 2017, we don't have this kind of crystal ball, although a lot of growers and pest management people wish they did, so it is an insurance policy [Brady: I see] because you do have to buy it well in advance and the cost of buying them is quite small in terms of the total amount it will cost to put a plant in per hectare. So it's insurance and it's difficult to understand how that fits within a pest management concept, but it's an important application technique in terms of seed treatments and we really need to figure out how to manage it better than we do because it's too valuable to lose. Brady: Alright well before you go we'll talk about the science behind all of this but now let's turn and talk about bees a little bit. Bees, what I am talking about honeybees typically in these studies but it looks like wild bees come into this discussion, bumblebees. How should I think about bees in this discussion? Cynthia: [09:32] Well I would say that a lot of the information people hear about is focused on honeybees because they are our domesticated honeybee the beekeepers have kept for thousands of years, and they are often associated with the pollination of cultivated crops, vegetable crops, fruit crops, any kind of crop that flowers bees will be attracted to and are likely beneficial to that plant in some way shape or form, so the bulk of our information is focused on honeybees but that's not to say that there aren't a lot of other bees out there that are really critically important to agriculture and lots of other ecosystems, not just agriculture, but natural ecosystems. When you go to Algonquin Park or some park and you look at the flowers blooming you will find bumblebees and other bees, bees other than honeybees. Not to get into too much science here, but the Latin name for honeybees is Apis mellifera, and so we call it an Apis bee and all the other bees are called non-Apis bees, just to really divide this quite easily. The non-Apis bees encompass bumblebees, leafcutter bees, orchard bees, stingless bees, there are a lot of bees out there that people just wouldn't even recognize because they don't all look like honeybees or bumble bees. I would say in terms of the non-Apis bees, people would easily be able to identify a bumblebee. Brady: OK, I already just want to say for a minute two pathways of potential confusion for someone like myself that just kind of does a cursory look at this literature that you've already hit on, one is that neonics, there's multiple types of neonics, and when we talk about bees there's multiple types of bees, and the tendency would be for reasonable tendency for people with limited time would be to homogenize these all together but the science that we will talk about I think a little bit more requires that you ... Cynthia: [00:11:30] The differentiation is critically important and the bulk of research is on honeybees even when we talk about submission of information to regulatory agencies that look after pesticides to ensure they don't have an impact on humans and the environment. That would be like in Canada it would be the Pest Management Regulatory Agency; in the US it would be the Environmental Protection Agency, those kind of regulatory agencies. In the past, most of the information to do with bee pollinators was submitted in terms of being represented by honeybees, but there's a lot of research that's been done now to show that different bees respond differently to the same pesticide. And so now there's a thought that we need to look more widely when we’re looking at new products that need to be registered, new pesticides that need to be registered and look at their impact on other bees other than just honeybees, and so a lot of the work that I also do in my lab is focused on these non-Apis bees because we've got lots of methodology for honeybees, but virtually nothing for these other bees. It's not so simple; we can't take our techniques from honeybees and apply it to these other bees because they function in a very different way. Brady: [13:03] Alright, before we get into the relationship between the neonics and honeybees I guess we'll be talking about, let me just step back and say in terms of what we know about bee colonies, that's the most popular way it's described, where are we losing bee colonies, are we growing bee colonies? First of all, I just ask two questions. One is, what is really meant when we say bee colonies? What are people referring to? And second of all in Canada and then maybe in Ontario talk to me a little bit about how they've changed over time. Cynthia: The colony that they're talking about, I don't know if you've actually ever seen how beekeepers keep colonies, they have them in these white boxes that stack up. Every stack represents a colony of bees, and it's usually the first two boxes on the bottom that contain the lifeblood of the colony, that's where the queen is and that's where the brood is. Any boxes above that are honey okay so they separate them out and so the beekeeper will extract those top boxes and take the honey off of them, so when we talk about a honeybee colony it's that complete unit, complete functioning unit, with a queen, a lot of workers, developing brood and these honey boxes are super stacked on top, that's a colony. Brady: And is there variation in the population of a colony, or are they typically a certain number? Cynthia: [14:25] They are overwintered by beekeepers. They have special overwintering techniques to keep them alive over the winter, but they're much smaller in the winter than they are in the summer. In the summer you can have up to 60,000 worker bees in a colony and a queen. And so, in all fairness in talking about bee losses we generally talk about it in terms of colony numbers. Occasionally you get media articles that say 20 million bees have died. Well you need to divide that by 60,000 bees basically in the peak of your summer population to determine how many colonies you are talking about. 20 million sounds amazing. [Brady: Colony is the appropriate unit.] Colony is appropriate. Brady: Alright so what do we know about bee colony loss in Canada and Ontario? Cynthia: [15:22] Well there's a lot of talk about honeybee colony decline, but if you look at the statistics from Stats Canada you will actually see over time in Canadian bee populations, we're talking colonies, the number has continually risen, specifically in the last 10 years. There are occasional drops in number, but if you average that out over time it's increasing and it's really critically important to look at these increases over a long period of time, not one or two years, because you get sudden drops and everyone panics, but in the whole scheme of things it's increasing. In Ontario the same thing, in the United States the same thing, so overall we're not seeing massive decreases in honeybee colony numbers, but one statistic you will hear is overwintering losses. This is the way beekeepers determine and government agencies determine how well colonies have done, it's this overwintering loss. You take the number of colonies you put into winter and the number that are still alive in the spring and from that you calculate overwintering losses. In Ontario particularly for the last several years overwintering losses have been around 35%, which is high. Typically we would aim for an overwintering loss of between 10 to 15%. If you look at the statistics provincially Ontario continues to be an anomaly, most of the other provinces are in this 10 to 15% overwintering loss range. Ontario for some reason higher. I can't really answer the question why that's happening, but it is a cause for concern for Ontario beekeepers. Brady: [17:32] Well that's a perfect segue into I think the next section. So Ontario has regulations to reduce the amounts of neonics and presumably one of their concerns is that maybe one reason why Ontario is an exception is because of neonics, and that’s what I want to maybe explore a little bit. So maybe I'll ask a series of questions and we can figure it out because there’s two terms that are used in the literature, throughout this literature that are kind of used differently, and so one is "hazard" and the other is "risk" and you'll kind of see one like I just read I think one was that honeybees have been shown to be highly toxic, or sorry, neonics have been shown to be highly toxic to honeybees, so hazardous I guess, and then there's this issue of risk. Before we hop in just abstractly what is this distinction between hazard and risk, or toxicity and risk, or is there one? Cynthia: [18:35] And now we peel off the layers of the onion, the complexity comes in and this is the difficulty for people when they read headlines is there's a mountain of information that you really need to understand. So hazard and risk are different and I think often people lump them together and they're totally different. In terms of long-term policy development by government, the concept of hazard and risk assessment, which is an accumulation of different types of information, both of those areas, both hazard and risk, need to be dealt with to develop really strong long-term valuable policy, science policy. Hazard deals with the toxicity of the chemical or toxin you're dealing with, plus the intensity of the exposure, and that would be things like dose and duration. So, if you increase the dose and or increase the duration, the two, if you look at these as two circles, toxicity, intensity of exposure, if you look at them as two circles if you increase dose and duration those two circles overlap more, and where they overlap is the hazard. Okay? But risk is another circle overlaid on top of this. Risk involves the probability of exposure. A honeybee is not 100% exposed to a toxin all the time 24-7 it's not going to happen. So you need to think of the realistic exposure in a field situation. How often will that bee be exposed to those potentially worst-case scenarios of toxin exposure? So that's a third circle of overlay and where all three of those circles overlap, that is your risk. Brady: [20:38] Let's try to break this down into for some people that won't be in this area an example. You tell me if this is a fair example. The child Tylenol in my cabinet is a hazard, but when it's stored properly children aren't at risk. Is that kind [Cynthia: Yeah, yeah that’s true] of what we're getting at? Cynthia: If that bottle is locked because usually they have childproof lids and it's placed in an area where they can't get them then the probability of exposure is zero. If they can get at them though there is a hazard because that Tylenol if they eat too many of them like candies then the dose and the duration is high, the toxicity is there, that's a hazard, but you can eliminate that hazard by storing it properly. Brady: [21:43] Okay, so let's use this as the spring load and I'll just ask some questions. What do we know about, and how do we know, I guess I'll ask both at the same time, about the toxicity or hazardness, you can correct me, about neonics, or if you want to get into a particular neonic, fine. But let's just start there at the extreme: how do we come to that knowledge and what do you think we know? Cynthia: [22:04] Okay so when we do and we're really focusing on studies that are done in a toxicological framework here and toxicology is complicated, but when we're looking at these kinds of experiments we divide them into three different categories and the first category we will call tier one category, and these are the laboratory studies. These are studies where we would take a bee and we would expose them to a certain dose of the toxin over a certain period of time in a laboratory situation, so it's very artificial. The advantage of these laboratory studies it helps us determine if a compound is toxic at all to bees, okay? And if there is toxicity and it reaches a trigger value, which are set out in a regulatory framework, it may tell us...
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The Meaning and Measure of Household Food Insecurity - July 5th, 2016
03/14/2025
The Meaning and Measure of Household Food Insecurity - July 5th, 2016
Dr. Valerie Tarasuk and Dr. Brady Deaton discuss the meaning and measure of food insecurity in Canada and the United States. Transcript Brady Deaton: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. [music ends] In today's podcast I will be discussing household food insecurity in Canada with Dr. Valerie Tarasuk of the Department of Nutritional Sciences at the University of Toronto. She and her colleagues have been doing cutting-edge research on food insecurity in Canada. Valerie welcome to FARE Talk. Valerie Tarasuk: Thank you I’m happy to be here. Brady: In your research on food security in Canada what is generally meant by the term food insecurity? And give us just a starting point, idea of how prevalent it is. [00:57] Valerie: What we mean by that term is inadequate or insecure access to food because of financial constraints so it's very, very specific to problems of affording enough food, you know putting food on the table for yourself and your family and the root of the problem being financial constraint. We've been measuring this problem in Canada for years but in 2005 we adopted the Household Food Security Survey Module that's been used for many, many more years in the United States to monitor food insecurity in that country. So the most recent national data we have is from 2012 and in that year 12.6% of Canadian households reported some degree of food insecurity, and to translate that into perhaps a more common unit of measurement that translates into something over 4 million Canadians living in a household that was affected in some way by food insecurity. [01:53] Brady: You mentioned that this survey has been conducted in the United States as well. Are we able to compare how Canada fares relative to United States? Valerie: Yes and that's actually a really interesting thing to do because we’re using an identical survey module and in both countries this problem is monitored on a population representative survey. Although we code the module differently in Canada and the United States and we apply slightly different labels, but in our research program we apply the USDA’s thresholds in order to categorize food insecurity so that we’ve got perfectly comparable numbers and what we can see is that Canada is somewhere between two and three times lower in its rate of food insecurity than the United States. [02:36] Brady: What why is that? Do you have any thoughts? Valerie: There was one study done when this common metric started being used in Canada. There was one study done actually by Mark Nord from Economic Research Services Division of the USDA and it is very interesting. I mean there probably needs to be more research in this area but what he found was, I mean part of it is that our populations are different, but another part of it is that amongst particular population subgroups there appears to be higher rates. I think probably to put it in broad strokes overall in the United States I think there is a higher rate of poverty and food insecurity aligns quite closely with poverty so that’s part of it, but there are also worse and the subtle differences in terms of the relationship between food insecurity and whether a household had children or not, things like that. So it's an area where we need to do more to really figure out what's going on, but it looks like part of it is about the nature of the policies in this country and the nature of our economic circumstances. [03:34] Brady: So the conversation we’re going to have in general about the methods of figuring out food insecurity are comparable to the United States. How does this metric that you've been using compare to measures of undernourishment and hunger that's used by the FAO? We’re part of the millennium development goals in terms of trying to reduce undernourishment in the developing world. Is this a different measure than that? Valerie: Yes, yes it is and it is important to keep these things separate. We can't assume in an affluent country like Canada we can't assume that what we’re looking at when we look at food security is, you know frank undernourishment or malnutrition. When we look at the relationship between food insecurity and dietary intakes, or nutritional adequacy in Canada we can see definitely differences where people report struggles to put food on the table and less probability of having an adequate diet, but the differences are not anywhere near as stark as we would expect to see another in other places. So yeah it’s important to keep those things separate. Recently, I guess in April of this year, FAO produced a report that was an attempt to compare food insecurity rates across all kinds of countries using a simpler measure based in some ways on the 18 items that are used to monitor food insecurity in Canada and United States but much, much briefer, I think maybe 8 or 10 questions, and they administered the questions through, well it was administered by the Gallup Poll, so it was a telephone survey I think most higher-income countries and a sample of 1000 so accrued you know quick and dirty kind of measure but it's interesting there to see the differences and it’s exactly as you'd expect. Higher-income countries tend to have lower rates than lower-income countries do and then again interestingly we can see the distinction between Canada and the US with Canada coming in at a lower rate but some European countries coming even lower. It's interesting so it's the only example I know of where there's been an attempt to take the idea and move it systematically across the globe, but going back to your original question for sure we would want to distinguish between food insecurity as it’s measured in and understood in North America and these notions of undernutrition. [05:48] Brady: So when we sort of are looking at sort of the world's developing populations roughly the prevalence is I think it's around 13% as well of the population is under nourished that wouldn’t be comparable [Valerie: Not at all] to what we’re going to talk about so we can make comparisons to the United States but the FAO measures we’re talking about something different. Are we talking about the key difference being that one is more of a subjective measure and the other is an attempt to kind of assess whether someone has enough calories to live an active and healthy life? What would be the best way of making the distinction between what we’re doing in North America and in the developing world? [06:36] Valerie: I think that yes, in some ways there are apples and oranges, right? One absolutely is a subjective measure, it's a reflection on a household circumstance over a 12-month period. There is within the survey module there is an ability to strip out levels of deprivations so if someone would answer affirmatively to all 18 of the questions on this module I mean at the end of the day they would be telling us they had gone whole days without eating. If we had very many people with such extreme levels of deprivation we would expect to start to see associations between such extreme deprivation and the protein and calorie malnutrition, or undernutrition. But thankfully in our country we don't see that many people at that level of extreme deprivation, so part of what's happening with measures of undernutrition is they’re trapping a state that is an extreme level of deprivation that endures over a significant period of time and that's not what we’re getting here. We’re looking at a subjective assessment of the household circumstance over a 12-month window where very few members of our population are so extreme as to be reporting absolute food deprivation day after day after day. [07:54] Brady: You mentioned this and I think this is important. Let's go through the nature of the survey and how it lends itself to gradations of food insecurity so when we've been talking so far about food insecurity we've been lumping and, correct me if I'm wrong, three groups three measures I guess that build on each other: marginal, moderate and severe. So maybe one way to do it is to just talk about what it would mean if someone was marginally food insecure and that's about 4% of the 13% that we’re talking about. Valerie: So those are households where people only affirmed one item on the 18 and typically in this list of questions I mean the questions vary in severity from the most mild level being “do you ever worry about running out of food or have you in the last year ever worried about running out of food and not having money to buy more” on through to questions about compromises in the quality of food intake and then compromises in quantity. So someone who's, or a household that’s classified as marginally food insecure would have said yes to probably only one question and that question typically would have been that question about worrying. So they’re expressing some concern about their ability to make ends meet but they're not saying that they have systematically compromised the quality of their dietary intakes or those of their children because of a lack of food or money for food and they’re not telling us that they skip meals or gone without eating. So they’ve said enough to indicate that they are different from other Canadians and that they are worried about not being able to manage or they have been worried in a serious way about not being able to manage and that’s a very significant distinction but it's not at the level of them telling us that they’ve actually not been able to eat. [09:47] Brady: And then as we move to say moderate they would be somebody who was both marginal but had answered a different type of question. Is that right? Valerie: When we classify people as moderately food insecure, or households, I keep saying people, but the unit of measurement for this module is household, but when we classify households as moderately food insecure, we’re looking at households where the respondent has affirmed enough items for us to have reason to believe that there was some compromise in the quality of the dietary intakes of adults and or children in that household. So they’ve said the more things that people say yes to on these 18 questions the worse their household situation is. So, the moderate classification, people would have responded affirmatively to 2, 3, 4 or 5 questions across the adult and child scales that would've given us reason to believe that at minimum there were compromises in the quality of the intakes at some point in the year because of financial constraints. [10:52] Brady: And then finally I guess that the severe category is evidence that someone actually forgave or gave up food. Valerie: Yeah, yeah, yeah. The severe category is a very, very worrisome situation because those are people who have said yes to many of the questions on this module and the way the questions are organized there are several questions that are capturing quantitative compromises. So to give you an example, you know, people are asked, “Have you or other adults in your household ever skipped meals or cut the size of meals because you didn't have food or money for food? Have you ever gone hungry without eating? Have you ever lost weight in the past year because of a lack of food or money for food?” And then at its most extreme, “Have you gone whole days without eating?” And each time someone says yes to those questions, they’re asked how often. And so not in a very detailed way on these modules but you know is it almost every month or some months or like was it a fairly rare event or was it a problem that was pervasive throughout the year? And similar questions are asked of the children in the household, although it’s an adult who responds to those questions, but again asking, you know, “Have children in the household ever not eaten, or gone hungry without eating because the lack of food or money for food?” So by the time people are saying yes to those questions they're in very, very seriously compromised circumstances. [12:19] Brady: And that severe category is about 2.6% of the population of the households, yeah? Valerie: Yeah, it's been sitting fairly stably at that level for a few years and we have to hope it doesn’t ever get any bigger. Brady: Now I should say for the people listening to this podcast, Valerie and her co-authors, and you mentioned this earlier I think, have been working on reports on this issue for some time and we’ll make a link to the reports that we’re talking about and pulling data from so you can sit back and just enjoy and we’ll make a link so you can get to the numbers. So if we can just kind of review it’s 4.1 about in the marginal category then if you combine marginal and moderate together are about 10% and then you add another 2% in severe and you get this close to 13% figure that we've been using. Is that about right? Valerie: That’s right. [13:22] Brady: So over time, what have you, in addition to kind of documenting the prevalence, what issues and characteristics are you finding are associated with food insecure households? Valerie: Well we’ve done a lot of work to try to figure out whose got the problem and why they got it and so at a very kind of gross level we can say that food insecurity is more prevalent amongst households with low incomes, the lower the income the greater probability of food insecurity but it's not a one-to-one relationship so we can find households with fairly low incomes but still reporting food security and we can find households with what would seem like middle or higher incomes but reporting food insecurities, so that has caused us to take a lot longer look at what's going on. So the income is part of the story a big part of the story, it’s actually the single strongest predictor household income, but on top of that what we realize is that homeownership is very, very significantly associated with this problem so on the Canadian Community Health Survey where the food insecurity is monitored, there’s a very simple question about you know, do you own or rent the dwelling in which you live? And people who report that they are renting have a probability of food insecurity that is several times higher than those who are owning and when we do multivariate analysis where we’ve got income and homeownership in the models even after we to take into account income homeowners are at systematically lower risk and that associates with the fact that to be a homeowner is to be somebody with more wealth and even if you have a mortgage you’ve got equity so you're able to buffer changes in the household circumstances in a way that someone who is a renter isn't. So homeownership is another layer of evidence of vulnerability or protection. Another thing that turned out to be very interesting for us in addition to income and whether or not you're owning a home in which you live there are some very basic questions about the sources of household income and what we found is that households in which the main source of income is social assistance have an extremely high rate of food insecurity, I think nationally about two out of three households reliant on social assistance programs are food insecure, so that’s at one end of the continuum. At the other end of the continuum we find people reliant on pensions or seniors’ incomes and those people are at very low risk, much lower than the incomes of people who are in the workforce, which is… [Brady: What are your thoughts on that?] Well, part of our research program has been to really look very closely at those two ends of the spectrum and to speak first to the seniors, what we've got going on in Canada with seniors is that at the point that somebody turns 65 they without doing anything else except having that birthday are eligible for what is effectively a guaranteed annual income. At the point that someone turns 65 they will be eligible for old-age security and a guaranteed income supplement, they'll also have full drug coverage and they will enjoy discounts in many retail outlets if they live in the city like me in Toronto, they’ll have a discount on public transit. There's many, many ways in which both the private and public sector support seniors and that's a beautiful thing, right? There's a whole string of initiatives that have emerged from determination to reduce or to try to eliminate in fact poverty amongst seniors and we’re not there yet, but when we look at the effect of the guaranteed annual incomes of seniors in Canada, we can see that for someone who is a low income adult at the point that they turn 65 so a low income unattached adult at the point that they turn 65 the risk of food insecurity will drop in half. It's a tremendous statement on the power of the social protection program like our seniors’ pensions. Contrast that to the story of people on social assistance of the other extreme end of this continuum where maybe two thirds and in some provinces it would be in excess of 80% of people receiving social assistance are food insecure. I should just make the clarification for people that are unfamiliar with these programs that in Canada, old-age pensions are managed at a federal level so that is a federal thing although there are provincial programs layered onto it, but social assistance programs are programs that fall under provincial or territorial jurisdiction so we can see significant variation between provinces and territories in terms of vulnerability related to social assistance, but with the sole exception in Newfoundland and Labrador. Everywhere else that you look in the country more than half of those receiving social assistance benefits are food insecure and many of them, and this is a very worrisome finding, many of them are severely food insecure, so this is a serious level of deprivation. [18:34] Brady: You mentioned that you are able to look at comparisons across Canada at the provincial level. Have you been able to pick up any differences in provincial policies that have an effect? Valerie: Yes. The most marked one was a study from a doctoral student of mine, Rachel Loopstra, did looking at Newfoundland and Labrador and what triggered it when we started producing these annual reports on statistics on food insecurity, we started graphing provincial and territorial prevalence estimates and we realized that Newfoundland and Labrador’s rate of food insecurity had dropped markedly between 2007 and 2011 and that prompted us to do a whole lot more work. So what Rachel Loopstra was actually eventually able to figure out is that in 2006 that province introduced a very, very radical poverty reduction strategy and it was a strategy, it wasn’t designed with any explicit goal to reduce food insecurity, not at all, but the goal was to reduce both the breadth and the depth of poverty in the province and so a part of the strategy was to improve the circumstances of people on social assistance there. So they did all kinds of things; they raised the benefit levels, they indexed into inflation, which is practically unheard of in this country, they did other things to reduce the liquid asset exemption, sorry to increase the liquid asset exemption, and the earnings exemptions and other things so that basically over a period of five years as that policy...
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Examining the Relationship Between Land-Use Regulation and Affordable Housing - November 17th, 2016
03/14/2025
Examining the Relationship Between Land-Use Regulation and Affordable Housing - November 17th, 2016
Students from the University of Guelph and I discuss issues regarding land-use regulation and affordable housing with Emily Hamilton. Emily is a policy research manager at the Mercatus Center at George Mason University. Our discussion draws from a recent paper that she, and her co-author wrote titled, "How Land-Use Regulation Undermines Affordable Housing." Transcript Brady Deaton: Welcome to FARE talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Culture and Resource Economics at the University of Guelph. I will be your host. [music ends] Today is November 17 and we will be speaking to Emily Hamilton about her research on land regulation and its effect on affordable housing. Emily is a policy researcher at the Mercatus Center at George Mason University and she has written on this topic widely and we will actually be looking at a paper that she and her co-author Sanford Ikeda have written. A link to that article will be made available to you on the FARE Talk website. For those of you listening in, we will be talking because we are doing this podcast with Emily in a land economics course at the University of Guelph. Emily welcome to FARE Talk. [01:14 - 02:25] Emily Hamilton: Thank you very much for having me. Brady: Emily, I just want to begin, a lot of the listeners may not be familiar with the issues that we're going to talk about today and part of our challenge is to kind of work through them, but if you got in an elevator with someone you didn't know and you had let's say three floors and they said ÒWhat's your research about? What's this paper that you've written about?Ó What would you tell them in general? Emily: Sure. I'd say that a lot of well-intentioned regulations such as our minimum lot sizes and maximum density roles as well as newer smart growth regulations like urban growth boundaries or green belts all restrict the supply of housing over what we would see in a freer market, and the effects of this supply restriction of housing is felt most harshly by low income people and in our research we look at the regressive effects of these regulations, how they hurt low income people and how they reduce income mobility. [02:25 - 03:23] Brady: Alright, now sometimes I get in an elevator and I might be with a planner and if I've said something like that my guess is the pushback would be, ÒWell, but land-use planning is important, it stops conflicting land uses, it helps perhaps planning for urban infrastructure in those areas and it raises values because it makes places better to live in. What's you're kind of general, now you're going down the elevator and you've got two floors. Emily: Yeah, I would say that there are plenty of justifications for many of these types of regulations. People need places to park their cars, so planners require that landowners set aside areas for parking. Plenty of these regulations have benefits, but their costs are often not considered or not considered sufficiently, so in this environment we tend to see overregulation over what we'd see in an environment where planners consider the costs of these roles in addition to the benefits. [03:23 - 04:59] Brady: Alright I should say we are going to be talking about affordable housing, most of your examples take place, in the paper that you've written, most of the literature you're reviewing are examples that take place in the United States, in Canada we might define affordable housing as spending about 30% of your or 30% or less of your income on housing. Is there a similar definition apply in the United States or is it? Emily: Yes, that is a widely considered rule of thumb in the United States and when housing is required to be affordable for a certain income level, the 30% rule is what cities use to define affordable housing. Brady: And in terms of thinking about this differences among income groups, do you have a general sense of say what the of the poorest 20% pay in terms of housing versus say the richest 20% or? Emily: So typically in the US when city planners are looking at whether or not housing is affordable they look at what's called the Area Median Income and so that's the median income defined typically at the ZIP Code level so it varies very widely of across parts of the US and across cities, so in some places households earning over hundred thousand dollars per year would be eligible for affordable housing because their income level is low relative to others in their immediate neighbourhood. [04:59 - 06:05] Brady: I was looking at some of the data on this in Canada, just kind of preparing and I found, and I'll provide a link to this as well because seems quite high, but the Global News was reporting that, and I think I'll get this about right, that the poorest 20% in Canada pay more than 50% of their income on housing and of course there's a drastic difference for the reasons you mention in terms of the wealthiest 20% pay about 16% of their income on shelter, so the issue affordable housing and the effects that we're about to talk about really do matter perhaps differently to different groups. Emily: Definitely. Brady: What we're going to do now is I'm going to turn the questions for the remainder of this podcast over students and we're just going to try to walk through initially just understanding some of the specifics. One of things that I really enjoyed about the paper was all the specific examples of land regulation and zoning and so I'm going to turn it over to the students who will ask a question, there will be time for a follow-up and we'll just proceed like that. Emily: Great. [06:05 - 07:33] Student: Hi Emily. In your paper you mention exclusionary zoning. Could you give us a bit of an example or a background on what this is and its effect on housing affordability for low-income households? Emily: Sure. Exclusionary zoning is a term that people use to describe zoning rules that are implemented with the intent of limiting who can live in a neighbourhood. So for example rules that prevent any multifamily housing like apartment buildings being built within a neighbourhood could be considered exclusionary zoning if households can't afford to rent or purchase a whole house then they'll be excluded from a neighbourhood entirely. Other types of exclusionary zoning rules include minimum lot sizes and this was probably the first type of exclusionary zoning rule that was labeled as such and New Jersey townships have been some of the most studied areas for minimum lot sizes and some townships they are actually implemented minimum house sizes that were larger than the current average house size, so they're basically saying in the future only people who are on average wealthier than we are here are going to be able to move in, preventing low-income people from moving into the townships with those rules. [07:33 - 09:50] Student: Good morning Emily. I was interested in your discussion of inclusionary zoning. Could you briefly explain and describe what inclusionary zoning is and your findings regarding its capacity to address affordable housing challenges? Emily: Yeah. Inclusionary zoning is a policy that's in the US has been tried in many different types of municipalities and it varies how it's implemented, but in general developers are either incentivized to provide housing that's at a below market rate by either subsidies or changes in regulations that allow them to build more housing if they include inclusionary zoning in their project and what it does is it sets a price cap on the cost of housing, but only for some units within a development. So for example an apartment building of 100 apartments might be required to have 20% of those apartments affordable to people who are earning say 50% of the Area Median Income. And inclusionary zoning sounds like a great idea because it's making housing more affordable to people who make less money than many of their neighbours and it also can make neighbourhoods more diverse than what they would be in a completely free market, which many people argue benefits everyone to have a diverse neighbourhood, but the problem with inclusionary zoning is that it changes what type of housing is going to be built. So if 20% of the apartments in a new building have to be rented at a lower than market rate the other 80% of those apartments are going to tend to be very expensive luxury apartments so that the developer can subsidize the below-market apartments with those high rents on the other apartments. And another problem with inclusionary zoning is it typically provides very few units of affordable housing so inclusionary zoning alone is certainly not enough to address the affordability problem in many expensive cities. [09:50 - 12:23] Student: Hi Emily. You touched already a little bit on minimum lot size zoning. Is there any way that you can explain exactly what minimum lot size zoning is and how it affects housing prices and specifically housing affordability? Emily: Great question. So a minimum lot size rule might say that for example every house in a neighbourhood has to be built on at least a quarter acre of land, so that's setting of a floor on how much housing how much land must be dedicated to each house. So, if land is expensive it's going to directly make housing more expensive as compared to allowing houses to be built on say in eighth or a tenth of an acre of land. Student: Morning Emily. I found your discussion on the effects of parking requirements to be thought provoking. Could you give us a brief summary of your findings as well as the research pertaining to it? Emily: Sure. So in the US the vast majority of cities and municipalities require developers to build a certain amount of parking with their development whether that's housing, retail or commercial development, and the justification for this is that when automobiles first became common there really wasn't any accommodation for where people would leave them when they left their car, so big cities started seeing problems with double parking and people just leaving their car in the street when they went inside a store to run an errand, so obviously that was impeding movement and causing a lot of traffic problems. The problem is that many cities require parking to be built above what we would see in a free market and these requirements have big costs for developers that are then passed on to renters or home buyers. Donald Shoup is a professor at the University of California in Los Angeles and he has done an incredible amount of research on the effects of parking regulations and he found that within Los Angeles parking requirements can add over $100,000 to the cost of a condo in Los Angeles, so that's obviously a very substantial cost to home buyers or renters that could be lessened if apartment buildings or condo buildings were allowed to be built with less parking than what's currently required. [12:23 - 13:50] Student: Emily from what you've already said I'm kind of getting a sense of what you mean by possibly over regulating in some areas. One of the last places that we're interested in looking at which we're actually experiencing around the Greater Toronto Area is this idea of urban growth boundaries. Could you talk about the urban growth boundary around Portland, Oregon and what that effect is? Emily: Yeah. So the state of Oregon requires that all cities create urban growth boundaries and what these boundaries do is preserve land at the outskirts of cities as agricultural land that can't be developed for housing, and several studies have been done on the Portland area because that's the most famous and most binding urban growth boundary in the United States and they found that land outside the boundary sells for less than land inside the boundary, so that finding means that the boundary is making land inside the boundary that can be developed for housing more expensive than it otherwise would be, in turn driving up the cost of housing and I believe that Toronto's greenbelt works pretty similar to the Oregon urban boundary requirements. [13:50 - 15:50] Student: Hello. In your paper you cite a study in which the authors claim that a reduction in zoning regulations in three cities, New York, San Jose and San Francisco could increase GDP in the United States by 9.5%. Could you explain the relationship between zoning regulations, labor movement and economic growth? Emily: Sure um yeah. So this study that you mention is by economists Hsieh and Moretti and has been widely cited and a very influential study within urban economics and as you said what they do is they look at what would happen if the three most productive cities in the US, so San Jose, San Francisco and New York City reduce the burden of their land-use regulations down to the level of the median city in the United States, so they're not looking at what would happen if these cities got rid of zoning entirely, but just reduce the effect of their current zoning rules and allowed more housing to be built, and they find that if that happened in their alternative universe that many more people would be moving into these most productive cities to pursue jobs where they can be more productive and earn higher incomes and in turn this would result in a, as you said, 9.5% increase in US GDP and that's huge, that comes out to I believe about $1.5 trillion each year and it's important to note that not all of the benefits of that higher GDP would be going to the people who live in those productive cities, but it would be shared with all Americans and with people in other countries also because as people in those most productive cities are able to produce better products, new software and other types of new innovations everyone would benefit from those innovations not just the people who are able to get those higher income jobs in those cities. [15:50 - 17:56] Student: I'm Bridget and I was really interested in your point on historical designations. In your paper you mention that historical designations are correlated with the higher housing prices but also that it's difficult to determine if the designation causes the higher prices or if the houses in wealthier neighbourhoods are just more likely to be designated as historical and given this uncertainty I was wondering you would say that these regulations are a significant factor in restricting affordable housing? Emily: Great question. So what you mention is what's called an endogeneity problem, so economists have a hard time figuring out whether or not historical preservation causes higher housing prices or whether higher housing prices drop people who are likely to fight for historical designations for their properties. In many cases in say small cities in the US historical preservation probably has a very minimal effect on housing prices, but in some of the most expensive places it probably has a large effect. So within Manhattan I believe over a quarter of properties are designated as historically preserved properties, what's called landmarked in New York City so that's taking basically a quarter of the land off of the island and saying this is the amount of building supply that's going to be available forever it's never going to be able to increase with demand so in that case it's pretty clear that historical preservation does have an effect on house prices and some studies in New York City specifically have been able to find that result empirically, but in many other places where just a few buildings are preserved and perhaps those are the buildings that generally have the greatest historical significance it's probably having a very minor effect. [17:56 - 19:30] Student: Hi Emily. I actually have a very similar question with I guess just more of a broader scope. I was wondering about I mean you mentioned that there's problems inferring causality between the relationship between high levels of regulation and high house prices so I'm more interested just in general without pertinence to the historical preservation sites, how do you deal with this problem that it might be high housing prices and the residents of those houses that may cause high levels of regulation rather than the other way around like you argue? Emily: So there have been a couple of very clever research designs that have looked to address that question. One example is the economist Edward Glaeser looked at land sales in the Boston area and he found that he adjusted for land qualities to try to compare apples to apples among land that is already approved to have housing on it versus land in a very in the same neighbourhood that's the same size that doesn't have any approvals in place and he found very substantial price differences indicating that having those approvals in place causes land to be more valuable than land that doesn't have those approvals in place, so he's attempting to create a natural experiment there and that's one of the convincing studies on causality. [19:30 - 21:07] Student: Hello. In your opening pitch you mention that the benefits of zoning to the local community often considered without the costs to people either in that community or outside of it. Are there any situations though in which the net effect of zoning regulation can result in an improvement in well being for that community by the reducing congestion in which in situations in which someone's land-use might negatively impact their neighbour? Emily: That's certainly an argument that's made in favour of zoning and Houston is a famous example in the United States of a city that doesn't have any Euclidean style zoning which has roles that say only housing can be built in this neighbourhood and only industrial uses can be built in a separate area of the city and people argue that Houston suffers because there are cases where say you have a bar near a school or something on where they say that the world would be better off if these uses were further apart. I haven't looked specifically at cases where the benefits of zoning might outweigh the cost but I will say that Houston has been very impressive in its ability to increase its housing supply as demand for housing has increased there maintaining housing affordability and also it's become much denser so people are building more apartment buildings and smaller single-family homes to accommodate the large number of people because of the regulatory flexibility that they have there. [21:07 - 23:28] Brady: You mentioned Euclid zoning. Where does that term come from? Emily: It comes from the town of Euclid, Ohio and what Euclid, Ohio had done is they implemented rules that said this area of the city can only be used for single-family housing and a developer who owned land that was designated as single family housing had been planning to build I believe an apartment building on on that spot and so he sued the city and said that the rule that he couldn't put that land to what he saw as its highest value use was what's called a regulatory taking, so the city was taking away his property value by limiting what he could do on it. The case ended up going to the US Supreme Court and that's where the term Euclidean zoning comes from, from that Supreme Court case and the court held that under cities' police powers they are allowed to designate certain types of land as only permitting certain types of uses. Brady: I want to just take a pause for a minute and see if students have other questions about the particulars of zoning. We're to move on Emily and start to have a discussion about the policy issues that you raise in your paper but first let me just take a break and look around the room and see if there is anybody that would like to ask follow-up question in this category or Emily I don't know if you want to add anything about particular of zoning use that you think is...
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The Softwood Lumber War - April 9th, 2017
03/14/2025
The Softwood Lumber War - April 9th, 2017
Dr. Daowei Zhang and Dr. Brady Deaton discuss his thoughts about the contemporary and historic trade dispute between Canada and the United States regarding softwood lumber: i.e., "The Softwood Lumber Wars." Transcript Brady Deaton Jr: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. [music ends] Canada and the United States have been engaged in a long and enduring trade conflict with respect softwood lumber. Today my guest Dr. Daowei Zhang of Auburn University will be discussing his book, “The Softwood Lumber War: Politics, Economics and the Long US-Canadian Trade Dispute”. Dr. Zhang welcome to FARE Talk and what's currently going on? Daowei Zhang: Well there are litigations going on on this case. The Department of Commerce is supposedly to rule, make a preliminary ruling on April 24 for the countervailing side and early May on the anti-dumping side, so it’s in litigation right now. Brady: Just for some of our listeners who might not know what is softwood lumber, what is it that we’re talking about? Daowei: There is a scientific definition of softwood versus hardwood, but in laymen’s language softwood is basically the species, lumber made from species like spruce, pine and firs and commercially hardwoods are made from oak, maple and beech, these types of species and the softwoods they have much stronger characteristics therefore can be used for construction where the hardwoods are mostly used for furniture and flooring and so on and so forth. [01:58 – 03:06] Brady: So the Canadian softwood that goes into the United States is it mostly used for housing or? Daowei: Correct, it’s for housing. Brady: Which provinces in Canada are the big suppliers of softwood lumber to the United States? Daowei: The big supplier is BC and the second largest is Quebec and the third I think is either Quebec or Alberta and those four provinces roughly supplies the US with we’re talking about 95 or 96 percent. BC takes the lion’s share of the Canadian’s, it’s way over half of the Canadian softwood lumber supply to the US. Brady: Roughly how much money are we talking about on an annual basis in terms of the value of softwood lumber that moves across? Daowei: The Canadian dollar varies over the years, I mean on average we are talking about like six to eight billion Canadian dollars, five to seven billion sometimes depending on the exchange rate, US dollars annually. [03:06 – 04:15] Brady: And so that's a fair amount of money, that’s a fair amount of importance to currency values but I suppose it's also important to particular groups with vested interests, so like homebuilders in the United States but also certain specific communities that rely heavily on forestry in Canada. What other key constituents really have vested interest in this issue? Daowei: Absolutely. It’s very important. You mention a couple, the homebuilders in the US are the big players over in the US and also the US lumber producers, to some degree the US landowners the property landowners and their managers. On the Canadian side obviously you have the Canadian producers in the various provinces and the provincial government, on top of that you have the federal government responsible for international trade, so those are the players. Again on the US side you also have the US government as well. [04:15 – 07:15] Brady: In your book you point out that this you know what they call the softwood lumber war, which is a trade dispute between Canada and the United States, has been going on for well over 20 years. One of the very fascinating points that you raise in the beginning of your book, it's kind of a puzzle and I’ll just read it to you for those listeners this is on page five of his book and Dr. Zhang says, "One of our first puzzles is that there's been increasingly free trade for most goods and services but not for softwood lumber." Why is that? Daowei: Well that’s very true and if I could correct me that number one nowadays it’s going on for more than 30, 35 years now. Brady: OK. Daowei: When I wrote this book it was more than 20 years. Brady: That's right. Daowei: But it’s fascinating. If you look at the book, basically the US they admit for all of the imports, like 70 percent are duty free. For the duty for goods it’s like four and five percent. If you do it with average of the tariff rate of all the goods and services that come to the United States it’s about one, one-half percent. Lumber we’re talking about sometimes 15, 20, even preliminary we got even 27 percent. So it’s a puzzle, it’s something so interesting that’s my interest in this book – it rises. So, why is that? I mean, why is that? I mean we talk about, why free trade or freer trade for other goods and services, but not lumber? It’s a long story. In my book I listed several factors, but if I could summarize quickly, basically I outline three factors for this longevity issues. One is economics. We talk about the endowment of softwood lumber resource in the two countries it’s just too much different. If I could share with your audience the graph in my book, look at the softwood stocks in Canada and the US, basically that’s referred to as Figure One. The US as a country as a whole has about 14 billion cubic feet of lumber stock, softwood timber stock. Canada as a country has 20 billion, so that’s a big difference just between those two countries. If you use … we’re talking about resource endowment, every Canadian has 667 cubic metres where in the United States it’s only about 51 cubic metres per person. [07:15 – 9:42] Brady: For listeners out there, we will make these figures available and they’re really compelling. That’s interesting okay. Daowei: Yes. It’s not only interesting, but it’s not reported in most of the media, it’s overlooked. I mean we in economics we think about the absolutely a comparative advantage of those two countries and it’s just enormous. One story – I made the seminars 10 years ago in my school. The Department of Economics say well jeez the Canadians just look at this figure: the number one they do not … is their lumber produce and number two are they charging too much? And that’s just, I mean, I was interviewed by the many radio stations and newspapers, publishers and they all pointed this out, they said “Jeez, we did not know this.” Brady: Let’s go over those points again if you don’t mind. When economists talk about absolute advantage and talk about that's this idea that you can produce this softwood lumber at the lowest cost and the comparative advantage we bring in the idea of opportunity cost. Daowei: Correct. Brady: So in the in these cases what specifically is the difference in the opportunity? It's clear I think, if I’m following you, in terms of the graph Canada has the absolute advantage, it can produce softwood lumber the cheapest, but the story is a little different in terms of the comparative advantage. Can you just walk us through that a little bit more? Because it is fascinating. Daowei: Yes, well absolutely the amount, Canadians produce more and also in term of opportunity cost of producing lumbers the Canadians are are much more I mean compared look at the resource endowment. For example, the computer industry in the United States is leading the world, it’s way more advanced. Canadians’ computer industry relatively sized compared to the US does not have some kind of a comparable advantage, but in lumber, Canadian does, it’s a huge difference in opportunity cost being produced in lumber, in softwood. [09:42 – 12:40] Brady: So Canada has both an absolute advantage in a comparative advantage in this? Daowei: Absolutely. Brady: OK. And so then how does that translate into your thoughts about whether or not, and I guess one of the big issues in this enduring softwood lumber wars you point out that’s been more than 30 years ongoing is this issue of whether Canada subsidizes its softwood lumber. Daowei: Well, you are moving to the second factor now. If we think about economic factors, the second factor of the softwood lumber war is I call this institutional factors. In the United States you have a presidential systems, you have Congress and so they are subject to the influence of some of the special interest groups, and most importantly one institutional factor is that in this lumber dispute the consumer, which is mostly homebuilders and home dealers, those peoples under the US legal systems, they are not part of this dispute. Let me rephrase. They do not have legal standing in the legal fact. So legally, they are put at a much disadvantage compared to the producers the US lumber producers. So this is what I called the institutional factors, the second factor, in this long dispute. Brady: So Canada has a comparative and absolute advantage but there are key stakeholders with differing interests. This really comes out nice in your book, and I guess let’s maybe go through them. That’s fascinating. One of the stakeholders is the US consumer who presumably benefits from lower prices but they don't have legal standing in this debate, one of the other stakeholders is the US producer and they do have standing and they don't, I take it, they would prefer the less volume coming in from Canada. Is that right? Daowei: Correct. That’s correct. And for example the US consumers they are not at the negotiation table. When Canada and the United States try to make a deal there were three deals over the years and there was no presence of the US consumers so anyways they were complaining but under the US legal system … they are not a part of it so that’s the second factor I am talking about. [12:40 - 14:45] Brady: Well somebody out there might be in the United States or in Canada might be out there wondering well does Canada subsidize softwood lumber? How have you thought about that, the answer to that question? Daowei: Well, this is the heart of the dispute. I in my book alluded that there was no evidence, no credible evidence that I have found anywhere to say that Canadians are subsidized. It is true that in a couple of occasions that the US Department of Commerce found there was subsidy, but if you look at the WTOs if you look at the three NAFTA panels there’s no evidence and also empirically from the academic side there is no such evidence that says there was an independent credible study shows that Canadians have subsidized their lumber producers. Brady: So if they don't subsidize what you think that Commerce is gonna come back and say in this recent I guess when I think they are sometime in April [Daowei: Correct.] are supposed to, what are your thoughts about that? Daowei: Well I said there were no subsidies found by international panel there were no subsidies found by any credible, scholarly work, but the Department of Commerce did find a couple of occasions there was subsidies, but they have their own criteria, they have their benchmarks. Depending on which benchmark they use I think they might find a subsidy. I suppose we’ll find out in just a couple of weeks what happens. [14:45 – 16:47] Brady: One of the really fascinating discussion points of your book and I wouldn’t mind you just talking about it in general is that you know we teach in our classes and we talk about certainly with our families the idea of free trade but what's clear is that trade is negotiated and there's tremendous rules and what was fascinating to me when reading your book was all the discussion about subsidies that come along with allowing free trade of defining what a subsidy is, what kind of actions can be taken against countries if the subsidy is argued to be in effect and the definition and the measure of what a subsidy is legally seem to be changing over time. What are your thoughts on that? Daowei: In this case, if I could basically summarize, in the eighties the US Department of Commerce had a different set of rules and in the 1990s, 1994 they changed it. Well not only this, within the same set of rules there are alternative benchmarks. They could choose one or two or three of those benchmarks. Depending on which benchmark is used and you can find some level of subsidies I suppose and one of the critical issues here is whether or not cross-country border comparison of stumpage is blocked, so it depends what type of benchmark you could find. There could be no subsidies, or small level subsidies or large level subsidies, so that’s critical issues in this case. My thought is well in the future it depends on which type of benchmark the Department of Commerce use so it could change the result. [16:47 – 18:15] Brady: If you a crystal ball there what kind of a benchmark do you think the Commerce is going to use and what you think will happen? Daowei: I can only speak on behalf of the Department of Commerce [Brady: Sure.] but I know there are three benchmarks in this realm. So the definition of subsidies is some kind of adequate … they define … that whatever adequate is so-called … so their benchmarks are three benchmarks. One is market price from actual transactions from within country, in this case within Canada. The second is wood market price that would be available for purchase in the country of exportations, in this case it’s cross border comparison. The third one is whether assessment whether or not the government price is consistent with market principle. This is a cost approach. I do not know which one they will use, but if I were Canadian I would definitely oppose them to use the cross-border pricing because cross-border pricing there is a problem with the exchange rate and different market conditions, different species compositions, so on and so forth. That is one of the most contentious issues in this dispute. [18:15 – 19:48] Brady: Let me ask you this question because it’s kind of interesting. Wouldn’t we expect there to be differences in prices across borders and that that's in fact what leads to exchange? Daowei: Correct. This is an interesting story. If there is no difference among countries in price, there will be no treat. Now you use the cross-border pricing you essentially turn the comparative advantage to some kind of comparative disadvantage. It’s totally against the economic principles that we have learned. Brady: Alright, so politics are at play and probably the choice of these. What from your standpoint and you really are kind of one of the world's experts in this area if not the world's expert in this area. What would you what kind of comparison would you suggest? Daowei: I would suggest well at least use the in country. For example, you have private ownership in Canada and you have crown land and you could use property land somebody price to infer the crown land somebody price probably to adjust for the difference for example reforestation and so on and so forth. The other would be more legit to me than cross-border pricing, there’s just too many problems with cross-border. Let me give you an example of these problems, within country and cross-borders. [19:48 – 21:29] Brady: OK before you do that let me just make one point for our listeners because you just raise the point that I realized I probably should have asked you about earlier, it’s important. So Canada, a big distinction between Canada and the United States is that Canada much of the land is in provincial ownership whereas in the United States it's private, so when you say compare the stumpage the kind of the rental rate on provincial land with the rental rate on private land that's a better way of assessing the subsidy from your standpoint. Did I get that right? Daowei: Correct, correct. You correctly point out that in the United States most states 73% of land is owned by private landowners, whereas in Canada we’re talking about something like 90% is owned by the public, but that aside let’s just compare apples to apples in this case. In this case, private landowners in the United States in my state we have a … the same state the stumpage price could be 10, 15, 20 percent different; we are only talking about the same species. [Brady: Right.] So … talking about the same land ownership private land ownership the stumpage price is different. If you compare the stumpage price in the state of Alabama, compare with its neighbouring states, Florida, Georgia, Tennessee and Mississippi state same species the soft timbers they are going to be easily 5, 10, 15 percent different. So my point is that cross-border or cross-region comparison is riddled with problems. [21:29 – 23:40] Brady: Oh I see. So you would suggest a relatively focused comparison within regions between and to assess whether there was a subsidy in stumpage between the private and the public? Daowei: Correct. Brady: I want to move to a more abstract discussion that I thought was really fascinating and well developed in your book and that was the way you brought in public choice theory into this discussion of the softwood lumber war. Talk to me a little bit about public choice theory. Daowei: Public choice is basically a school of economics using economics to study politics and political process and common actions in this case is pre-deregulation. The public choice school started with assumption phase, OK all of the players, we’re talking about politicians elected or the administrations … as well as the players like producers and consumers. Those people, every one of them, have a self interest and sometimes their self interest overrides the pubic interest so in this case and secondly some interest group, small well-organized interest group, when their loss is concentrated whereas the benefit of in this case the free trade is like a spread to many, many people. When that occurs you have a symmetry in the benefit and cost concentrations. In that case it will lead to some kind of lobbying more intensively to people who lost, in this case the US lumber producers. They could overcome the lobby of the consumer groups and find their voice in US Congress and Congress in turn apply pressure to the administration and therefore you could lead to some kind of result which is contrary to economic efficiency, contrary to free trade. [23:40 – 26:09] Brady: Right so consumers and producers on net could benefit from expanded trade with Canada but producers would be hurt and because they have relatively intense interest and I guess in this case, what you said US consumers don’t even have standing, they can lobby government to take certain actions against traders. Is that right? Daowei: Correct, correct. Well actually free trade is better for the United States as a whole. There is a loser in free trade, which is the lumber producers and there is a benefactor in this case is the US consumers. Yes the lobby could be more intense to Congress from the producer side. And now I’m saying the US consumers do not have a legal standing, politically they can still lobby [Brady: Right.] but if their intensity of the lobby is subdued overshadowed by the lobby of the lumber producers, let’s put it this way. They can be effective in the lobbying effort, but legally they do not have legal standing, so there is a difference on that. Brady: What's your thoughts? Canada is worried about this, why wouldn't they just adopt a system like the United States and just auction their land and be done with it? What you think stops that as a potential solution? Daowei: There are two things: Number one, it’s not very good for the Canadian social and … objective. If we use the United States’ systems number one the US Forest Service the public land the auction their timbers,...
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Economic Integration Reconsidered - June 26th, 2017
03/14/2025
Economic Integration Reconsidered - June 26th, 2017
Dr. Bruno Larue discusses his recent keynote presentation to the Canadian Agricultural Economics Society (CAES) titled, "Economic Integration Reconsidered". Dr. Larue describes what is meant by economic integration and assesses changes in the perceived benefits of integration since the late 1980s. Transcript: 00:00 – 03:16 Brady Deaton: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. Today is June 21, 2017 and I have a special guest today, Professor Bruno Larue from Laval University who just gave a keynote address titled “Economic Integration Reconsidered” and that’s going to be the subject of this podcast. Bruno, thank you for joining us. Bruno Larue: Well, it’s my pleasure. Brady: Bruno, we’re going to talk about a lot of aspects of your title, we’re going to use this as a basis for asking questions. So I’ll just begin with what do you mean by economic integration? Bruno: Well, economic integration is basically the sharing of competence, if we look for example at the Canadian provinces, they are integrated into an entity called Canada, so there are certain domains that are strictly under provincial jurisdiction, like education for example. We have domains that are under a joint jurisdiction, federal and provincial, like agriculture and there are some domains like trade policy that are strictly under federal jurisdiction. So with countries it’s a bit the same sort of thing, countries integrate to be a little bit like bigger country or a lot to be like a bigger country. A good example is the European Union so minimally countries in the European Union have zero tariffs between goods traded amongst themselves, they have common external tariffs, so for example the goods that are imported from China whether they’re imported from Germany or from France, they’re taxed the same way. They have a common market, pretty much like Canadian provinces where workers can, for example if the economy is down in the West workers can move to the East. They have the same sort of thing between them, the same thing with capital, free movement of capital and some of these countries even share a common currency, so very much like the Canadian provinces in the end, so there’s a whole menu of integration. So in the case of Canada for example with the United States and Mexico we have what we call a free-trade zone so we’re exempting each others from import taxes and we also coordinate some aspect of our policies. We try to coordinate for example meat inspection so that trade in meat is more fluid but we don't go as far as having a common external tariff or free movement of people. 03:16 – 05:08 Brady: The economic integration, what all of those things in common is that it seems to me is that they're trying to expand trade and the movement of people across increasing distances and not kind of be constrained by borders in the typical way. Bruno: That’s right. The idea is to facilitate exchanges to increase welfare of the of the members and if you look at the Heckscher-Ohlin model you have a perfects of substitution between moving goods or moving factors, and so in a world like this you can have one or the other and end up being the same, of course in the real world they are there are elements that are such that you know it’s moving goods versus moving people is not exactly a perfect substitute but it's certainly the idea is to reduce the thickness of the borders between countries so that people can have a better life, that’s the idea. Brady: One of the ways this kind of always gets described in some ways is free trade and I always marvel, I’m a little concerned about the use of that because it seems to me, if we’re going to talk about in the past and in the present that the institutions or the rules that enable that expansion of trade and movement across distances is very costly and challenging and there's a lot of rules that enable that expansion. 05:08 – 06:43 Bruno: That's right. There's actually even countries that essentially have free trade, for example Canada and the United States what we find empirical studies have found is that there’s still a border effect that is quite substantial and it’s not only between Canada and the United States we find that also between European countries. It's a lot easier to move goods inside a country between Canadian provinces for example, Quebec and Ontario do a tremendous amount of trade and that trade is actually a whole lot more fluid than trade say between Quebec and New York State, but the idea is to try to make it smoother so you reduce or eliminate tariffs on most goods, there’s still some exception like we have a quote-unquote free trade agreement with Mexico and the United States but there are some goods that still remain taxed so there's never completely free trade, it’s free trade on most things but with a few exceptions, but we also try to coordinate regulation to reduce what we call non-tariff barriers because there could be quite substantial especially in agriculture of course. Brady: What I always marvel at is this coordination process is pretty costly Bruno: That’s right. Brady: and I want to come in as a way to move into the title of your presentation, “Economic Integration Reconsidered.” 06:43 – 12:04 Bruno: That's right and a good example of this is what's going on for example in Britain you know the British citizens have voted to leave the European Union and now they are involved in a process about leaving. It’s extremely complicated because you have to take care of so many things, so we have to prioritize and what was decided for example in this case is well let's settle the issue about British citizens working in the EU and EU citizens working in Britain so what will be their status, their rights and so forth and that's quite complicated and that eventually the British citizens really, really want that, they want a free-trade agreement they don't want a common market, they don’t want too much labor movement but they want free trade but then with free trade comes, OK what are we going to do with standards? Are we going to just blindly take the EU standards or are we going to have different standards? What if we have new standards and then there so different from the EU standards that we have a problem exporting and then if we just take the EU standards well then we won't have a say in how these standards are set. So why did we get out of the EU? I mean these are sort of the questions, so it’s very complex. If you do for example a trade agreement like Canada and the United States did then because you have different tariffs on goods coming from third countries a strategy that some third country exporter might have is to try to sneak in and say if the US has a lower tariff than us to sneak through the US to export actually to Canada and so to prevent that we have what we call rules of origin so we have to define what constitutes a North American goods and for example for cars the parts can come from all over the place so there's got to be a way to compute the North American content and that could be quite tricky but at the end of the day there’s got to be a number and there's got to be a way to actually compute that so that it can be verified. It can actually be very, very costly to implement these sorts of trade agreements and of course they can be disruptive because when for example imports increase they can displace domestic production and so there could be unemployment and that’s the sort of thing that a lot of citizens focus on. They see some of their some of them lose their jobs or they know somebody that has lost his job and they tend to focus on this as opposed to the bigger picture and so what we've observed is that when we did our first big trade agreement, the Canada-US trade agreement and in the 1980s when we started negotiating that the labor movement in Canada was extremely skeptical about the benefits of this sort of endeavour, and there was actually a very strong opposition this sort of an opposition like we're going to lose our sovereignty, we won't be able to have our domestic programs like our healthcare system for example, and of course none of that was true but I guess it is repeated often enough then people decide that it must be true and so that’s why there was a fair amount of opposition. Ultimately you know we had free trade with the United States and people realize well you know it’s not so bad, actually there are new jobs being created, there are some that we lost, but there are new jobs being created, so it's not as disruptive as initially thought and for a long time does it seemed like when we moved along and negotiated other trade agreements that people sort of understood that it was to our benefit yeah there would be some disruption but even to the labor unions had this sort of opposition when we negotiated with the United States and Mexico NAFTA already back then you know people realized well you know we will have the Mexicans as partner and they’re not that big a trek, you know? 12:04 – 14:17 Brady: It seems to me that there were always concerns but I would kind of be interested in you reflecting, so I mean on the 1980s and the early 1990s it was a real amazing sweet I mean as you mentioned we had the Canadian-US Free Trade Agreement, the World Trade Organization, Canada signs on to the World Trade Organization Agreement on Agriculture, we have NAFTA, we have the European Union all within the span of say 89 to 95, that was there was there were challenges then and you raised some of them, but what’s the difference between then and then maybe take us to now. It seems to me that Bruno: Well now there seems to be a switch to the old fears and we seem to have them in the United States and in Europe too of course, but we look at them the United States I’d say that the big contributing factor is the emergence of China as a power trader. I mean they went from a rather marginal trading nation to the biggest trading nation and what we found out is that some manufacturing sectors tend to be clustered in geographical areas and so when some of these sectors contract because of import competition the workers and the capital have a problem moving out and being relocated to other sectors of the economy. It takes actually more time than what most people most economists thought and so what happened is that there's been an increasing focus on these the sort of issues so that I would say some politicians have been quite astute and have capitalized on that like Donald Trump of course. 14:17 – 16:00 Brady: I just want to say one thing. Can I get in here and get your thoughts on this? Bruno: Sure. Brady: Now one in the United States the actual amount manufacturing goods is higher than it's been in the past but the labor producing those goods is much lower. Do you have a sense of how much to which we attribute Bruno: Well actually the share of manufacturing in the US economy has shrunk so that the service sector is more important than before because manufacturing has moved essentially a big chunk of it has moved overseas and actually even China now is fearing that it’s is going to lose some of its manufacturing might to countries with cheaper labor, so that’s a natural process. When goods become sort of standardized they can be produced in places where labor is very cheap so countries like Canada and the United States have lost a fair amount of their manufacturing base so the importance of manufacturing in the economy is smaller so even if we were trying to take a protectionist route and say well we got try to stop some of the imports from China that honestly would not do a whole lot to reestablish manufacturing, we wouldn’t be able to bring back manufacturing to what it was 20 years ago so that would be counter-productive. 16:00 – 18:19 Brady: We certainly wouldn’t be able to in terms of employment just because of the technology. Bruno: That's right. So what we do is that we have to focus on what we're good at and actually take advantage of the fact that some countries have cheap labor. A good example is the iPad. The conception was done in the United States but the parts come from all over the place and some of Apple's rivals are actually providing some of these parts like Samsung for example and like the hard drive come from the Philippines, it’s made in plants owned by Toshiba, a Japanese company, and all of this is assembled in China so the value added in China amounts to four dollars, but when the United States is importing these goods from China every single unit adds something like $280 to the US trade deficit, so some people think well you know isn’t that bad? But then all of these units are sold in the United States for about twice as much. So who gets the bulk of the profit from this? Of course the American companies, the retailers, Apple so that's an example where if you look at the trade deficit with China you might think well you know is that such a bad thing but it's a profit engine and a lot of the people don't see it and it's because there's a lot of misinformation and people focus on job losses and they think that they're losing also their sovereignty because the world is more integrated, the supply chains are more integrated. 18:19 - 21:31 Brady: So do you have a sense of what triggered that new so one of the things that I hear you saying is it is very difficult to trace out these effects and the movement of trade which was it always had these people that were knew they were to be affected by it and there was always a bit of resistance to it in the 90s but there is new capitalization on it maybe by politicians and there's you know a lot of misinformation. Are there other factors contributing to the kickback that we’re experiencing right now? Bruno: Well, I would think that the biggest one is through simply the politics you know the rise of the populous movement in the United States and in Europe but at the same time you know we see that some of these things are quite volatile because the French election shows that you know in some parts of the world people can look at integration and embrace it in the end. So there are countries that have resisted that but even in France there are certainly elements of populism, the extreme right party of Marine Le Pen has been more successful in the last presidential election than ever before so I think that there's a certainly a window now to try to do things the right way but if it's not done properly then there will be a stronger populous movement in France and things can degenerate even in France they could at that point say well we’re French first and we don't care so much about the European Union, but I think it's mostly like simply the a lot of disinformation and with the media now it’s so it seems so much easier to do than before. People don’t necessarily get their news on TV from respectable reporters anymore, there are economists that have found that it's kind of a reflex for people to look for news that support their value system or to when confronted to facts that contradict their beliefs that they’ll try to come up with cues to dismiss these facts so public opinion is once it starts going one way it's quite difficult to change it and it will eventually change I think and go back to where it was and pretty much in support of integration. 21:31 – 23:38 Brady: Let me ask you a question because we’re kind of moving on to a point that I heard you mention in your address, now it’s clear I think to most listeners and most people that we’ve had a watershed change between the 90s and where we are right now but the sense, economists my senses generally feel the same way, they’re generally supportive of trade and you talked a little bit about that in your presentation, but there are some nuances. Bruno: That’s right. I mean what the new theories show is that trade can actually be quite beneficial but at the same time disruptive in the sense that what we found looking at the data is that the firms within a sector differ widely in terms of their productivity so you’d think you know if they’re in the same sector they should pretty much have the same technology and pretty much achieve the same level of total factor productivity but that's not the case. What we find is that there is a wide range and what free trade does is that it that tends to give opportunities that are better suited for the most productive firms and so this is great for countries in the sense that you know if most of the goods are produced by more productive firms overall productivity increase and so the purchasing power of the consumer increases, but you know for this to work well Brady: Because their wages are tied to their productivity Bruno: That's right. And you know the real wage increase because most of the goods are cheaper because they're done by more productive firms. 23:38 – 26:39 Brady: So the country gets more productive and the people get cheaper goods Bruno: More purchasing power and so they benefit from that. The downside is that it creates disruption in the sense that the less productive firms are forced to exit. In a very fluid labor market the workers are laid off by less productive firms normally should end up being hired by more productive firms because the more productive firms then not only have to meet the demand of the were facing before but now they have larger demand because they're picking up the demands from the firms that were forced to exit so they normally should hire more workers but again that’s the sort of thing that takes a bit of time to readjust that relocation of resources that can take some time and so that could be a bit disruptive. The other thing is that what we find is that the world is not perfectly competitive. Firms take markups and in a world like that the Brady: When you say markups just for our listeners you mean like raising Bruno: Markups on goods Brady: Making the price higher Bruno: That’s right. And that's a natural tendency and in a world like that you know that you know creates inefficiency, so basically in addition to countries wanting to use their trade policy to manipulate world prices to their advantage, that is trying to reduce the prices they pay foreign exporters and increase the prices that their exporters get along export markets. There’s also the incentive to use trade policy then to address domestic market failures, those markups on domestic goods, and so the optimal policy, trade policy then must take that into account so the I guess the prescription now for small economies is no longer a zero tariff, but a small positive tariff, so there’s a nuance there but that’s the sort of thing that sometimes people who sometimes try to sell protectionism would use and say well you know this is a justification for a 200 percent tariff and of course a 200 percent tariff are inconsistent with those new theories that say well there should be a small positive tariff but certainly not a 200 percent tariff, but I would say the new theoretical results that the new knowledge and in economics is sort of being abused by some people that have vested interest in protection. 26:39 – 28:53 Brady: So the economic thinking about integration is largely the same but there's gains to it, but then in some cases these issues about imperfect competition or Bruno: And in terms of trade manipulation you know it’s always the case that big countries that you know have a big share in the world markets have you know the reflexes trying to use their trade policy to manipulate terms of trade. What we've known for quite...
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FARE Talk - The Future of Food - November 7th, 2017
03/06/2025
FARE Talk - The Future of Food - November 7th, 2017
In this podcast Dr. Jayson Lusk and Dr. Brady Deaton discuss Jayson's George Morris AgriFood Policy Lecture: "The Future of Food." Jayson points out that since the writings of Malthus, the food sector has been characterized by increases in productivity. He notes that this increase in productivity has allowed us to escape the Malthusian trap. Transcript: [Introductory music] Brady Deaton: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. [music ends] Brady Deaton: Today is November 7th and today we're going to be discussing the future of food with Doctor Jason Lusk. Jason is Distinguished Professor and head of the Department of Agriculture Economics at Purdue University. He needs no introduction for those of us in the field. He is a Fellow of the Agriculture and Applied Economics Association and he most recently served as president. Thanks, Jason, for being here today. Jayson Lusk: Yeah. Hi, Brady. Thanks for having me on. Brady: Yesterday at the University you gave a thought provoking lecture titled "The Future of Food" and we've been debating the future of food since the 18th century. So, I thought we'd begin there. Talk to me about that. Jayson Lusk: Yeah, so sometimes when we think about the future, it's useful to look at the past and what people were worried about in terms of their future problems, which became our present. But really I think going back to intellectuals throughout the last two to three hundred years, Thomas Malthus is probably the most well-known of those. He was writing in the last 1700s, early 1800s and he is well-known and we've heard of the Malthusian concern but basically the concern was that we're gonna have increasing population and then that population is gonna continue to be applied to a fixed amount of land and as a result, we're gonna have this thing called diminishing returns, that the amount of food that's gonna be produced per unit of labor applied to that land, is gonna fall. And so the concern is, you will end up with this large population that's not able to feed itself or just really on the verge of starvation and that prompted a lot of concern, a lot of writing, a lot of criticism over time. But it's a concern that really didn't go away. So, we fast forward 100 years, we talk about a British intellectual at the time, who mentioned very similar concerns. They were worried about a growing world population in places like Canada and the United States and he coined the term "the wheat problem" about, you know, his concern was we're gonna run out of wheat to eat, we've got all these developing countries, they're gonna start importing and take the wheat away from those folks that consider themselves part of the developed world then. So, that was about 100 years ago and then we fast forward to almost present day. So, like 1960s and you have writers like Paul Ehrlich, Lester Brown, for example, that were espousing very similar concerns, slightly different focus, but mainly the concern was we're not gonna be able to feed ourselves. We're gonna have some collapse, we got too many people, and we're not gonna have enough resources to feed them all. So, I think throughout history, that has been the main concern of the leading intellectuals over the years. And what I think is fascinating about that, is that is not the concern of today's leading intellectuals in terms of food and agriculture. In fact, what they have done in large part is look at our food system and called it a broken system, which I think is interesting in a lot of ways, because the food system, despite all of its flaws, has in a lot of ways addressed the concern of Malthus and Sir William Crookes and Paul Ehrlich, that we indeed found ways not only to feed people but to reduce rates of food insecurity and to bring down rates of poverty. And so we really found, you know, were able to live up to the challenges of those leading intellectuals but we seem to have found new challenges that we want to pay attention to for the future. Brady: Right. Now, I mean, Malthus probably when he looked back, when he was looking back at history, he might have been right. There was, you know, agriculture technology hadn't taken off but then right after he had this concern, the agriculture sector that emerged has been amazing at, at least putting off, if not removing in a sense, the widespread concern that we're not gonna have enough food to eat. But it's still present in some form today. I mean, we still look at the world, some people do, and the say, "Oh, we might not ... How are we gonna feed the population in 20, 30 years?". And I guess what you're saying is it's the current agriculture sector or the contemporary agriculture has done really well addressing that issue and now the intellectual challenge of the day, for some, is not about how do we raise productivity and how do we provide agriculture? It's about other issues. And what are those other issues that they're thinking about? Jayson Lusk: Yeah, well it's a whole setup concerning ... I should maybe just back up and try to be fair to people like Malthus and Paul Ehrlich. You know, the very concern that they expressed probably prompted people to undertake actions to do something about it. So, it's not to say they weren't right. They could have been right, actually, if we wouldn't have figured out ways to increase productivity and, in fact, Malthus' model is not incorrect, it's just what we did is we shifted that production frontier out over time. There's still diminishing returns, it's just if we can get on a new production function every so often, we'll be more productive. Brady: Now, I just want to, because in your presentation yesterday you had some really neat ways of characterizing when you say, "Shifting the production function out". I wonder if you could just kind of talk a little bit in more kind of lay terms, if you will, just what you mean by shifting out that production function over time. Jayson Lusk: Yeah, so, I'll give you a couple of examples. One is data from the U.S. Department of Agriculture and they have an index of use of outputs and inputs for the last 50, 60 years. So, since the late 1940s in the United States, agricultural output has increased almost 170%, so a lot more agricultural output over that time period. But interestingly enough, if you look at the use of inputs, particularly labor in land, but labor in particular has fallen by about 70%. So, in some ways, this is like exactly the opposite of what Malthus' concern is. Not only are we getting more output, we're getting more output while at the same time using much less labor and that's really what productivity is, is more output using fewer inputs. It's one reason I like to say, productivity is really a cornerstone of sustainability. Because if you can get the same amount of output using fewer resources, that's a good thing. We're conserving more resources for the future. So, that's sort of one measure. Another way, more practical way, perhaps, to think about it is through a little thought experiment and that thought experiment goes like this. Let's say we want to consume the same amount of food, let's pick a category like beef, that we actually ate today, in the year 2017. But we wanted to do it using 1950s technology. And by technology, I mean basically yields. How many more cows, beef cows, would we need to do that? And by my calculations, it's over 15,000,000 more beef cows. And that's literally cows. It's not counting all the steers and heifers that are involved there. If you look at commodity crops like corn, for example, in the United States, we would need over 200,000,000 more acres. We'd need to triple the amount of corn acreage if we wanted to consume the same amount of corn we consume in current day but instead we're using 1950s technology. So, when you look at it like that, it's just an absolutely incredible increase in progress and achievement in terms of productivity growth. That productivity growth is labor-saving, it's land-saving, but also saves all the resources that would have gone into all those extra acres whether it's water, fertilizer or pesticides or herbicides. We use fewer of those because we can get by on lower amounts of land and other things. So, I think it's really dramatic, the levels of increases. And getting back to your question, about the leading concerns today, in some way this dramatic productivity growth has enabled us to be able to afford to worry about different things. So, the sort of modern food movement, if you will, is a collection of a whole host of best-selling authors, NGOs, celebrity chefs, food writers, and it's not a single issue or a single person. But by and large I would say they've expressed a whole set of concerns that relate to things all the way from concentration and consolidation in agriculture, so concerns about market power, there are concerns about environmental outcomes, whether it's greenhouse gas emissions or run-off in waterways, for example. Or concerns about human health that we have, in their mind, too many cheap calories in the developing world and yes, we have problems with food insecurity, we also have problems with obesity and diabetes and other things. And so that would be sort of their critique of the food system and I would say, in terms of Maslow's Hierarchy of Needs, once you've been able to say, okay, we can feed most of the people around us, in a way then you can start worrying about some of these other higher order concerns. That's probably where we are in terms of our food, environment, and food culture. Brady: I want to kind of talk about that some more. First I want to kind of characterize the contemporary agriculture sector. So, we look back, it's been highly productive and you've given some examples of that. Some other points you raised, and I think I'll get this right but you can correct me. We're talking about Jayson's research is in the United States. But these general issues of productivity and the suite of concerns of the modern food movement, they are very much shared in Canada. But using the U.S. data, you say something like 8% of the farms produce about 80% of the food. So, is that right or is the value? Jayson Lusk: That's exactly right. So one thing is just looking at the number of farms over time, again this U.S. data but before the 1950s there were between six and seven million farms in the U.S. Today's there are around 2,000,000. So, a pretty dramatic reduction. But really at 2,000,000 in my opinion, is a very dramatic overstatement of the number of farms that really contribute a meaningful output and part of it's how the U.S. Department of Agriculture counts a farm. So, they count you as a farm if you have $1,000 in sales. And not even actually actual sales, just the potential to tell $1,000. So, if you have a cow sitting out somewhere on your land, you're a farm, because that's a thousand dollars worth of- Brady: definition is similarly brought. Jayson Lusk: But when you really kind of boil it down and say, "Who's producing the food?", the statistic you shared is right. It's about between 7 1/2 and 8% of U.S. farms produce 80% of the value of AG output and when you put that in a numbers term, it's about 160,000 farms are producing 80% of the value of AG output in the U.S. And I think you're exactly right. You'd find very similar numbers in Canada. So, it's really incredible in a lot of ways. Incredible both because it's so concentrated, incredible because so few people can really feed so many and I think it does speak a little bit to some of the concerns of the food movement and that is that most people have very little connection with people on that scale of operation, that it's hard for them to understand why they make the choices they do or what they're doing or how those foodstuffs flow through the food system and so, yeah, it's a food system that is incredibly efficient but one that's also very foreign to a lot of food consumers. Brady: So, we've got increased productivity. You were happy that we forestalled this Malthusian nightmare, and farmers have done better in terms of their wealth and their income. And yet there are a lot of concerns, which you mentioned as kind of a new food movement and you mentioned some of them. And so I thought one thing I might do is just throw them out to you and you can kind of hit them back as you will. So, I think one of the concerns is just the concern about the size; concerned that 8% of the farms are producing 80% of the product and so some people might say, "Look, that's not an agriculture sector that they want to promote". What's the trade-off there or what concerns you about that kind of a statement? Jayson Lusk: I would just say again, it really is about trade-offs. It's not that we can't have a food system that has many smaller farms. It's just really about what are we gonna give up to get it? A familiar economic concept is economies of scale that this idea that the bigger you get, your per unit cost can fall. So, if we had many fewer smaller farms, my guess is you'd have higher production costs on the average. So, that would trickle down to probably slightly higher food prices. And you know, is that a trade-off somebody is willing to make? Some people might be willing to make that, others may not. It might depend on your income and food preferences. One other caution and push-back I would say, too, is there are a lot of food and AG technologies that don't make sense unless you're big. But take something like a combine. You're talking about a piece of equipment that's half a million dollars, if not more. If you're farming five acres, it's not gonna make sense for you to have a half million dollar combine. You need to have some scale for it to make sense, for you to adopt those technologies that can really lower those production costs. That's just one example but you could think of many examples like that whether it's various forms of irrigation or what have you that these technologies, the benefits of them won't really kick in until you can get to be of a certain size and scale and so, again, if we don't want that size, the main consequence of that is gonna be higher production costs and that will ultimately lead to higher food prices. I see that as sort of the key trade-off there. Another kind of trade-off, too, is what are the opportunities available to people and I think one of the reasons we've experienced, we look across countries. Countries today that are relatively rich are countries that have largely transitioned employment out of agriculture. They have moved to more industrial sector or even, now today, more service sector kind of employment. And countries that are still poor today, are countries that still have large scale agricultural employment. Now, it's hard to necessarily say that's causation there, but I think that would be one concern of mine is if somehow we wanted to say we wanted a more agricultural-based sector that has a lot more employment in agriculture. If you just look at the pattern of economic development across countries, that seems to me to suggest you're gonna have a country that's gonna have lower economic growth overall. So, I think that's another kind of concern that I would probably have. Brady: Yeah, I lived in a small village in rural Sutu for two years and most people were involved in agriculture and I knew everybody but because there wasn't a store you had to actually go to someone to get the produce. So it was a local as you could get and it was not something that I think we would probably want to emulate. Jayson Lusk: You didn't stay. You came back. Brady: Right. Okay, what about the person who says, I just want to kind of throw these at you. Look, the technologies that have led to increased productivity have worsened the environment. I think that's another standard concern that you would hear. How would you shape that discussion or how would you think about the trade-offs in that context? Jayson Lusk: Yeah, I mean, technology is sort of amoral. It can do good things or sometimes it can have unintended consequences. So, some technologies, to pick a particularly controversial one, let's talk about biotechnology, for example. Some people might say, one of the challenges in even talking about something like biotechnology is a lot of people's aversion to biotechnology has nothing to do with biotechnology. They'll say things like, "Well, I don't like monocultures". Well, yeah, we probably have monoculture regardless of whether we have biotechnology or not. That was happening well before biotech. So, in fact, in some ways, you could look at the technology of biotechnology as enabling farmers to adopt a set of practices that are actually beneficial to the environment. So, for example, herbicide resistant soybeans allows farmers to more low till and no till cropping because you can control weeds much more easily if you have a herbicide you can spray and get rid of those weeds without having to till up the ground. You know there's a lot of debates about whether herbicide use has increased or decreased. But I think one thing that's quite clear, that the kinds of herbicides we're using now are far less toxic to the environment and to humans than the ones we were using before. So, biotechnology has kind of enabled that. So, there are some concerns, like herbicide resistant weeds and people worry about whether we're in some kind of chemical arms race. Actually, we're always in a race with nature all the time regardless of whether we're using biotechnology or not. I guess I wouldn't accept the premise all the time that technology has worsened environmental outcomes 'cause I think in the cases I just mentioned, I think a strong case could be made actually that it improved environmental outcomes relative to what would have happened otherwise. And so, were some technologies, if we want to call them technologies that we used in the past where they sort of strip-till farming, did that produce some adverse environmental outcomes regarding soil erosion and things? Yeah, it probably did and we probably learned from those and we've learned better ways of plowing and handling the soil. The other thing I would say there is let's first agree that we think we want to improve the environment and then if we can agree on that premise, I bet there are a lot of technologies that we might agree could help us get there. So, precision AG might be one of those today that by having better data and information about different parts of the field, maybe we don't have to uniformly apply nitrogen fertilizer across that whole field. Maybe we could just apply it in the places where it's needed and then we won't perhaps have as much runoff. That's a technology fix. It's a technology fix that can potentially save the farmer money. It's a technology fix that can potentially help prevent runoff into our waterways and so, to me if I was concerned about environmental outcomes, I'd want a lot of technology fixes. Brady: All right. Another one, just to kind of keep on the role. I'll stop eventually but we can keep going, right? Because these things are all out there and I think one of the things that I have picked up from your presentation yesterday was your desire to kind of look at these things as trade-offs and try to talk through these issues. So, forgive me. I'll just go. Animal welfare. I think you could almost put the current agriculture system doesn't treat animals well. That would be another critique that you might hear. Jayson Lusk: Yes. And I think, that actually when you ask people...
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FARE Talk - The Economic Consequences of Farmland Policy on Farmland Values in Saskatchewan - March 27th, 2018
03/06/2025
FARE Talk - The Economic Consequences of Farmland Policy on Farmland Values in Saskatchewan - March 27th, 2018
In this podcast Dr. Chad Lawley discusses his recent paper examining the consequences of the 2003 Farmland Security Act Amendment in Saskatchewan. He finds evidence that the amendment favourably increased farmland prices. Transcript: [Introductory music] Brady Deaton: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. [music ends] Brady Deaton: Today is March 27th, 2018, and my guest is Chad Lawley. Chad is an associate professor in the department of agribusiness and agriculture economics at the University of Manitoba. Chad, welcome to FARE Talk. Chad Lawley: Yeah, thanks for having me, Brady. Brady Deaton: We're going to be talking about your paper that you recently published in the American Journal of Agricultural Economics entitled Ownership Restrictions and Farm Land Values, Evidence from the 2003 Saskatchewan Farm Security Act Amendment. Brady Deaton: Now, that's a lot of long title. But let's just start breaking that down. So, what are ownership restrictions on farm land? How do we think about that? Chad Lawley: Yeah, so I think there have typically been two different types. In some cases, states or provinces will restrict corporate ownership. That's the case in North Dakota. I think in the 1930s, in North Dakota, the state put in some anti-corporate ownership restrictions. There was a fear at that time. Some of their farms were going bankrupt, and institutions were taking over their land, and there was concern that they would have a large impact on the landscape, in terms of sort of non-farmer. Brady Deaton: So they wanted farmers, farm families, farm individuals to be owning this farmland. They didn't want a corporation to be farming there. Chad Lawley: That's exactly right. That's right. Brady Deaton: Wow, so this is a historic issue. Chad Lawley: It's in the 1930s and it's recently, I think 2016, this ban of corporate ownership was maintained in North Dakota. Another kind of common ownership restriction that took place in the 70s and 80s in North American are bans on quorum ownership. If you're a resident outside of the country, say it's out of the states or outside of Canada, you're prohibited from owning farmland. There's several states and provinces with that type of legislation and I think by the 1980s over half of the farmland in Canada and the US would have been under foreign ownership restriction. Brady Deaton: I noticed in your paper ... By the way, for those listening, we'll put a link to Chad's journal article so that you can read that, but I think you mention in the paper that something like 30 US states by the 1980s had foreign ownership restrictions. Is that about right? Chad Lawley: Yeah, it sounds right. There's a lot of talk about it. I think there was a 1978 GA report on concerns about farmland ownership. I think by the mid 80s, that sounds right. About more than half of the US states had foreign ownership restriction. Brady Deaton: Canada as well, and many provinces do, and still do, right? Chad Lawley: Yeah, that's right. Alberta, Saskatchewan, Manitoba, Quebec, Prince Edward Island all have restrictions on outside investors, outside owners. Brady Deaton: For those listening in Ontario, Ontario really doesn't have similar restrictions to those provinces. Chad Lawley: Yeah, that's right, and same with British Columbia, as I understand it. Brady Deaton: Right. There are to get the tax break on farmland, which is generally 25% residential. You have to be a Canadian citizen. Chad Lawley: Right. Brady Deaton: There are disincentives, I suppose. Chad Lawley: Yeah, that's right. Some of these foreign ownership restrictions are blunt instruments right there, a complete down on ownership if you're not a resident. Brady Deaton: There's this foreign ownership restriction but in the case that you're looking at in Saskatchewan it's even more than that, right? Chad Lawley: Yeah, that's right. Saskatchewan is unusual in that starting in 1974 with the Saskatchewan Foreign Ownership Act only Saskatchewan residents or agricultural corporation were allowed to own Saskatchewan farmland, so quite a bit more restrictive than restrictions we saw in other provinces and states. Brady Deaton: The other provinces would have allowed citizens from any other province to invest in farmland but now Saskatchewan in 1973 disallows any other provincial government, somebody residing in another, any other Canadian citizen except someone residing in Saskatchewan. Is that right? Chad Lawley: That's exactly right. Completely isolated the problems from outside investment. Brady Deaton: I know you talk a little bit about the report that led up to this decision in 1973. What's the kind of ... Give us a general overview. What was going on? What were they concerned about? What was going ... What were the issues that they were debating at the time? Chad Lawley: The new democratic parties, or the left of center party was in the power in the province at the time. A committee was formed to look at farmland ownership and so they toured the US Midwest. They went to North Dakota. They went to Colorado to look at the types of restrictions on ownership there. They did a tour of Saskatchewan as well. The overriding concern at that time was rural depopulation. There was this concern that in general farmers were leaving agriculture and going to the city. Rural communities were being depopulated. It was reducing amenities and services within those rural areas, that this rural way of life was being threatened. There was also a concern that young farmers weren't getting into agriculture. Brady Deaton: In 1973, they basically then disallowed, so only residents of Saskatchewan can purchase farmland. Take us through to ... Does it stay that way? I think you're looking at a change that occurs in 2003. Is that right? Chad Lawley: That's correct. That's correct. Legislation comes in 1974. It's interesting so that special committee from the report recommended that ownership be restricted to Canadian residents but in fact, the legislation that was put into place was more onerous and more stringent and restricted ownership to just Saskatchewan residents. Brady Deaton: Do you have any idea why they overstep that? It's interesting. Chad Lawley: I don't. I couldn't find any documentation there. The special committee report is the last word that I see and then the legislation's in place. Brady Deaton: The committee says, "Uh, restrict foreign purchases of farmland," and they say, "We'll go further than that." Chad Lawley: Exactly. Brady Deaton: "Nobody except unless they're a resident of Saskatchewan can purchase farmland. Chad Lawley: That's right. It's very unusual. No other state or province did that. Brady Deaton: At the start, the legislation was restricting ownership to Saskatchewan residents or someone residing within 20 miles of the Saskatchewan border so you could be 20 miles in Manitoba, into Alberta, or into the Unites States. Chad Lawley: Post that additional legislation there are small changes put in place in the 1980s, the legislation, one of which is removing in that 20-mile buffer around Saskatchewan. In 2002, there's this legislation that's revisited and then in 2003, investment is opened up to Canadian residents and [inaudible 00:07:32] corporations. Brady Deaton: Do you have any sense of ... This is interesting. In 1973, we have the subjectives for real unique farmland restrictions, unique in North America. Only people in the province could buy it. By 2003, and that's really the focus of your research paper, this changes is relaxed. Chad Lawley: That's right. Brady Deaton: Why? Why? What happened? Chad Lawley: Right. I suppose it's always touch to know for sure. Brady Deaton: Sure. Chad Lawley: In 19, say the mid 1970s, it's a time of high agricultural land prices. There's a thought that this type of legislation is being imposed. It's to reduce local competition for farmland to keep out prospective buyers from outside of the province and allows local farmers to more competitively bid on that land. Asset values are high as well. People want to get in, right, and there can be this momentum politically for that type of restriction. Chad Lawley: We're going to head to 2002. At least in Saskatchewan, this is a time of relatively low agricultural land prices. They're stagnant in real terms so there's not a lot of appreciation in land values. Some commentators were suggesting that there's this baby boom that entered agriculture in the 70s. [inaudible 00:09:02] baby boomers there was a lot partners entering in the 1970s. Then now those farmers are ready to retire and they'd like to sell their farmland into a liberalized market where there's more competition for the land. Now, it's politically feasible for the government to open up competition for the land. Brady Deaton: Right. It's interesting. In times of high prices, it seems historically we've had these concerns about foreign ownership, corporate or nontraditional investments, investors in farmland. I guess they could use the word institutional investors for groups that are, corporations that are going out investing in farmland as an investment. These concerns seem to occur in times of high prices. I say that because we are in an escalating high land value in general but farmland in particular. Many of the concerns that you were talking about in 1973 are again emerging so I think your study's very interesting in that sense. Chad Lawley: We're seeing it all over the world, too, so Australia is revisiting foreign investment in farmland. Just recently, Missouri's been revisiting this. Of course, North Dakota, Iowa, Wisconsin, I think it's come up. It's in the news again at this time of high prices. Brady Deaton: Right, but in 2003, that legislation might not have occurred if we were in 2017, 2018. Chad Lawley: Yeah, if that amendment ... Yeah, totally. Brady Deaton: Then in 2003, it's relaxed, and that's really where your study comes in. Is that right? Chad Lawley: That's exactly right so I'm looking at the impact of that 2003 amendment that opened ownership of Saskatchewan farmland to non-Saskatchewan residents, so to Cana dial residents and agricultural corporations. Brady Deaton: You open it up. What's the expectation? Before you do any analysis, what would one expect? You're opening up a market for investment for this demand. You'd expect demand to shift out, prices go up. Is that a reasonable ... Chad Lawley: Yeah, that's basically what we're looking at. There's this increase in number of buyers, an increase in demand for Saskatchewan farmland and we think of supply of farmland as being fairly [pricing elastic 00:07:32]. Even a small change in demand might cause a pretty big increase, a pretty big change in price. Brady Deaton: All right. This is one of the really unique things that the listeners should know about your study, is it's a really careful detailed study to try to get at the magnitude of this price change over time. Obviously, we can't into that much detail over the podcast, but give us an idea of what the experiment is, what you controlled for, who you set it up with the data. Chad Lawley: Sure. I'm looking at Saskatchewan farmland transactions and I use a similar farmland transactions in Manitoba as a control. I'm using 1995 to 2010 transactions so I've got a window before this 2003 amendment just for looking at farmland values in that period. Then I'm also looking at farmland transactions in a window just after the amendment, or for seven to eight years. Brady Deaton: Some of the listeners maybe are not in North American, aren't that familiar with Canadian geography but the provinces of Manitoba and Saskatchewan abut each other. You're looking at a particular area of comparison between two provinces that is uniquely seated to comparison. Right? Chad Lawley: That's a good point. Yes. I'm looking at transactions in southeast Saskatchewan and then southwest Manitoba. I grew up in Saskatoon. I'm living in Winnipeg now. I drive across that region every summer and I can attest that the landscape is very similar on both sides of the border and so we've got very similar sectors and very similar land uses in those two regions, so we think of them as good comparator provinces. Basically, what I'm exploiting is that in the 1980s Manitoba introduced farmland ownership legislation but like most or North America is just restricting ownership of Manitoba farmland to Canadian residents and corporations. Whereas of course, Saskatchewan starts off with a more stringent legislation. Chad Lawley: Move ahead to 2003. Now Saskatchewan amends its farmland ownership laws and makes them very similar to Manitoba's. I'm exploiting that amendment in Saskatchewan 2003 and then using trends in Manitoba farmland prices to estimate the effect of this amendment. Brady Deaton: What do you find? Chad Lawley: I find prior to the amendment, that Saskatchewan farmland prices are losing ground to Manitoba farmland prices. After the amendment, it looks like Saskatchewan farmland prices and Manitoba farmland prices are on the same trajectory so they're increasing at the same rate. The difference between those two trends, the pre-amendment trend and then the trend after the amendment is interpreted as the effect as ten farmland ownership amendments in Saskatchewan. I find that it looks like opening up to outside investment increases farmland values by between 2% and 3% per year. It's a substantial increase, especially if you take that 2% or 3% out for eight years. It adds up to a 20-something increase in farmland prices. Brady Deaton: Right. In a sense, as you might expect, that the shift in ... As more people have entered into the market, there's been an appreciation in land values. With respect to ... Let's just go through that. Land values increase. Some farmers, certainly from a landlord or a land owner perspective, they must benefit from that presumably. Chad Lawley: Yes, certainly. If you owned farmland in Saskatchewan in 2002, so just before that amendment, my study suggests that you would've seen, on averages, a pretty substantially increase in farmland values just due to the amendment itself. This has been a period of increase in prices just due to improvements in the Ag sector, the Ag sector in general. Chad Lawley: I suppose I should take a step back now and just talk about the analysis a little bit more. I'm using [inaudible 00:16:45] prices as a control for Saskatchewan prices but I'm also controlling for, or counting for changes in farm returns in the two provinces. There was significant improvement in farmland values across Canada over this time period. Brady Deaton: Yeah, because you're trying to disentangle all of the effects that might be attributed to other things so that you can really isolate the effect of the essentially new demand that's moving into Saskatchewan due to the relaxing of the restrictions, disallowing investors from other provinces. Chad Lawley: Yes, that's exactly right. We account for changes in the farm returns over time. We account for changes in the local populations over time, so the number of people, and then also changes in oil and gas employment over time. There is the oil boom in southeastern Saskatchewan around that time as well. It's important to account for those types of regional factors that might've put Saskatchewan prices on a different trajectory independent of this farmland ownership amendment. Once we account for all those factors, it looks like there's this 2% to 3% increase in farmland prices just due to the amendment itself. Brady Deaton: There's just one more question on the method because it's really interesting but where do you get data to do this kind of ... Chad Lawley: Right. Good question. The Manitoba data I've obtained from the municipal services. The individuals are doing assessments so historically they've also retained the farmland transaction data, in that data from the Manitoba provincial government. And then in Saskatchewan the, I believe its name is the farmland security board, makes this data available on a license, so you pay a license fee and then get access to land transaction data. It's nice having these actual transactions that are taking place in the marketplace as opposed to say survey responses that are being collected by the government where it's possible that a farmer incorporates impassive policy into their farmland evaluations. That might be with the marketplace. Brady Deaton: I do some survey work and you're always hope that you get respondents revealing everything accurately, that they're not having a bad day or don't make a mistake. The great thing about a transactions involving oftentimes millions of dollars, you can be pretty sure that all of the actors involved have taken care in revealing their value for the asset and recording it. Chad Lawley: Yes, certainly. They're in the position to collect, have the best information and they make good choices. Brady Deaton: We have this change in prices, between 2% to 3% from annum from the 2003 period to where ... I remember you mentioned this once to me, that you were confident over the data period that you were able to analyze, not extending it too far. Chad Lawley: That's exactly right. From 2003 to 2010, so for the first eight years of the policy. The way the study is designed, I don't feel comfortable extrapolating out that 2% to 3%. I wouldn't extrapolate that out of the south one until later periods. Brady Deaton: Currently, we've had this change. The initial rule in 1973 was to disallow this investment, presumably to keep prices lower. Chad Lawley: Right. Brady Deaton: In 1973, I think I said that. Then in 2003, it's relaxed and prices rise. Chad Lawley: That's right. Brady Deaton: How are people feeling about this? Is there any discussion about this farmland? Chad Lawley: Certainly. The data that I've seen on the research, that I've seen suggests that outside investment really started flowing into the province starting in 2006 or 2007. As far as media reports go, it's under the radar until maybe 2008, 2009, then start seeing news articles about the institution of investors buying up Saskatchewan farmland. Chad Lawley: Moving ahead to about 2015, there's this controversial purchase so there's a farmland investment fund that we based out of Regina. It sells some land to the Canadian pension plan investment board. That generates some controversy so there's concern that pension plans are going to be buying up a lot of Saskatchewan farmland. In response, the Saskatchewan government held public consultations in 2015. Chad Lawley: On the theme of high land prices, we notice again that his an era of high land prices so there are concerns about outside investment. The public consultations are interesting to read so that verbatim comments in one document spanning about 1000 pages. A lot of the comments are concerns about institutional investors, increasing competition for local farms, especially young farmers, and driving up land prices. My research suggests that there's something to that notion that the institutional investors are increasing the prices. Brady Deaton: Are the institutional investors necessarily the investors from outside the province? I don't know if you know a farmer in [inaudible 00:22:56] actually, I think owns...
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FARE Talk - Thinking About Future Food Security By Examining The Last 35 Years In World Grain and Oil Seed Markets
03/06/2025
FARE Talk - Thinking About Future Food Security By Examining The Last 35 Years In World Grain and Oil Seed Markets
In this podcast, Dr. Pat Westhoff discusses his recent article "Four indicators that explain world grain and oilseed market developments" written with his colleague Dr. Wyatt Thompson. Our discussion focuses on their empirical examination of four key indicators: crop yields, population, Chinese demand, and biofuel production.
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FARE Talk - Wind Turbines and Property Values in Ontario: Public Perception and Empirical Evidence – November 18th, 2014
03/06/2025
FARE Talk - Wind Turbines and Property Values in Ontario: Public Perception and Empirical Evidence – November 18th, 2014
In this podcast, Professor Richard Vyn discusses his recently published article: "Property Value Impacts of Wind Turbines and the Influence of Attitudes Toward Wind Energy". His research examines the impact or wind turbines on property values in municipalities that oppose wind energy development and those that have not expressed opposition. Transcript: [0:00] [Introductory music plays] [0:04] Brady: Welcome to FARE Talk, where we set out to provide enduring discussions on contemporary topics relevant to our economy, with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Jr. of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [0:24] [Introductory music fades out] [0:26] Brady: Today is November 18th, 2014, and we will be speaking to Dr. Richard Vyn about his research examining the effects of wind turbines on property values in Ontario. Dr. Richard Vyn is assistant professor in the Department of Food, Agriculture and Resource Economics at the University of Guelph at the Ridgetown campus. Rich, welcome to FARE Talk. Richard: Thanks Brady, happy to be here. [0:50] Brady: Rich has written an article recently that has appeared in the Canadian Journal of Agriculture Economics examining this issue, and for those of you tuning in, we will be doing this podcast in a different way, in the sense that we are in a classroom at the University of Guelph, looking and talking with students about this issue, and they will be asking the questions to Rich about his research. So let me begin by handing over the microphone to one of the students who will begin asking the first question. [1:24] Student: Hello Richard. Before we focus on the effects of wind turbines on surrounding property values, can you give us a general background of wind turbines in the province? Richard: Sure, yea. The wind energy industry in Ontario has been developing at a fairly rapid pace, and that has come about for a couple of reasons. One of the main push, the primary push behind this would be the Ontario government with the Green Energy and Green Economy Act and that sort of spurred the push to get more energy from renewable resources. So we have seen a considerable expansion in the wind energy industry as a result. This has led to a number of issues, and we have seen this most recently, there was a study that was put out just last week by the government that looked at the impacts of the wind turbines on health, and they didn't find anything significant there in terms of some obvious linkages between health issues and the wind turbines. But, there still are some concerns. They raised the issue of the annoyance factor. Either way though, this has certainly led to a lot of controversy in Ontario. There is a lot of local residents that have complained about the impacts, either on health or on property values, on the inability to sell properties. Which, all of the issues are kind of linked. But ultimately, it has led to this escalading controversy about what the impacts of these wind turbines are. Added to the mix is the fact that a lot of places where wind farms are put up, the municipality can't really reject it. They can be called unwilling hosts, but ultimately it is up to the province to decide whether or not a wind farm application is going to go through. So that's sort of a bit of the background that's led to these concerns about the potential impacts on not only health, but also on property values and that's sort of led to my interest in this subject area too. To see, we have all of these concerns that have been raised, and you look at any story in the popular press, there's a lot of concerns that are expressed there, so what is actually happening? That’s kind of what I wanted to take a look at. [3:41] Student: Can you tell us a bit about why your study focused on the Melancthon township? Richard: Yea, the Melancthon Township, yea. That's where I started because that is what I had data for. It was data that included farm sales and rural residential sales. The time that I did the study I didn't have data for anything beyond that township, at least in terms of where a wind farm was actually sited. I do now, and so that's kind of what I am looking to do in the coming months, is kind of expand this research. But for the current study that we are looking at, yes, it was just for the Melancthon Township. It was one of the first industrial wind farms that went up in the province of Ontario, and kind of made a good place to start in terms of assessing the potential impacts of the turbines on property values. [4:29] Brady: Now Rich, correct me if I am wrong, but when you are talking, Melancthon township would be a township in Dufferin County [Richard: Yes] kind of bordering Grey, is that right? Richard: Yes, Grey country is next and also bordering Wellington County. Brady: And this is primarily an agricultural, rural township? Richard: It is primarily rural, yes. There is, the wind farm itself is situated pretty close to a small town but there are no large urban centres anywhere within visibility of the wind farm. [5:00] Student: Sorry. Your paper reviews previous research on the effects of wind turbine on property value. So our question to you is if you can review any of this previous research to us. Richard: Sure, yea. There has been a number of studies that have been conducted, looking at the same issue in other jurisdictions and the results of these studies have been largely mixed. We haven't seen any particular trend that has tended to occur amongst these studies. Some studies have found evidence that yes, there are significant impacts of wind turbines on property values, where others have not found any significant evidence. So, we have seen, yea, a fair bit of mixed results in the literature, and because of that, it becomes necessary to conduct research on specific wind farms if you kind of want to have an idea as to what the impacts actually are. You can't just rely on results of other jurisdictions, just because those results, you know, with both positive and no significant impacts, it is hard to tell what exactly the results might be, for in the case, the Melancthon wind farm. [6:03] Student: The, some of the previous research used willingness to pay as one of the methods of analysis. Before you get into your method, the hedonic method you used, would you be able to shed some light on the willingness to pay method? Richard: Sure, yea. The willingness to pay is basically more of a survey approach in many cases, where they'll go to local residents, and they will ask "What has been the impact?" or "What do you perceive to be the impact of these turbines on your property value?" or just to the general public, they may ask, you know, "If you were to be sited next to this wind turbine, what do you think the impact would be?" So this approach looks more at, what people think is the impact, rather than looking at any sales data. Now if you go back to the previous question, looking at the results of previous studies, there is a difference in the results when you compare certain types of studies. So, you mention the willingness to pay studies. Those studies are more likely to produce evidence of a significantly negative impact on property values, whereas studies that use sales data tend not to find evidence of impacts on property values. So there is that difference in previous studies. [7:25] Student: Hi Dr. Vyn, My name is Vanessa Cipriani. My question to you is, can you explain the method that you used in this particular study, in order to find out the effects on property values? Richard: Sure. I used the hedonic method, which is a regression approach where you basically make the price a function of the set of attributes that the property has. So, you know, if you have a house on the property it would take a whole bunch of the individual attributes of that house, you know, the square footage, number of bathrooms, number of fireplaces, look at the size of the property itself, the value of any other buildings on the property, sheds and so on. Basically, you take as many possible attributes and it basically determines how much value each attribute contributes to the total value of the property. So that is an approach that has been used for a lot of different valuation studies. It tends to be a fairly effective approach in identifying what the value is associated with a specific attribute. So in this case, I am looking at not only the attributes of the house itself, also the location, you know, how close is it to a city, and then also how close is it to a turbine, or trying to find some attribute that accounts for the potential impacts of turbines. So this approach has been used for other types of studies where you are trying to find, for example, the impact of living close to toxic waste sites, if you are living close to high voltage transmission wires. A whole bunch of different amenities, or perceived disamenities, to determine what the impact might be of living close to those types of sites. [9:15] Student: Were any of the attributes you chose particularly unique to your study, versus other wind turbine studies? Richard: Well, the method I used to account for the turbines itself was a little different than had been performed in previous studies. Typically the previous studies looked at either the distance to turbines, or distance from the turbine to the property in question, or they looked at the visibility. I kind of came up with a metric that combined those two, because if you think about it, well, the distance to a turbine might affect the impact that it has on the property, but on the other hand, if the landscape is such that you can't actually see the turbine, than conceivably there wouldn't be as much of an impact relative to a property just as close where you can see the entire turbine. And then, similarly, if you can see the full turbine, but you're 3 kilometers away, likely the impact would be greater for a property than can see turbine that is just 1 kilometer away. So I try and account for the relationship between those two factors in this study. I also did use each factor, the proximity and the visibility separately in assessing the effects of turbines. [10:30] Student: You touched on this township as being one of the few that had the necessary data. So my question is, what data was necessary to run this study, and where and how did you get it? Richard: The data I used is property sales data, and the reason that this was the one, or at least at the time, the one county where we had sales data, was just based on the data that we received, Brady and myself, from the municipal property assessment corporation. As we have, as part of the University of Guelph, have a data sharing agreement with the municipal property assessment corporation for sharing back and forth of data. So they will send us property sales data, which we can use to run some of our analysis, and we in turn have provided them some additional data that we have created based on their sales data. But ultimately, running this analysis depended on getting that property sales data from MPAC and it included not only in Dufferin county, but some of the neighbouring counties property sales data there as well. So MPAC had provided rural residential sales data as well as farm sales data. And again, this is something that hadn't been done previously, looked at kind of comparing the effects on farms versus properties that are used more for residential purposes. The hypothesis that would be that, you would expect to see more of an effect on residential properties than farms. Farms are purchased, not only to live in but also to generate an income, where you may not expect to see as much of an impact, or as much value derived from the view. I should add that while the municipal property assessment corporation provided the data, the conclusions that came out of the studies are not necessarily the views of MPAC. [12:14] Student: Hi Rich. Megan Moore speaking. You mentioned some key variables like proximity in your paper, and I was wondering how you measured those key variables. Richard: Yea, the proximity variables are measured using geographic information system software, which we ourselves didn't generate; we have somebody who takes the location of the property and in some cases, the location of the city, or the location of the turbine, and generates the distance in meters from the property to each of these locations. So, using the or the distance to the nearest city was based on the road distance. So the most likely path you would take from the property to the city, how many kilometers is that, or how many meters is that. And, a lot of studies that have looked at property values will include some type of location variable, where you would expect the closer you are to an urban centre, the higher the value would be. So a similar approach is used for the distance to the turbine, except in this case, we looked at the straight line distance. So, how far was it from the property to the nearest turbine? So this required having the coordinates, the GIS coordinates for each of the turbines, and then for each property in question, and then using those coordinates to generate the distance between them. And this is sort of an approach that is being used more and more in property value studies, the use of GIS. There is, you know, the data availability there is rapidly increasing, and it really adds to the study, makes it a lot more robust, instead of just estimating what a distance might be. [13:59] Student: Hi Rich. Clarke Stewart. I was wondering if you could review for us some of your key findings from your research, and tell us how they differed from your original hypothesis. Richard: Sure. Now when I started this study, I mean I had heard some of the stories of what people had said were happening to their property values as a result of the wind turbines, and so reading about some of these accounts made me think, well, if this many people are suggesting that these impacts have occurred, than there must be something that would be picked up by the results of this study. That hypothesis wasn't supported by what I found however, when I looked at both rural residential and farm properties, I found that no significant impacts were observed, you know, either by looking at the proximity, or by visibility, or by combination of those factors. So, that was, in a way, based on what we have heard, a little surprising given the rhetoric that has occurred around this issue in Ontario. We may have expected to see more of a negative impact, especially in close proximity to the turbines, but that didn't take effect in the results of this study. What we found is that there is no significant impacts, you know, if you look at the impacts that are there, positive or negative, there is slight either way, but nothing that's statistically significant, so that was a little surprising. But, and not in line with what we've heard from a lot of the news stories, but also its important information to have I think. I think, and that was another reason why I wanted to conduct this study, was, you know, we have heard a lot about what people are claiming to be the effects, but when we look at the actual sales data, what is it telling us? And in this case, the sales data is suggesting that there are no significant impacts of the wind turbines in this case. [15:58] Student: You mentioned that there were no significant impacts. How robust were these findings, and were these findings different for residential and agricultural property values? Richard: Well first of all, they were not different for rural residential or for agricultural property values. In both cases, there were no significant impacts. In terms of the robustness, I did look at a number of different model specifications to try and ensure that the results were robust. So, I looked at different specifications of what the post turbine period would be. So the post turbine period refers to the period of time in which we would expect impacts to arise. And this is one of the trickiest variables to specify, because when exactly would the impacts begin to arise? That depends on what information is out there. I mean, obviously, when the turbines are actually up, you can see them, and you would expect impacts to occur from that point onward. But what about before that? You know, there is, there can be an announcement effect. So I looked at a number of different specifications for the post turbine period. I didn't find any differences across these different specifications, but basically, I looked at, first of all, the impacts starting at, you know, the time that construction began. So, at that point in time, everybody could kind of see where these turbines are going to be located. They may not be up yet, but, if you are buying a house in the area you can definitely see where they are going to be. I also looked at the post construction period, so when all of the turbines are actually up, and you can see them all. So looking to see, or specifying that as the post turbine period. And then also looking at the post approval time period. So as soon as we know this project is going forward, things are starting to move ahead, then people know that there is going to be turbines there. So, it is possible that the impacts will start at that point in time. So for each of these scenarios, I didn't find any evidence of significant impacts. I also looked at a number of other ways to specify the model. I looked at just repeat sales, so basically where property is sold earlier in the time period that the data covers, and then is sold again at a later point in time. The ideal scenario is where we have one of these sales occurring before the turbines went up, and one occurring after. It makes for a great way to determine whether there is going to be significant impacts. And again, the results are the same. Now the number of sales in close proximity is relatively low, not that it is lower than anywhere else, but just when you are looking at a 1 kilometer band around, you know, the turbines, the number of sales is not huge in the post turbine period. And so this may influence the results to some degree. There is other more recent studies that have just come out this year that have included a much larger number of sales in closer proximity, and finding the same results, in fact. But that can be seen as a limitation of the study, the fact that the number of sales is not as high as we would like it to be. [19:18] Student: What do you think are the future needs to research within this area? Richard: Future needs of research in this area? I think that we really need to continue to look at it for individual wind farms. It wouldn't surprise me if we do find, at some point in Ontario, we do find evidence of negative impacts of wind farms. The reason for this is just given the increasing attention this issue has drawn, and just how people value properties. I mean, a lot of the value you place on a property is relatively subjective. So why does one property, you know, exact same house, you put it in a different location, why is the value any different? Because of how people perceive the differences in those locations. SO in the past few years there have been a big increase in the amount of concerns that are raised, the public press articles that are expressing these concerns, and more and more people re hearing about these potential impacts. And so I'm wondering if this will eventually translate into observed impacts on property values. I mean in one sense you can only hear about these impacts again and again for...
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FARE Talk - The Canadian Government's "Duty to Consult" Indigenous People: Meaning, History, and Consequences - April 4th, 2019
03/06/2025
FARE Talk - The Canadian Government's "Duty to Consult" Indigenous People: Meaning, History, and Consequences - April 4th, 2019
In this podcast Dwight Newman discusses one of the more important legal issues of our time: the Canadian Government's "Duty to Consult" Indigenous People. The meaning and history of duty to consult is discussed in detail. Transcript: [Introductory music] Brady Deaton: Welcome to FARE Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture and the environment. My name is Brady Deaton Junior of the Department of Food, Agriculture and Resource Economics at the University of Guelph. I will be your host. [music ends] Brady Deaton: Today is April 4th, 2019, and our FARE-talk guest is Dwight Newman, and the subject we will be discussing is the Canadian government's duty to consult with indigenous people. Dwight is Professor of Law and Canada Research Chair on Indigenous Rights in Constitutional and International Law at the University of Saskatchewan. Dwight has written many articles on this topic and his book, Revisiting the Duty to Consult Aboriginal Peoples, is both engaging and insightful, and we'll make links to his material available on our website. Dwight, welcome to FARE-talk. Dwight Newman: I'm glad to be with you. Brady Deaton: For our listeners, this podcast is a bit of experiment. You'll be hearing the voices of students in my natural resource economics class, and the reason for this is in one of our initial classes regarding issues associated with oil and pipelines and natural resource economics in general, the issue of duty to consult came up and we realized that it was an important institutional detail that we needed to learn more about, and that led us to explore some of Dwight's work. Dwight, before I turn it over to the class to ask more specific questions about duty to consult, at the most general level, why do you think this is an important issue and by extension, why should Canadians and listeners to our podcast internationally tune in? Dwight Newman: Well, I think the duty to consult doctrine in Canada – and there are variants on it in other jurisdictions as well, but we're going to talk, I think, mainly about that in Canada – is very significant in a few different ways. One of those is that it may be an important protection in various circumstances for Indigenous communities and their interests and then in addition to that it has a lot of effect in the contexts like those that you've referenced in terms of natural resource development contexts, where the engagement with indigenous communities is very much structured today in Canada by this legal duty to consult doctrine or at least that's the background to other choices that communities and industries sometimes end up making. So it really affects an enormous number of situations. It's triggered hundreds of thousands of times per year. We'll need to back up to what it is and so on, but it really arises in almost every resource development decision that's being made in Canada today and some other kinds of issues as well, so it's a very important legal doctrine that affects a lot of different contexts. Speaker 3: Thanks, Professor Newman, so along that same train of thought, in your 2014 paper, The Rule and Role of Law, which addresses duty to consult, you write, and I quote, "To be blunt, anyone who perpetrates misunderstanding about the duty to consult is standing in the way of Canada's future." Can you let us know what is duty to consult and what are these misconceptions? Dwight Newman: In simple terms, the duty to consult is a legal requirement on the Crown when it's making a decision that could affect Aboriginal or treaty rights, and it's a proactive duty on the Crown to consult with the potentially affected Aboriginal communities. And just about every word that I've said within that is actually, I think, of significance. It is a legal requirement. It's something that does have to be done in the context of making those kinds of decisions. It's a duty on the Crown. And there was some debate in the early case law on this on whether it was a duty also on industry or so on, and the decision is that it's on the Crown, and that can be either the Crown at the federal level or the Crown at the provincial level, so in rough terms we could say it's a duty on the federal or provincial governments, depending on the kind of situation at issue, the kind of decision at issue, whether it's in federal jurisdiction or provincial jurisdiction. It's in the context of the Crown making a decision, and so when I say the Crown making a decision, we're really talking about an administrative decision by government in the context of usually something that's guided by legislation, that there's a decision about by decision makers within the administrative state on behalf, in the Canadian context, of the Crown. And it's in the context of something that could affect Aboriginal or treaty rights. In some of the case law, the Supreme Court of Canada ends up saying that it arises even in the context of uncertainty about what would finally be found about these rights, whether decided in court or negotiated through agreement. It's a protection in an interim situation where there's continuing legal uncertainty, and it's a proactive duty to consult with potentially affected Aboriginal communities and sometimes to accommodate their interests. So it means that there needs to be some kind of a discussion, although it can range in the exact contents of that, but some kind of an engagement with the Aboriginal communities whose claimed Aboriginal or treaty rights might be affected by a government decision, and sometimes then there's also a duty to try to limit those impacts upon the rights based on what's heard within that consultation. I'll add, also, just something that I think one could highlight out of those things I've just said. It's a duty that applies in the context of administrative decisions, so the government making a decision to grant a permit or a license as guided by legislation that exists. There's been, actually, a recent Supreme Court of Canada case, the Mikisew Cree Case that has made very clear it's not a duty that applies when the government is developing legislation, so in the legislative process. Now, it's a bit of a complicated case, but at a simple level it says the duty to consult, the legal duty to consult doctrine doesn't apply in that context, and that's consistent with what would have been observed before. Now, what are some of the possible misunderstandings that people could have of this? People sometimes think that the duty to consult is a veto power and a means by which an Indigenous community that disagrees with a decision could reject it, or disagrees with a potential decision. That's certainly legally not the case. The courts have repeated again and again that the duty to consult is not a veto power. There may be situations where it practically becomes something akin to a veto power or has that effect, but that's a bit of a different statement, and sometimes people misunderstand it as if it's a legal veto power. There's no obligation on the Crown under the legal duty to consult to get agreement from Indigenous communities to the decisions that it's making, and in fact it's, in some way, not even necessarily setting out to do so because it's not asking, "What are the views of the community?" It's asking for information about impacts on Aboriginal rights or treaty rights and then working to try to avoid those negative impacts. That's the first misunderstanding I would highlight, is that issue about veto power. On the other side of it, there are people that think that it's entirely meaningless and doesn't give any protections to the Indigenous community. People say, "Well, if you look at the record of decisions made on certain kinds of issues, projects get approved anyway," and so on. There are actually some law professors who've gone and done studies on decisions of the National Energy Board and have written these articles about the fact that it almost always decides in favor of a project proposed to it. The trouble is those studies are quite deceiving because that kind of claim assumes that you just have a random sample of projects that have been put forward to the National Energy Board, and the thing is that project proponents only put something forward and spend a lot of money through the regulatory process when they think it is going to be approved, and so the law that's there actually weeds things out earlier. And if they realize that there's going to be a big problem in respect to Aboriginal or treaty rights, they're not usually going to put the project forward, so the duty to consult doctrine is triggered hundreds of thousands of times a year in Canada. Many consultations occur under it, and it is an important protection for Indigenous communities and something that is certainly far from meaningless on the sort of [inaudible 00:10:36] that sometimes goes around. There are other misunderstandings of it that occur, but I think those are probably the two most common ones, even though they're on different sides of how people are reading the effects of the duty to consult. That's sort of the essence of the duty, is this legal requirement on governments before they make a decision that could affect Aboriginal or treaty rights to consult with the communities on those potential effects. Speaker 3: And can you just clarify what treaty and Aboriginal rights are? Dwight Newman: Well, that's a more complicated question than it might seem. I can try to explain in simple terms. Under the Constitution Act, 1982, which is the set of amendments that were made to Canada's Constitution in 1982, and that includes the Charter of Rights in sections 1 through 34, and it includes an amending formula, and it includes a variety of other things that are in the Constitution Act, 1982. One very important part to it is Section 35, which comes right after the Charter, and it says that the Aboriginal rights and treaty rights of the Aboriginal Peoples of Canada are recognized and affirmed by the Constitution. Treaty rights are probably a little simpler to grasp. They're those rights that were agreed to in treaties. Many historical treaties were negotiated in Canada during certain periods in the mid 1700s in the Atlantic provinces, in a period of treaty making in the mid 1800s in Ontario, and a period called the Victorian Treaty or the Numbered Treaties because they all end up getting numbers on them from 1870 on through to 1921 that cover a lot of Northwestern Ontario, the prairie provinces, a little bit of the north, a little corner of British Columbia. But then there were a lot of parts of Canada still left without treaties at the end of that phase of treaty making, so we also have a phase sometimes then distinguished as at modern treaties, and the modern treaties cover a lot of Canada's north. There are modern treaties in significant parts: today most of Quebec. There are a few modern treaties in British Columbia. And these treaties are a bit different than the historical treaties. The historical treaties are quite short and subject to, probably, more interpretation. The modern treaties were negotiated as very detailed agreements between Canadian governments and Indigenous communities that entered into them, and they run hundreds of pages long each, so those are also treaty rights, the rights that are agreed under those modern treaties. Aboriginal rights are rights that are developed, well, recognized through the courts, and from a practical standpoint we would say in some ways that you have to look to what gets developed through the courts. In other sense, they're considered inherent rights. They're rights held by Aboriginal communities on account of having been prior political societies in what's Canada today, and the courts have developed legal tests on which there's ongoing controversy to some extent, but over the types of Aboriginal rights that will be recognized in Canadian law. One Aboriginal right is Aboriginal title, and that's a land right that's a right to exclusive ownership of certain lands based on meeting certain legal tests for that. And then there are other Aboriginal rights, which in some cases are a traditional harvesting right like a hunting or a fishing right, and that may well be outside an area that's under Aboriginal title. And there can be other types of aboriginal rights recognized as well, and there are certain legal tests that the courts use in trying to determine those. A lot of evidence that goes in of communities' traditional practices that factors into the application of those legal tests. And there's a lot of ongoing discussion about whether the tests are the right tests and what can be done to get more clarity. I'll just highlight that issues like Aboriginal title continue to arise in parts of Canada where there aren't treaties or where treaties didn't deal with land issues, and so most of the Province of British Columbia, the overwhelming part of it is subject to ongoing Aboriginal land claims, where there have been no treaties negotiated either historically or in the context of a very slow, modern treaty process. But both treaty rights and Aboriginal rights, then, are recognized and affirmed in Section 35 of Canada's Constitution Act, 1982. Speaker 4: Hello, Professor Newman and thank you once again for discussing such an important issue with us. I'd like to ask a couple of questions to clarify when the duty to consult is triggered and the relevant parties involved. In your book, you outline three conditions that must be met to trigger the duty to consult. That's knowledge of a potential claim, adverse effects, and contemplated government action. Could you just discuss those a little bit and give us a sense of the relative difficulty or ease of meeting those conditions and also whether it could apply retroactively to past decisions? Dwight Newman: Okay, so there's a few questions there, and I'll try to work through them. Turning to this question of when the duty to consult is triggered, as you've said, there are these three components, and these are what have now been recognized in a number of different cases out of the Supreme Court of Canada and other courts. I'll say a bit on what they are and try to say something on how easily they're met or not. One element, certainly, is that there is knowledge of asserted Aboriginal or treaty rights, and the official language of the decision says that that can be actual or constructive knowledge. Actual knowledge means that the government actually knows about those things, as the word suggests. Constructive knowledge is, perhaps, a less-familiar concept to non-lawyers, but the idea is it's a situation where the government should have known of that Aboriginal or treaty rights claim. So where there's a claim that's there and publicly knowable: it's not something that's not yet been put out anywhere, that element is probably fairly easily met, and it's just a case of "Is there or is there not an Aboriginal or pertinent treaty rights claim that relates to the situation?" The second element that we might talk about is that there's contemplated government conduct or a contemplated government decision or technically a Crown decision or Crown conduct. Again, it's a factual question on "Is there something the government is thinking of doing?" and that's not that difficult to find, if it is considering something. The trickier parts there pertain to issues like, "Is the government thinking of doing something?" if you're talking about an early stage of decision making on a question. They're making a longer term plan; is that contemplated conduct in the same sense and the sense that meets the legally required test? Actually, the Supreme Court of Canada has said that they'll consider the tests triggered at an early stage of things if that's going to dictate later decisions, putting it in simple terms maybe. The part that can be maybe trickiest is whether there's a negative or adverse impact that could arise from the conduct for the claimed Aboriginal right or treaty right. Here, there are cases where the courts, especially in more recent years, have actually excluded claims that Aboriginal communities were bringing on the basis that there wasn't really a negative impact from the government decision. And I would say early on in the case law there actually was a tendency to see the duty to consult as triggered very easily and there's been a bit more caution about some of that in more recent years. So just to give an example, an early sale of certain types of mineral rights in certain provinces takes place, where all that's happening is that they're giving a particular company a right to carry out further exploration and be the only company that can do that and can acquire further rights later on to actually carry out work on those minerals. And there was a decision in the Saskatchewan Court of Appeals where they ended up saying that that early sale didn't trigger the duty to consult because there was no actual impact of that stage and that any impact on treaty rights, which were all on the surface, would only take place if the company actually carried on to carry out work on the surface, and to do so it would be applying for later permits to do that. And there was actually evidence before the court that in lots of instances companies acquired these rights and then ended up not later exercising them. Maybe market conditions changed or they changed their exploration program strategy, and so they ended up not deciding to use that right that they had initially purchased in the ways that they could have. And because they would apply for later permits, that early decision didn't actually trigger the duty to consult. Or there have been some creative arguments by some Aboriginal communities where they tried to say that particular large-scale decisions had an impact potentially on their rights. The negotiation of an investment agreement between Canada and China was argued in the BC courts, and the courts there ended up rejecting that and saying that there was no evidence that that was actually having a potential effect on Aboriginal rights down the road as the community claimed. So there have been instances where there have been claims rejected in the courts over this, but I'd say in general terms the duty to consult is triggered relatively easily where there's a government decision that could affect Aboriginal or treaty rights. Now, there's a separate test that looks at, "What does the government have to do under the duty to consult that's triggered?" and the requirements can vary a lot. There's a so-called spectrum analysis that the requirements of what they have to do range from simply giving notice of the chance to respond at the lower end on through to very extensive consultations and accommodations, what's sometimes called the deeper end of the spectrum. So it's triggered relatively easily, but what is triggered will vary a lot based on the circumstances. One other key exception, though, to the idea of it being triggered is the point that you asked about in terms of "Is it triggered by historical effect?" There it's very important to say, "No, it's not." It's not a duty that looks back in history. It's a duty that's looking at the forward-looking impacts of government decisions today, so if there was a dam built 50 years ago that today we would say triggers the duty to consult if that were being built today, there's no duty to consult issue about that. Maybe there's some other issues that can be pursued by the Aboriginal community in terms of litigation about that dam, but there's no duty to consult issue. Now, if there's a relicensing of the dam, you might ask, "Well, now do you look at the existence of the dam as giving rise to duty to consult?" Again, the answer is...
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FARE Talk - How Does Canada Put A Price On Carbon?
03/06/2025
FARE Talk - How Does Canada Put A Price On Carbon?
In this podcast, Kenneth Poon discusses a pressing policy issue with broad-reaching implications: how Canada puts a price on carbon. Brady Deaton: Welcome to Fare Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton Jr. of The Department of Food, Agriculture and Resource Economics at the University of Guelph. I'll be your host. [music ends] Brady Deaton: Hello, it's November 21st, 2019 and my name is Brady Deaton of the Department of Food, Agriculture and Resource Economics at the University of Guelph. Today we'll be talking to Ken Poon, the Director of Analytics for Blackstone Energy about generally speaking, how Canada puts a price on carbon, but with a bit of a focus on what we call the federal government's carbon tax. Ken, welcome to Fare Talk. Kenneth Poon: Oh, thank you for having me. Brady Deaton: Ken is also an alumni of our program and we're very proud of Ken. Ken, I thought you might, I guess, I don't know... You graduated around 2006 from the undergraduate program and then were in the master's program and today you're the director of analytics. I thought you could maybe talk a little bit about your journey to this point and how your role at Blackstone Energy gives you a unique insight into the programmatic and industry perspective about the carbon tax. Kenneth Poon: All right, sounds good. Thank you Brady. So yeah, I graduated around 2007. At that point I was still in a environmental sciences program focusing on ecology and water resources. I think kind of through circumstance, met brady, who I took a course with, and that kind of really got me interested in environmental economics specifically. I thought, two years of a master's program seems like a good idea at the time, especially when it was during the recession. So I kind of went in there and I really kind of fell in love with economics and really just understanding the concepts of how can I tie economic theory together with kind of applied situations. So once I graduated, I went on to work with the department for about five years or so, doing various papers and a number of policy and regulatory research and looking at their economic impacts on the agricultural industry. Then four years ago moved into this Blackstone Energy services company, where I focused a bit more on carbon pricing and cap and trade, and now I'm focusing more on analytics. So to backup a little bit, what my company does is we're generally an energy management company, at least that's how we started out. We focused on helping our clients procure natural gas and electricity, helping them manage their energy portfolio. So no surprises in terms of understanding cost, market implications and how that would impact their energy expenditure. Over the years, I think what we found was that environmental regulations and carbon pricing was starting to become a bigger thing for all our clients and for them to understand, because really even five years ago, I think knowledge on how these pricing system apply to industry, it was fairly muddy. It hadn't really been tried in a lot of places at that point, especially not in Ontario. So when cap and trade came along, we really took on the mental of helping our clients understand and walk them through the regulatory process, how to participate in these programs and ultimately how these policies impact their organization. Not really just in terms of specifically on only their pricing, but also helping them figure out a management strategy. So for example, if they are going to have to renew their facility or do maintenance on a piece of land that they really have been neglecting due to lack of funding, rather than just buying a new boiler, could they do something where they put in solar energy or they put in geothermal, to really make that energy switch to more green source. I think what we saw was that these kinds of pricing policy really did help them push that kind of a transition, not only because of the price itself, but really getting our clients to help their organization understand how these kinds of policies really impact them in the longer term. That's great. Now for the listeners out there, this podcast is happening in our land economics class and one of the key things that we try to work on in land economics and in economics in general is not only how to answer questions but how to ask them. So for the majority of the remainder of this podcast, the questions are going to be asked by students in this class and I'll begin. Speaker 1: Hi Ken. I just wanted to thank you again for coming to talk to us today. We wanted to take a minute to discuss the actual structure of carbon pricing at the provincial and federal level. So the next couple of questions will be focused on this area. I understand that both provincial and federal governments can place a price on carbon dioxide. Can you explain the different responsibilities between the provincial and federal governments with respect to carbon tax? Kenneth Poon: Yeah, sure. I think before I really go ahead to answer your question, I want to break down the term carbon tax a little bit, and help our listeners understand what carbon means and what tax means. From a carbon perspective, I think it's important to note that the federal government's not just putting a price only on carbon dioxide, but in all greenhouse gases. The reason carbon dioxide keeps coming up is because that's generally the benchmark in how we would measure different types of greenhouse gases and their impact to the environment. So for example, greenhouse gases that are under this regulation would be methane, nitrous oxide and a number of hydro fluorocarbons as well. And they all have differing impacts in terms of how long they would stay in the atmosphere and what we call global warming potential, would be on a per molecule basis. For example, when it comes to methane, over a hundred year's time span, methane's impact is generally about 36 molecules of carbon dioxide. So what we would convert that impact into what we call a carbon dioxide equivalent. So when we put a price on carbon, it's really putting a price on greenhouse gas in general. But I think it's just a lot simpler to talk about it in terms of carbon, because it rolls off the tongue a little bit better. In terms of tax, it's also not really a tax. So the way, if you kind of read into the regulation, they really talk about it as a regulatory charge. There are legal ramifications in the differences. But I think for a lot of the consumers it's okay to call it a carbon tax because the end result is the same. We're putting a price on carbon. So generally I'll be using these terms interchangeably throughout the podcast. It's easier to kind of call it a carbon tax. So even if the terminology isn't exact, I'll continue to call it that. Now in terms of the different structures and the different responsibilities between the federal and provincial government, under the environmental concern is a shared jurisdiction between the province and the federal government. In this case what we've seen previously was that there were a number of provinces that have kind of gone ahead and enacted their own carbon policy or greenhouse gas emission reduction policy. So we see in policies coming from BC as early as 2008. We've seen Quebec having their own cap and trade policy. Ontario also had their own cap and trade policy as well. Alberta also had a program in place before this federal program came into place. Now what happened two years ago around that point is, the federal government came in and said we need to have a minimum standard on our carbon pricing program, and that's when they enacted what we call the Pan-Canadian framework, which is a national wide program that covers all the provinces. The terminology there is that it's a backstop. So the federal government would impose a minimum standard on all the carbon pricing programs across the provinces and the territories. Those that are able to meet or exceed that standard are able to keep their program. Those that falls short or that don't have a program falls under the federal standard. Speaker 1: Thanks Ken. I'd like to ask you a little bit more about the nuts and bolts of the federal carbon tax, in regards to levels. My understanding is that the federal carbon tax is broken into two different structures, fuel charges and output-based pricing. Can you please explain the two programs and how they're implemented? Kenneth Poon: Yep. So you're exactly correct. There are two sections of the program. The fuel charge one is something that we're pretty familiar with, as regular day users of natural gas and fuel. What that is, is really just a flat tax on per unit off consumption of natural gas or any kind of fuel there. So that program from that perspective, what we see is generally an escalating price on a per unit of molecule of natural gas or fuel, that escalates over time. So that really covers a lot of the general fuel consumption across the country. Now the more detailed and the more intricate aspect of this program is the second piece, which is the output-based pricing system, the OBPS and for that piece that's specifically for what we consider to be large emitters. So anyone that are over 50,000 in emissions on a per annual basis, 50,000 tons of CO2 equivalent. And for that program, what it really aims to do is allow some flexibility for these larger emitters to manage their carbon exposure and also in some cases actually reduce it, some of the effective carbon prices as well. Speaker 1: Okay, thanks Ken. So our question is about large emitters, but you kind of answered that. The followup question was how does the tax apply to the agricultural sector? Kenneth Poon: Yeah, so there's two ways that the tax currently applies to the agricultural sector. So I'll talk in general first. In the agricultural sector, there's generally a field tax exemption, but that's really only for truck and tractor use and not for personal vehicle use. Anything that are used for buildings or industrial machine like [inaudible 00:11:00] as well, that's also not part of the exemption. But in order to get that exemption, you really just need to fill out a form with Canada Revenue Agency and to be able to apply for that credit. But the second piece of that is greenhouses within the ag. sector also have a specific exemption, which is that they only really pay 20% of the fuel charge, but they also have to apply for an exemption certificate. Speaker 1: And then our next question is, if I was to tell someone what the present price of carbon was in Canada or Ontario, what would I tell them and how could they expect it to evolve over time? Kenneth Poon: Yeah. So there's generally two ways to talk about carbon prices. The first way is what the government have generally, really published a lot is on a per ton of carbon dioxide equivalent basis. Right now, what that is is $20 a ton in 2019 starting in April and that would go up $10 per ton every year until April, 2022, when that price is going to stabilize at $50 per ton. Now that kind of pricing isn't very useful for everyday users. So generally what we like to talk about with industry as well is, in a term of either an energy or a volumetric perspective. So on a per cubic meter of natural gas that you would consume, what would that charge look like on a per liter of gasoline you would consume? What would that charge look like? So in the way that the regulations we're in right now, they're actually prescribed that way, in these volumetric or energy units. So for natural gas right now that's about four cents per cubic meter consumed, and that would go up to about 10 cents per cubic meter in 2022. Then for gasoline, that's about four and a half cents per liter, going up to 11 cents per liter in 2022. So the good thing about this kind of this pricing program is that those pathways are fairly prescribed. We don't really expect a lot of changes between now and 2022. Now in the future, once we hit that point, currently the plan is for that carbon pricing to stay level, but it could be the case a couple of years down the road once they review the program and look at the efficacy and the efficiency of how they're doing things, we could see some of that carbon price change as well, or other areas of the program could also change. Cody: Oh, hi Ken. So I'm just following up on the federal carbon tax. So one crucial question that people usually wonder about the carbon tax is, how the revenue will be collected and where the revenue would be allocated afterwards. Kenneth Poon: Yeah. So right now the revenue are generally collected by the field distributors for the fuel charge portion of it. What that is, is on your natural gas bill, you are going to start seeing lines if you pay your utilities. You're going to see the lines under a specific line called a federal carbon levy, and that's kind of collected by the natural gas utility or fuel distributors, which then is going to get remitted back to the government. So that's the collection process. In terms of the distribution and how it's redistributed to Canadians is that 90% of what's collected actually goes back to your individual tax returns as a tax credit. That's the idea of revenue neutrality, is that they are collecting the tax to implement a price signal, but generally no impacts in a wealth perspective. Now they do keep 10% of that money back and that actually goes towards public sectors. So municipalities, universities, schools and hospitals generally. What we consider and what we call them [mush 00:14:59] sector. So the reason this program came into place is that these public sector entities can also have a fairly large carbon footprint, just because they have a fairly large building portfolio, but because they're not industrial, they're not really participating in any industrial activities. They're not able to participate in the industrial [inaudible 00:15:26] program. What that means is that they are left to their own devices in figuring out how to reduce their emission or managed carbon costs. So that 10% is meant to help them look into different ways to reduce their carbon emission and reduce the energy usage. The other piece of this is that, as that carbon price goes up on an annual basis, the rebate also goes up. So that 90% also increases, and the refund and the fund into the mush sector into the public sector also increases as well. Speaker 2: So to build on Cody's last question, I want to build a better understanding of the consequences of the carbon tax. We discussed earlier that some provinces have their own plans, but for those who don't, there is a national plan. Do differences between provincial and federal plans influence industry level decisions? For example, might certain industries prefer one province to another depending on how they are regulated? Kenneth Poon: Yeah, so I think what you're referring to here is the idea of leakage, which we talk about a lot and which is a major concern when they design these programs. To give the listener a little bit detail on what leakage means is exactly what you just talked about. If you implement some kind of a carbon pricing program and they take their businesses and move it elsewhere with a less stringent or no carbon pricing, or no carbon policy at all, then really you're not any better off in implementing carbon pricing because globally you're still generating the same amount of admission, meaning that the policy's ineffective. So in order to- PART 1 OF 3 ENDS [00:17:04] Kenneth Poon: Meaning that the policy is ineffective. In order to kind of address that concern, that's one of the key components of the output based pricing system, the OBPS program for industries, which is meant to address that leakage risk. In this program, when a large industrial user is in the program, they don't necessarily pay the carbon cost on a per unit of natural gas or per unit of energy use basis. They actually pay in comparison to a national benchmark that's been set. Let's say for a cement company or a cement factory, if they are admitting on a per unit of output basis, if they're better than the benchmark, they actually get to generate some credit and they get to keep that credit for future use. It's only if they exceed that benchmark, they pay the difference between what they've admitted versus the benchmark. It's really that marginal impact of carbon pricing that they need to pay. In fact, this actually reduces their carbon cost by quite a bit and it helps kind of really alleviate that concern that they may just really go elsewhere and pollute. And a lot of cases also I think it's difficult to really think about carbon pricing programs as its own. You really got to think about it as a wider context of that pan-Canadian carbon policy framework as well. Because there are other kinds of levers that the government do poll in terms of trying to keep the industry away from moving to kind of less regulated jurisdictions. For example some of these industries would see incentives for them to further reduce their energy use or for them to manage their carbon processes a little bit better. Yes, I think there is always kind of some concerns and some considerations when it comes to carbon pricing differences between one province versus another but I don't think that difference is as stark as what I think the media makes it out to be. Brady Deaton: Thanks Ken. You talked earlier, about some of the emission levels and how they're kind of regulated. Going at this in terms of reductions, what are the government's target emission reductions? And how do the government accurately assess whether these targets are actually met in the end? Kenneth Poon: The major target that we've kind of put in place now and that we've submitted as part of the Paris agreement is 30% below 2005 levels. And interestingly enough that was actually set by the Harper government, before the Liberals came into play. And in order for us to, for the federal government to really measure how well they are meeting that target, there's always kind of been discussions about what is the best approach in terms of capturing the total emission from a country. Currently, and this is standard practice in most countries is they look at kind of their economic activities. They basically source what we call the input output tables and that really captures the inflows and outflows of the country in terms of economic activities. And they assign carbon, they basically assign carbon emissions based on those activities rather than from a consumption or from a production perspective. And overall when it comes to kind of national measures in terms of how well the country is doing against a target, that's the information they would use. Brady Deaton: Very good. Thanks. Another thing that I would say a lot of consumers and maybe even the listeners that would be curious about is how this affects their other product prices in the market. What is the impact to the consumers in terms of raising prices of other consumer goods? And does the rebate actually effectively mitigate this concern of how they allocate different prices? Kenneth Poon: Yeah, I think this question always comes up, so I think this is a great question. Yes, I do believe it is meant to raise the prices of certain consumer goods, but I also think that's the point of having a carbon price is what you essentially want to do with a carbon price is provide a price signal for capturing really negative externalities that certain decisions you would make in purchasing will lead to kind of negative environmental impact. That yes, that is the point and it is supposed to make certain things more expensive....
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FARE Talk - An Early Assessment of COVID-19 and the Canadian Agriculture and Food Sector - April 20th, 2020
03/06/2025
FARE Talk - An Early Assessment of COVID-19 and the Canadian Agriculture and Food Sector - April 20th, 2020
In this podcast Alan Ker discusses a special issue of the Canadian Journal of Agricultural Economics - 'COVID-19 and the Canadian Agriculture and Food Sectors: Thoughts from the Pandemic Onset'. Transcript: [Introductory music] Dr. Brady Deaton: Welcome to Fare Talk where we set out to provide enduring discussions on contemporary topics relevant to our economy with particular emphasis on food, agriculture, and the environment. My name is Brady Deaton Jr of the department of food, agriculture, and resource economics at the University of Guelph. I'll be your host. [music ends] Dr. Brady Deaton: Today is April 20th, 2020. And I will be speaking to Alan Ker, professor in the Department of Food, Agricultural, and Resource Economics at the University of Guelph about COVID-19 and its effect on Canada's agricultural sector. Alan is the OAC Research Chair in Agricultural Risk and Policy. He is also the Director of the Institute for the Advanced Study of Food and Agricultural Policy. In addition, he is the managing Editor of the Canadian Journal of Agriculture Economics where he has recently co-edited with Ryan Cardwell of the University of Manitoba, a special edition of the journal titled COVID-19 and the Canadian Agriculture and Food Sectors: Thoughts from the Pandemic Onset. Alan, welcome to Fare Talk. Dr. Alan Ker: Oh, thank you very much for having me. Dr. Brady Deaton: And I just want to say right off the bat for the listeners, we will provide links so that you can link to the journal and the articles. It will largely be touching on our conversation today. One of the goals of our conversation is to introduce this journal in this special issue. I will say Alan and I are doing this over Zoom. We are colleagues. Normally we would just be talking face to face and recording a podcast such as this. So it's really a real sign of the times. Alan, did this all take you a bit by surprise? I mean it seems that we're sitting here on Zoom, but a month and a half ago, I don't think either one of us would have expected such a change in the world. Dr. Alan Ker: No, it's been a remarkable six weeks. And there isn't a piece of a society that hasn't been affected and infected in a big way by what's going on now, whether personal, economic activity, social, everything. And so it's pretty remarkable what's happened in the last six weeks. And on that, it's been also just as remarkable how the Canadian food and ag system has continually provided food throughout this. We haven't seen, there have been a few stock outs here and there, but they've been quickly rectified. And so it's pretty impressive of the system, really a global system that has maintained food supply at reasonable prices over this six-week span. It's very remarkable. Dr. Brady Deaton: Many of the articles in this special issue really underscore the ways in which the food system has been challenged by COVID-19, and to your point are adapting to it. Certainly there are glitches, but these papers really look at it at each sector. And you can see that these glitches and these challenges vary by sector. And that's an important thing that comes out in the issue. I wonder if you can give me and the listeners a quick introduction to the Canadian journal of agriculture economics and this special issue. Dr. Alan Ker: Sure. Well first off, the journal, Canadian Journal of Agricultural Economics is an academic journal, the premier academic journal for food, agriculture, resource and environmental economics in Canada. And so when COVID-19 came along and was becoming as big of a tidal wave as it was, we thought that it was very important to harness the expertise in the Canadian academic system that have worked for decades on these issues in the food and agriculture sector, to harness their expertise as to what might be the implications of COVID-19. And so we've done that. We've got 18 articles dealing with very different aspects of the Canadian ag system, from food security all the way to pork, beef, to the supply chain, to the food retailer, food processor, to labor issues, land values, to risk management. And so the journal issue is really covering pretty much a gamut of everything out there in the Canadian ag and food sectors, and how COVID-19 may play out in these sectors. It's in the context of the Crown making a decision, and so when I say the Crown making a decision, we're really talking about an administrative decision by government in the context of usually something that's guided by legislation, that there's a decision about by decision makers within the administrative state on behalf, in the Canadian context, of the Crown. Dr. Brady Deaton: I should emphasize from the start that you and all the authors of the articles in this special issue caveat your discussion of COVID-19 by recognizing that we're at the outset of a pandemic and that no definitive conclusions can be reached at this early stage. In addition, I think that all of the authors recognize COVID-19 as a unique health threat and that has placed all of society, particularly the agriculture sector presently under tremendous stress. And that health challenge differs by culture sector, and by where the particular individual or the firm is located on the food supply chain. But given that tremendous strain and the novelty of COVID-19 you remarked at the beginning of the podcast that you were impressed with the capacity of the food system at least over the last month and a half to ensure food availability. Dr. Alan Ker: As I said, if you really look at the glitches beyond the headlines, there've been few of them, and they'd been rectified very quickly. You could argue that this is a natural test for the current food supply system, not only in Canada but much of the world. And so far over these last six weeks. It'd be hard pressed not to give the system an A-plus. Dr. Brady Deaton: One thing that I've read in the commentaries is, and you've probably read similar stuff, is this sense that after we get through with this, we're going to have to revisit whether we need a more regionally stable or more regionally self-sufficient system as opposed to what we might refer to as the global system that we have. Do you agree with that? Dr. Alan Ker: I don't see that. In fact, I see the opposite. Right now, the fact that we have a very integrated food supply system. And that integration has stood up against this unprecedented test. And so to walk away from that and say we can do better because of a glitch here and there, very short-lived glitches I might add, doesn't make sense to me. And moreover we'd be very susceptible the next time around if we are more regional and that our system is not as integrated. So what happens when a processing plant goes down because of COVID-19. Well, right now production shifted and moved around in places. Well if we can't move it around as many places, then we're probably going to feel those effects a lot more. And so I actually think very differently in that I think that the more diverse we are, the more secure we are. Dr. Brady Deaton: Bill Kerr, in one of the chapters or the journal articles in the special issue, goes kind of over the history of this kind of tension between more isolationist tendencies and regionalism and one of the things that I thought was interesting that he brings up there, and listeners if this is a debate that you're interested in, this is a really, one of the interesting articles and in this special issue. He talks about the history of it and the response after the 1929 crash, and that the rise of regionalism or isolationism and the rise of terrorists led to the extension of the Great Depression. And he goes through that whole history. And he going to weighs both sides of the argument so that there's a lot of interesting insights into that issue that we're talking about in this special issue. Dr. Alan Ker: Yeah, and I'd agree with a lot of what he had said. And there's a lot of literature out there showing just in general over the last 50 years and even more, economies that are more open have flourished to a much greater extent than economies that are less open. And I mean a couple of examples, and these are at the very end of the spectrum would be North Korea, and another example would be how much China has flourished since they started opening up their economy multiple decades ago. The transition has been phenomenal. There's always calls for this protectionism. But generally they don't pay off in the long run. Dr. Brady Deaton: We've been talking in really broad terms throughout this podcast so far. But I should say in the articles there are lots of nuances that are very important. I know in terms of food security in the article that I was working on, it was very important for me to distinguish from the income shock that left people food insecure as distinctly different from the issue of would food be available in the near term. And throughout all of the articles that are focusing on the agriculture sector, there's this careful attention and nuances that come out that are particular to the particular sector that's being examined. So that's true whether we're looking at vegetables or whether we're looking at the beef sector or whether we're looking at the dairy. Those nuances are really important in this special issue. Dr. Alan Ker: It is. All the articles are very good. And you're right, there's things like take for example the food security. It is very important to understand if this is coming from income loss versus food supply. Because policy responses and what we should do, are two very different things. If it's income loss, then we need to deal with that. Which is very different than food availability. If it's food availability, then we need to deal with that. In a time of crisis of any crisis the most vulnerable populations tend to become more vulnerable. Dr. Brady Deaton: And there's nuances like that in every one of the articles that are in this special issue. I wonder if you have the special issue, the articles in front of you there, if you might just read off the titles of the articles that are in special issue. Dr. Alan Ker: Yeah, I do. So food security and Canada's agriculture system challenged by COVID-19. Framing consumer food demand responses in a viral pandemic. The impact of COVID-19 on food retail and food service in Canada. A preliminary assessment. Economic thoughts on COVID-19 for Canadian food processors. Food supply change during the COVID-19 pandemic. Information which wheat markets in the early days of COVID-19. The impact of COVID-19 on the grains and oil seeds sector. COVID-19 impact on the fruit and vegetable markets. Economic thoughts of the potential implications for COVID-19 on Canadian dairy and poultry sectors. Implications of COVID-19 on the Canadian pork industry. COVID-19 in the Canadian cattle and beef sector. Resilience test of the North American food system. COVID-19 pandemic in trade, and the COID-19 pandemic and short-run long-run implications for international trade relations. Labor issues in COVID-19. Transportation issues in COVID-19. The impact of COVID-19 on farmland markets. It's something very important to our farmers. And risk management in light of COVID-19 so a real gamut here of articles that are meant to really blanket the ag and food sectors, and the important aspects of it. Dr. Brady Deaton: I'd like to turn now to explore one of the articles that you wrote actually, exploring the suite of policies that were in place prior to COVID-19 that might help a farmer manage risk. And then maybe we can explore where those policies might be going or what changes might be needed. So prior to COVID-19 what set of policies were in place that might help a farmer manage the risks that's so inherent in agriculture? Dr. Alan Ker: Well, the government or the federal and provincial governments handle agricultural risk or assist farmers in handling agricultural risk would be better stated. And in essence, in the past, they've stepped in to help farmers with weather related risks in the production of crops. And they have very strong programs for those. And those are very well utilized by farmers and they resemble much of the developed world, in fact. And it's allowed production farms to transition through some very bad weather years that otherwise may have not been able to. Particularly farmers starting out and things like that. So they're government subsidized. And farmers have for the most part, very much appreciated the assistance of the government helping manage risks that they'd otherwise have to manage on their own. That said, just risk is part of any business. And the government does not step in and cover all risks, nor should they. And so there's a great deal of risk that is still with the farmer, that they need to essentially self-insure for. Dr. Brady Deaton: Would the package of risk programs cover what's going on in the current crisis? Would the traditional? Not- Dr. Alan Ker: No, I mean certainly this is exposing some things that are not covered or have not historically been covered. There is certainly a question out there of whether these will be augmented to try to cover some of these things that have not historically been covered. Like we talked about labor and the issue of temporary farm workers. So what happens when someone in the Holland Marsh and their temporary farm workers can't get in, or decide not to come or things like that and they can't plant or harvest. In the past, the inability to secure labor has not been covered. Will it be now? Will it be this year as a one off? Should it be this year as a one-off maybe? And so certainly this is exposing risks that we've not seen before. And some of those are not covered, for sure. Dr. Brady Deaton: Do you think that... So this is what they've referred to as oftentimes a black swan event. And when we say that we're just talking about an extremely low likelihood event. Do you see after this, us going back and revisiting policy to build this in or is this something that we have to deal with after they occur and just adjust to it? Dr. Alan Ker: Right. Certainly I think the COVID-19 will expose some things that maybe should be dealt with. But having said that, black swan events are not something that are easily planned for. They're very different. You don't know the timing, the form they take. And 99% of the time the policy response, most appropriate policy response is best done after you see the black swan event. And so no, I would very much caution against government trying to overhaul policy to accommodate this particular black swan event. Because in all likelihood the next black Swan event is going to look very different. And so I do say that in my article. The government should be very cautious about changing the structure of the BRM program in response to one thing. Particularly when governments always have the option to do it ex-post like that's happening now, like the stimulus package and things like that. Governments always have this option to handle these events. And generally particularly with black swan events that are very rare. And we want to solve this. If we had this conversation three months ago, what would be the black swan events? And I listed them or you listed them or a bunch of people listed them, I'm not so sure this pandemic would've been on that list. And so generally these things are better dealt with as one offs. Dr. Brady Deaton: Do you have a sense of the current suite? So the government's responded in a variety of ways. What are your thoughts about how the response has gone so far? Dr. Alan Ker: So the government's responded with three things. First of all, the temporary farm workers. And I think that was good to alleviate the cost of the pandemic with the 14-day isolation, that farmers didn't expect that cost. And that will have a real significant impact for those farmers that bring in temporary farm workers. The other one of increasing. They increased the credit by five billion to the farm credit corporation so that farmers could get access to credit. But we've seen no indication at all that farmers were constrained for credit before, and that this is opening up some constrain. I don't believe it is. If anything, I think private markets will be wanting to funnel money into essential services, which ag is. And so there may be more private credit available now than there was two months ago. So that's another thing. And they delayed some payments. But when you look at how many people qualify and the amount of the delay, it's really fairly insignificant. Dr. Brady Deaton: Well, I want to thank you very much for spending time with us today. And I want to encourage all the listeners out there to take a look at the journal. And I just want to ask you to kind of leave us with any last thoughts that you might have about moving forward. Dr. Alan Ker: So these articles are speculative in nature because we're right at the onset of the pandemic. But it was very important for us to get this out, to try to inform policy, inform industry, inform the public, harness this expertise of decades in these areas, and get this stuff out to the people. And in fact, I've already sent this to the federal government, provincial governments, industry, FCC Farm Credit Corporation, and this and that. And they're already being consumed there. And that's the important part. And that's what we're trying to deliver on. Dr. Brady Deaton: Well, thank you very much for your efforts. Dr. Alan Ker: Thank you for having me on the program. [music begins] Dr. Brady Deaton: Thanks for joining us at Fare Talk. We hope you will continue to check our website for updates and the latest podcast. [music ends]
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FARE Talk - Pilot Episode
02/20/2025
FARE Talk - Pilot Episode
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Episode 28: Why extend the shelf life of food?
12/14/2021
Episode 28: Why extend the shelf life of food?
We've all had food go bad, which results in the unfortunate act of food waste. But what if the structure of food could be altered to extend the shelf life? Louis Colaruotolo, PhD student, is trying to do just that. Using 3D printing and other research methods, he is working to better understand the causes of food deterioration. This is our last episode for this batch, thank you E'layna for being a magnificent host! We hope to be back soon.
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