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An examination of the impacts of eliminating government payments on the Canadian beef sector

University of British Columbia

The objective of this research is to examine the impact of elimination of government subsidies on the supply response in the Canadian beef sector. The recent trend towards liberalization of agricultural trade (GATT and FTA) suggests that government payments to the agricultural sectors be reduced and/ or eliminated over some planning horizon. Assistant programs by governments to the beef sector have been operative at the both federal and provincial levels. They have been paid directly and/ or indirectly to the beef producers through many different programs over many years. As a result of these varied programs payments to beef producers differ by province. The primary hypothesis of this thesis is that when these payments are eliminated, the impacts will vary by province. This research considers the economic behaviour of cattle producers in terms of the investment and disinvestment rules and it assumes that the relationship between an increase in expected price of beef and the number of cattle retained by each producer is positive in the long run. Earnings to producers consist of returns from the market plus government assistance payments. When government payments approach zero, the herd size is expected to decrease as a result of decreased government payments. A reduction of herd size leads to changes in the production, trade and income levels. Given the theoretical and empirical considerations of the model, a simulated beef industry is analyzed assuming various elasticities of the long-run supply curve. In the "base" case the simulated result represents the current structure of the beef industry and represents a situation where the cattle producers have received government payments. In order to analyze the liberalizing effect of trade on the beef sector three scenarios are considered. The three scenarios assume different own price elasticities. The base year for this analysis is 1986. Opening stock numbers of cows, replacements and stackers are estimated at approximately 7.7 million heads for the national level. In terms of herd size Alberta share is largest with 37% of total herd, Saskatchewan has 21% and Manitoba and Ontario fall relatively further down with approximately 19% and 10% of the total herd. Total government payments to the beef sector in the base case are estimated at $243 million. The beef sector in the Prairie provinces and Ontario receives generally less than the relative herd size of their cow-calf herds in terms of government payments while Quebec with only 5.9% of the national cow herd receives 23.8% of the total amount of payments. Changes between the base case and each of the scenarios are analyzed in terms of aggregated measures. At the national level the change in the breeding herd size is downwards with a range between 2% for scenario #1 and 12% for scenario #3. Comparing the base case with scenario #1, herd size in Quebec is reduced by approximately 10% whereas the adjustment for most other provinces is about 2%. Quebec producers in the finishing sector received payments amounting to $161.60 per head while Ontario producers have received amounts of $20.45 per head. Ontario has supported this sector at a lower level than other provinces and therefore is at a competitive advantage when subsidies are removed. In this sense, if the base case and scenario #1 are compared at the provincial levels, high quality beef yield in Quebec is down significantly by 19.4% while that in Ontario is up by approximately 3.5% in spite of a herd size reduction of 1.6%. Therefore, when payments to this sector are eliminated the observed impacts will vary by province. Canada in the base case is a net exporter of feedlot yearlings and calves. In the base case, net exports in the western region are 258 thousand head and net imports in the eastern region are 230 thousand head. As a result of the elimination of government payments and the decrease in farmer's returns and herd sizes, there is a decrease in net exports of live animals. Under scenario #1 the eastern Canada increases imports by 75,000 head from the base of 230 thousand head and western Canada decreases their exports by 36,000 head from 258 thousand. In the base case net sector earnings to beef producers amount to $1.4 billion. Government payments amounted $243 million and therefore net sector earning in the absence of government payments amount to $1.2 billion. In the three scenarios which represent no payment situation earnings are $1.17 billion, $1.14 billion and $1.04 billion respectively. When government payments are eliminated the corresponding reduction in the beef sector earnings is more than $243 million.

Text

2010-08-25

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http://hdl.handle.net/2429/27753

Agricultural Economics

University of British Columbia

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