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UBC Theses and Dissertations

Some aspects of Canadian agricultural price policy Medland, Stanley Lloyd 1950

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SOME ASPECTS OF CANADIAN AGRICULTURAL PRICE POLICY  BY STANLEY LLOYD MEDLAHD  A THESIS SUBMITTED IN PARTIAL PULPILMEHT 01? THE REQUIREMENTS PCS THE DEGREE OP MASTER OP SCIENCE IN AGRICULTURE IN THE DEPARTMENTS  AGRICULTURAL ECONOMICS  ECONOMICS POLITICAL SCIENCE AND SQCIOLOl f  THE UNIVERSITY OP BRITISH COLUMBIA APRIL, 1950  ABSTRACT 07 SOME ASPECTS 07 CANADIAN AGRICULTURAL PRICE POLICY  BY STANLEY LLOYD MEDLAND  A THESIS SUBMITTED IN PARTIAL PULPILMEKT 07 THE REQUIREMENTS FOB THE DEGREE 07 MASTER 07 SCIENCE IB AGRICULTURE ^ I I THE DEPARTMENTS 07 AGRICULTURAL ECONOMICS AND ECONOMICS, POLITICAL SCIENCE AND SOCIOLOGY  a  THE UNIVERSITY 07 BRITISH COLUMBIA APRILt 1950  Long-run p r i c e and Income e l a s t i c i t i e s of demand f o r a s r i c u l t u r a l producte are low*  ¥hen a g r i c u l t u r a l p r i c e s move down-  ward r e l a t i v e to other p r i c e s , and as standards of l i v i n g r i s e , people tend to consume about the same absolute amount of food. Conversely, the supply of a g r i c u l t u r a l products i n terms of output per farmer i s expanding*  This leads to secular pressure  downward on the returns t o labor i n agriculture*  Superimposed on  t h i s low return to labor f o r seoular reasons i s an i n s t a b i l i t y of prioe mainly attributable tos  ( 1 ) changes i n supply asGOelated  with natural causes and an I n e l a s t i c market demand, and (2) changes In demand associated with the l e v e l of business a c t i v i t y In Canada and abroad*  These forces operate through the p r i c e system*  P r i c e i n s t a b i l i t y and uncertainty a f f e c t the actions of farmers and loaning agencies*  Instead of seeking to maximize p r o f i t s i n  the t r a d i t i o n a l sense* they seek the maximum p r o f i t s that can be obtained with safety.  The farmer's reaction to uncertainty i s to  emphasize the use of a f a c t o r of production that i s w i l l i n g or able to become a r e s i d u a l claimant*  That factor i s labor, c h i e f l y  because i t i s self-employed and therefore no commitments are made In advance*  The reaction of the loaning agency I s to l i m i t the  s i z e of loans t o a small percentage of the value of the fixed assets of the farm*  The r e s u l t I s that the movement of c a p i t a l  Into agriculture which i s necessary to take advantage of the modem labor-saving technology Is Inhibited and* as a consequence, the value of the marginal product of c a p i t a l and i t s cost are not equated*  The r e s u l t i n g i n e f f i c i e n c y of labor In agriculture i s  a lose to eoclaty.  The existence i n Canada of a combination of  factors of produotion within the farm, and an a l l o c a t i o n of factors between agriculture and the rest of the economy vhich does not maximize the t o t a l net product, indicates that too great a burden of adjustment has been placed on the p r i c e system*  We  are therefore j u s t i f i e d i n seeking ways and means whereby the prloe system may he aided In i t s job of d i r e c t i n g the correct combinations of factors to the production of the various goods and services people want* P o l i c y Reoomaendations (1)  Canada should begin now  prloe outlook program*  to develop a strong a g r i c u l t u r a l  Such a service could make a worthwhile  contribution to the reduction of year to year prloe uncertainty. As soon as the outlook program proves i t s worth, the Government should consider backing I t s p r i c e foreoasts with cash guarantees* The further reduction i n uncertainty would appear to be worth the cost* (11)  The Canadian Government has adopted "a high and stable  l e v e l of employment and Income ••••• as a major aim of Government polloy * w  The maintenance during a depression* by means of prloe  policy# of 70 per cent of pre-depressi on farm income would he consistent with t h i s aim*  The assurance of farm income, from sale  of farm products* at 70 per cent of the pre-depressi on l e v e l would s u b s t a n t i a l l y reduce r i s k aversion and o a p l t a l r a t i o n i n g In a g r i culture*  The program would also allow greater investments i n  people during a depression, thus Increasing the p r o d u c t i v i t y of  the l a b o r force*  Consideration  should he g i v e n  to the  possibility  o f m a i n t a i n i n g C a n a d i a n f a r m i n c o m e b y means o f s m a l l p r i c e ments t e p r a i r i e f a r m e r s during a  depression*  which would discourage  pay-  diversification  iii PREFACE  Long-run p r i c e and income e l a s t i c i t i e s o f demand f o r a g r i c u l t u r a l p r o d u c t s are low.  When a g r i c u l t u r a l p r i c e s move down-  ward r e l a t i v e t o other p r i c e s , and as standards people  of l i v i n g  rise,  tend t o consume ahout the same a b s o l u t e amount o f f o o d .  Conversely,  the supply of a g r i c u l t u r a l products i n terms of  output p e r farmer i s v e r y e x p a n s i b l e .  This leads to secular  p r e s s u r e downward on the r e t u r n s i n a g r i c u l t u r e .  Superimposed  on t h i s low r e t u r n t o l a b o r f o r s e c u l a r reasons i s an i n s t a b i l i t y of p r i c e mainly a t t r i b u t a b l e t o : ( l ) changes i n supply a s s o c i a t e d w i t h n a t u r a l causes and an i n e l a s t i c market demand, and (2) changes i n demand a s s o c i a t e d w i t h the l e v e l of business i n Canada and abroad. system. farmers  activity,  These f o r c e s operate through the p r i c e  P r i c e i n s t a b i l i t y and u n c e r t a i n t y a f f e c t the a c t i o n s o f and l o a n i n g a g e n c i e s .  I n s t e a d o f seeking to maximize  p r o f i t s i n the t r a d i t i o n a l sense* t h a t can be obtained w i t h s a f e t y .  they seek the maximum p r o f i t s The farmer's  r e a c t i o n t o un-  c e r t a i n t y i s to emphasize the use o f a f a c t o r o f p r o d u c t i o n t h a t i s w i l l i n g or able t o become a r e s i d u a l c l a i m a n t .  That  factor  i s l a b o r , c h i e f l y because i t i s s e l f employed and t h e r e f o r e no commitments a r e made i n advance.  The r e a c t i o n o f the l o a n i n g  agency i s to l i m i t the s i z e o f l o a n s t o a s m a l l percentage v a l u e of the f i x e d a s s e t s o f the farm.  of the  The r e s u l t i s t h a t the  movement o f c a p i t a l i n t o a g r i c u l t u r e which i s necessary t o take advantage of the modern l a b o r - s a v i n g technology  i s i n h i b i t e d and,  iv as a consequence, the v a l u e of the marginal product o f c a p i t a l and i t s c o s t a r e n o t equated.  The p o s i t i o n o f many farmers i s  analogous t o t h a t o f a man who f o r some reason i s f o r c e d  to work  w i t h a wheelbarrow when he could be running a power s h o v e l ,  when  the c o s t of the power s h o v e l i s much l e s s than the v a l u e of the product added by i t s use.  The r e s u l t i n g i n e f f i c i e n c y o f l a b o r i n  agriculture i s a loss to society.  The e x i s t e n c e  i n Canada o f a  combination o f f a c t o r s o f p r o d u c t i o n w i t h i n the farm, and an a l l o c a t i o n o f f a c t o r s between a g r i c u l t u r e and the r e s t of the economy which does n o t maximize the t o t a l n e t p r o d u c t , i n d i c a t e s t h a t too great  a burden o f adjustment has been p l a c e d  We are t h e r e f o r e  on the p r i c e system.  j u s t i f i e d i n seeking ways and means whereby the  p r i c e system may be aided i n i t s j o b o f d i r e c t i n g the c o r r e c t combinations o f f a c t o r s t o the p r o d u c t i o n o f the v a r i o u s and  goods  s e r v i c e s people want. The  h i s t o r y and l i t e r a t u r e of a g r i c u l t u r a l p r i c e p o l i c y  i n d i c a t e t h a t Canada has a choice among three main p r i c e p o l i c y proposals. (1)  P a r i t y p r i c i n g i s a p l a n f o r g i v i n g a g r i c u l t u r a l com-  m o d i t i e s a p u r c h a s i n g power equal to t h a t which they enjoyed i n some base (2)  period. A p r i c e p o l i c y o f p o l i t i c a l expediieney would simply  y i e l d subsidies  t o p r e s s u r e groups whenever n a t u r a l p u b l i c oppo-  s i t i o n c o u l d be overcome. (3)  Forward p r i c i n g c o n s i s t s of announcing farm p r i c e s one  p r o d u c t i o n p e r i o d i n advance.  I t d i f f e r s from p a r i t y p r i c i n g i n  t h a t these announcements would be based on the b e s t p o s s i b l e mates o f the p r i c e s t h a t would occur, r a t h e r  than upon some  esti-  V  historical relationship. guarantees  The f o r e c a s t s would he hacked by p r i c e  up t o 80 p e r cent o f the f o r e c a s t p r i c e .  In periods  of d e p r e s s i o n , forward p r i c e s would assume an a d d i t i o n a l r o l e , namely, t h a t of being p a r t o f economy-wide measures to p r e s e r v e and t o enhance p u r c h a s i n g power o f the economy as a whole.  They  would be based, not on f o r e c a s t s , but on some f i x e d percentage o f p r i c e s i n the three p r e - d e p r e s s i o n y e a r s . The f i r s t  of these, p a r i t y p r i c e s , has been condemned by  most economists. accumulation  I n the U n i t e d S t a t e s the p o l i c y has l e a d t o the  of huge s u r p l u s s t o c k s of farm p r o d u c t s .  Such a  program e f f e c t i v e l y p r e v e n t s the p r i c e system from o p e r a t i n g t o a l l o c a t e f a c t o r s o f p r o d u c t i o n w i t h i n a g r i c u l t u r e , and between a g r i c u l t u r e and the r e s t o f the economy. expediency, The  The second, p o l i t i c a l  may be d i s m i s s e d as b e i n g n o t i n the p u b l i c i n t e r e s t .  t h i r d , forward p r i c i n g , has r e c e i v e d g e n e r a l approval from  economists.  I t i s f r e q u e n t l y recommended as a p r i c e p o l i c y f o r  Canada. The non-depression  phase o f the scheme i s designed  move p a r t o f the y e a r t o y e a r p r i c e u n c e r t a i n t y .  to r e -  Farmers u s u a l l y  make t h e i r p r o d u c t i o n p l a n s on the b a s i s of a hunch, or guess, as to what p r i c e s w i l l p r e v a i l when t h e i r products go to market. o r d e r t o minimize the e f f e c t of t h i s u n c e r t a i n t y , farmers  In  prac-  t i c e d i v e r s i f i c a t i o n , m a i n t a i n f l e x i b i l i t y and l i q u i d i t y i n the farm b u s i n e s s , and express f a e t o r s emphasizing  a s a f e t y p r e f e r e n c e i n the choice o f  the use o f l a b o r r a t h e r than c a p i t a l .  If  s u f f i c i e n t l y accurate p r i c e f o r e c a s t s c o u l d be made by a government agency, and i f farmers had confidence i n them, much o f the  vi c o s t of y e a r t o year p r i c e u n c e r t a i n c y The  could be e l i m i n a t e d .  second p a r t of the forward p r i c e p r o p o s a l  maintenance of some percentage o f p r e - d e p r e s s i o n periods  of d e p r e s s i o n .  concerns the  p r i c e s during  A g r i c u l t u r e bears i t s d e p r e s s i o n  burden  not i n unemployment as secondary i n d u s t r i e s do, but i n low p r i c e s for  farm p r o d u c t s .  I t i s suggested t h a t i f the Government adop-  t e d an a n t i - c y c l i c a l p o l i c y , t h i s phase of forward p r i c i n g f i t i n and would e f f e c t i v e l y m a i n t a i n  agricultural  could  purchasing  power. I n a d d i t i o n , i t i s argued t h a t improvements i n l a b o r  effi-  ciency, which would r e s u l t from a r e d u c t i o n i n income u n c e r t a i n t y , and  the i n c r e a s e d m o b i l i t y and p r o d u c t i v i t y o f l a b o r due to  minimum investments i n farm p e o p l e , would exceed the c o s t o f d e p r e s s i o n payments to a g r i c u l t u r e . t h i s argument.  There i s one s e r i o u s gap i n  I t i s known t h a t income u n c e r t a i n t y i s a major  cause o f i n e f f i c i e n t use o f l a b o r i n a g r i c u l t u r e , and t h a t p o o r l y fed  and p o o r l y educated c h i l d r e n tend t o grow up t o be workers o f  low p r o d u c t i v i t y .  There i s , however, as y e t , no measure o f the  economic c o s t of these e f f e c t s .  The w r i t e r i s o f the o p i n i o n  t h a t these c o s t s do exceed the c o s t s o f proposed  depression  p e r i o d p r i c e a s s i s t a n c e to a g r i c u l t u r e . I n the event t h a t the Canadian Government does decide t o adopt t h i s or some s i m i l a r p l a n f o r a s s i s t a n c e t o a g r i c u l t u r e during  depressions,  one major c o n s i d e r a t i o n i n the a d m i n i s t r a t i o n o f  the p o l i c y would need t o be the f l e x i b i l i t y economy.  o f the p r a i r i e  P r a i r i e farmers are w i l l i n g and able t o s h i f t produc-  t i o n w i t h i n q u i t e a wide range o f products whenever there i s a p r i c e advantage.  T h i s suggests t h a t the s i m p l e s t and l e a s t  vii c o s t l y a s s i s t a n c e which c o u l d be g i v e n t o a l l Canadian farmers d u r i n g a d e p r e s s i o n p e r i o d might be a program based on p r a i r i e wheat* The w r i t e r wishes t o express a p p r e c i a t i o n to P r o f . W. J . Anderson f o r h i s p a t i e n t and c o n s t r u c t i v e c r i t i c i s m o f the t h e s i s d u r i n g the w r i t i n g .  D i s c u s s i o n s w i t h D r . Joseph A. Crumb were o f  g r e a t a s s i s t a n c e i n o r i e n t i n g a g r i c u l t u r a l p o l i c y w i t h i n the framework o f g e n e r a l economic p o l i c y . The present  long-run  a n a l y s i s o f Chapter 2, and a d e s c r i p t i o n o f  a g r i c u l t u r a l p r i c e p o l i c y , were presented  as a paper t o  the U n i v e r s i t y o f B r i t i s h Columbia Economics Club i n January 1950.  The a n a l y s i s b e n e f i t e d much from the m e r c i l e s s  of the c l u b members.  criticism  F i n a l l y , thanks are due t o my wife,Doreen  Medland, f o r g r e a t care and e f f o r t i n the t y p i n g , t o J . P. C l a r k f o r p r o o f - r e a d i n g , and t o Mrs. L o i s R a i t t who drew the c h a r t s . U n i v e r s i t y o f B r i t i s h Columbia, VANCOUVER, B . C. A p r i l 12, 1951.  viii TABLE OF CONTENTS CHAPTER  PAGE  PREFACE  i i i  1.  The A g r i c u l t u r a l I n d u s t r y (1) (2) (3) (41 15) (6) (7)  2.  Development o f the I n d u s t r y P l a c e i n the Economy . . R e l a t i v e E l a s t i c i t y o f Supply i n Expansion . . . The J u r i s d i c t i o n S t r u c t u r e o f the I n d u s t r y F l e x i b i l i t y of the P r a i r i e Economy . . . . . . . Conclusion  The Income Problem:  Chronic Low Income  (1) The Long-Run S i t u a t i o n  1 7 10 11 13 15 19 20 21  ( i ) Slowing Down i n Growth o f Demand . . . . .  21  (a) S l a c k e n i n g o f Increase i n P o p u l a t i o n . (b) Low Income E l a s t i c i t y o f Demand . . .  21 24  ( i i ) A c c e l e r a t i o n i n the Growth o f Supply . . .  25  (a) The T e c h n o l o g i c a l R e v o l u t i o n i n Agriculture. (b) High R u r a l B i r t h Rates  3.  1  25 26  (2) A g r i c u l t u r e ' s Share o f the N a t i o n a l Income . . .  27  (3) The T r a n s f e r Problem  29  Farm Income I n s t a b i l i t y  .  (1) V a r i a t i o n s i n Supply . . (2) V a r i a t i o n s i n Demand  32 32 34  ( i ) A g r i c u l t u r e ' s R e a c t i o n to Demand D e c l i n e .  34  ( i i ) Income E f f e c t s of Changes i n Demand. . . .  36  (3) P r o d u c t i o n I n s t a b i l i t y o f I n d i v i d u a l Farm or Area. •  42  ix  4*  U n c e r t a i n t y and Resource Use  43  (1) E f f e c t s o f P r i c e U n c e r t a i n t y on the I n d i v i d u a l Farm • •  43  (i) Year to Year P r i c e Uncertainty . . . . . . ( i i ) Measures Farmers Take t o Minimize the E f f e c t of Year to Year P r i c e Uncertainty (a) D i v e r s i f i c a t i o n (b) F l e x i b i l i t y (c) L i q u i d i t y . (d) S a f e t y P r e f e r e n c e  43 44 45" 45 46  i n F a c t o r Choice . .  47  ( i i i ) Maximizing Net Income Over a P e r i o d of Time (2) Between A g r i c u l t u r e  48 and the R e s t o f the Econoiry.  (i) C a p i t a l Rationing ( i i ) Risk Aversion ( i i i ) E f f e c t s o f C a p i t a l R a t i o n i n g and R i s k Aversion a) Combination o f F a c t o r s !  (iv)  Limitations  58 58 59  Government Loan P o l i c y  59 .  of Price Policy  60 62  (1) P r i c e P o l i c y and Income D i s t r i b u t i o n ( i ) Income D i s t r i b u t i o n Goals  53 55 55 55  b) S c a l e of Operations 1. Tenancy 2. Machinery Investment  (3) Summary 5.  • •  49  62 .  63  (2) What P r i c e P o l i c y Cannot Do. . .  63  (3) What P r i c e P o l i c y Can Do  65  ( i ) Income D i s t r i b u t i o n ( i i ; Price Uncertainty  •  65 65  ( i i i ) Long-Run Income U n c e r t a i n t y (4) Elements o f a D e s i r a b l e P r i c e P o l i c y f o r Canada.  65 66  X  6.  P a s t and P r e s e n t A g r i c u l t u r a l P r i c e P o l i c i e s  69  (1) The Board o f G r a i n S u p e r v i s o r s  69  (2) Canadian Wheat Board 1919-20  70  (3) The Canadian C o - o p e r a t i v e Wheat P r o d u c e r s L t d . . .  70  (4) The Canadian Wheat Board 1935  71  (5) The P r a i r i e Farm A s s i s t a n c e A c t 1939  75  (6) The Wheat Agreement  77  (7) The Wheat C o - o p e r a t i v e Marketing A c t 1939  . . . .  78  (8) The A g r i c u l t u r a l P r o d u c t s Co-operativeMarketing A c t 1939  79  (9) The A g r i c u l t u r a l P r i c e s Support A c t 1944 (10) Some O b s e r v a t i o n s 7.  Forward P r i c e s  80 82  . . . . . . . . . . . .  A. Forward P r i c e s f o r One P r o d u c t i o n P e r i o d The Time P e r i o d f o r Forward P r i c e s . . . . . T r a n s i t i o n Problems. . . . . . . . . . . . . S p e c i f i c i t y o f Guarantees Commodities I n c l u d e d Forward P r i c e Schedules f o r P e r i s h a b l e Products (6) The Problem of F o r e c a s t i n g B . Long-Run Income C e r t a i n t y and S t a b i l i t y  86 87  (1) (2) (3) (4) (5)  88 90 91 91  (1) Minimum L e v e l o f Farm Income or P r i c e s . . . (2) D i s t r i b u t i o n of Income Payments • (3) A d m i n i s t r a t i v e and Economic I s s u e s  95 96 97  ( i ) I n t e g r a t i o n of D e p r e s s i o n and Hon-depression Programs. . . . . . . ($i) D u p l i c a t i o n of Payments. ( i i i i D i s t o r t i o n of Resource Use . . . . . . ( i v ) The R o l e of Storage (4) Summary  . . .  92 93 94  97 97 98 98 99  xi  8.  Three Major D i f f i c u l t i e s Program f o r Canada  i n a Forward P r i c e  . . . .  100  A. The Problem o f F o r e c a s t i n g  100  (1) F o r e c a s t i n g the P r i c e o f Wheat. . . . . . . ( i ) The E l a s t i c i t y o f Demand ( i i ) Elements i n the Demand f o r Wheat For Use ( i i i ) S p e c u l a t i v e Demand ( i v j The World Market Supply . . . . . . . (v) The E f f e c t o f N a t i o n a l P o l i c i e s on Demand, Supply and P r i c e (vi) How A c c u r a t e l y Can the P r i c e lof Wheat be F o r e c a s t ? . ( v i i ) A s s u r i n g Forward P r i c e s by C o n t r a c t . (2) F o r e c a s t i n g t h e P r i c e s of L i v e s t o c k and Livestock Products.  101 101 102 104 104 106 108 I l l  -  112  ( i ) The Demand f o r Farm P r o d u c t s Other Than Wheat. ( i i ) The Supply o f Farm P r o d u c t s Other Than Wheat. (3) The Accuracy o f F o r e c a s t s  112 112  . .  113  3$. S u b s i d i e s to A g r i c u l t u r e A r i s i n g From a Forward P r i c e Program. •  116  C. P o l i t i c a l A c c e p t a b i l i t y o f a Forward P r i c e Program 9.  124  Conclusion  Appendix i  • .  •  126 129  Appendix i i  132  Appendix i i i .  134  Bibliography  •  137  xii  TABLES AND  FIGURES  TABLES 1.  Wartime Bacon Agreements With the U n i t e d Kingdom* . . .  6  2.  C u r r e n t Value of Farm C a p i t a l , by P r o v i n c e s , 1946  ...  8  3*  Net V a l u e s of P r o d u c t i o n by I n d u s t r i e s , 1941-46 . . . .  9  4.  Cash Income From the S a l e of Farm P r o d u c t s , P r o v i n c e s , f o r S p e c i f i e d Y e a r s 1930-47  5. ' 6. 7.  Cash Income From S a l e of Farm P r o d u c t s , Sources, 1947  by  by  Numbers of L i v e s t o c k and P o u l t r y i n Saskatchewan B r i t i s h Columbia, 1928-1932 Acreage and P r o d u c t i o n  13 14 and  of S p e c i f i e d F i e l d Crops i n the  P r a i r i e P r o v i n c e s , 1939-44. 8.  F e r t i l i t y by Occupation - Type C l a s s  9.  Index Numbers of P r i c e s , P r o d u c t i o n and Values of F i e l d Crops, 1909-10 to 1939-40, Canada Hogs: Average Wholesale P r i c e s per 100 Lbs., at Toronto, 1890-1943  10. 11. 12.  13. 14. 15. 16.  17  18 27 38 39  Canadian Farmers' Cash Income From S a l e of Farm P r o d u c t s , 1926-1948 .  40  D e f l a t e d Gross Revenue From One Acre of Sumraerfallow P l a n t e d to Wheat Each Y e a r 1912-1944 at S c o t t , Saskatchewan.  41  I l l u s t r a t i o n of the E f f e c t of P r i c e Cost R e l a t i o n s h i p s o f a H y p o t h e t i c a l Saskatchewan Wheat Farm  50  I l l u s t r a t i o n of the E f f e c t of P r i c e - C o s t R e l a t i o n s h i p s , o f a H y p o t h e t i c a l F r a s e r V a l l e y D a i r y Farm  51  I l l u s t r a t i o n of the E f f e c t of P r i c e - C o s t R e l a t i o n s h i p s o f a H y p o t h e t i c a l B r i t i s h Columbia Apple Producer . .  52  E s t i m a t e d M a r g i n a l P r o d u c t i v i t i e s of F a c t o r s of P r o d u c t i o n on S p e c i f i e d Types of Iowa Farms, U.S.A..•  56  xiii  17.  C l a s s i f i c a t i o n of Growers by Gross Income, 1947.  18.  Farm Holdings by S i z e i n Manitoba, Saskatchewan and A l b e r t a , 1946  58  Announcement and E f f e c t i v e P e r i o d of the Forward P r i c e s f o r S e l e c t e d Commodities  90  19. 20. 21.  . . .  57  Approximate World Wheat S u p p l i e s and Disappearance A n n u a l l y From 1934-35 to 1944-45 . . . .  105  Wheat P r o d u c t i o n , Acreage and Y i e l d per Acre i n the World, and Y i e l d p e r Acre o f Four C h i e f E x p o r t e r s From 1928-1944  106  22.  D i f f e r e n c e i n Value o f Canadian Wheat from That Determined by the World Market 1946-47 t o 1948-49. . . I l l  23.  T o t a l Supply and E x p o r t s of Meat Animals and Consumption Meats 1935-42  113  Computation of Cash Farm Income from S a l e of Farm P r o d u c t s , Assuming Constant Y i e l d to 1926, For Y e a r s 1926-41  117  C o s t of M a i n t a i n i n g P r i c e Index a t V a r i o u s P e r c e n t a g e s of 1927-29 Average, and Grand T o t a l E x p e n d i t u r e s of the Government of Canada f o r S e l e c t e d Y e a r s . . . . .  118  Computation of D e f l a t e d Cash Income from S a l e o f Farm P r o d u c t s , Assuming Constant Y i e l d = t o 1926, For Y e a r s 1926-41  119  C o s t s of M a i n t a i n i n g V a r i o u s Percentages o f Average D e f l a t e d Income o f Three P r e - d e p r e s s i o n Y e a r s , Assuming Constant Y i e l d • 1926, f o r P e r i o d 1930-41 .  120  Computation of a H y p o t h e t i c a l Farm Income S e r i e s F o r a Future D e p r e s s i o n P e r i o d Based on A d j u s t e d D a t a From 1931-41  121  24.  a  25.  26.  27.  28.  29.  C o s t s o f M a i n t a i n i n g V a r i o u s P e r c e n t a g e s o f Average 1945-47 D e f l a t e d Income Over a P e r i o d o f E l e v e n Y e a r s 122  30.  A c t u a l P r i c e o f Wheat and P r i c e s Which Would Have Been R e q u i r e d t o M a i n t a i n P r i c e R a t i o s a t Long Time Averages, 1931-40 .  123  The E f f e c t of S i z e as Measured by Crop A c r e s , 1941-42  134  31.  xiv  32. 33.  R e l a t i o n of S i z e o f Farm and Y i e l d s to S u r p l u s , G a d s b y - D r u m h e l l e r - I n n s f a i l Area of A l b e r t a , 1943-44.  135  The E f f e o t on Labour E a r n i n g s of I n c r e a s i n g the S i z e of Farm a t High, Medium and Low L e v e l s of P.M.V.U. per Man, 200 F r a s e r V a l l e y D a i r y Farms, 1946. . . .  136  FIGURES 1.  Following Page  P o p u l a t i o n Trends f o r Northwestern and C e n t r a l Europe and U.S.A.  22  2.  P o p u l a t i o n Trends i n Canada, 1871-1971.  23  3.  Index Number of P h y s i c a l Volume of A g r i c u l t u r a l P r o d u c t i o n , Canada, 1935-1938  33  T o t a l P r o d u c t i o n of Apples and P r i c e per Box ( o f B.C. A p p l e s ) , Tree Census Areas of the Okanagan H o r t i c u l t u r a l D i s t r i c t , 1935-1948. . . . .  34  Index Numbers of D e f l a t e d P r i c e and P r o d u c t i o n of Canadian F i e l d Crops, 1909-1939  35  D e f l a t e d Gross Revenue From One Acre of Summer f a l l o w P l a n t e d t o Wheat Each Y e a r 1912-1944 at S c o t t , Saskatchewan. . .  40  C o e f f i c i e n t of V a r i a b i l i t y o f Y i e l d o f Wheat, P r o v i n c e of Saskatchewan, Canada, 1918-1935 . . . .  42  4.  5. 6.  7. 8. 9. 10. 11. 12.  Index Numbers of P r i c e s of Canadian Farm P r o d u c t s , 1890-1937  .  44  Index Numbers o f P r i c e s o f Canadian Farm, F i e l d and Animal P r o d u c t s , 1890-1937  44  Feed P r i c e s and P r i c e s of L i v e s t o c k and L i v e s t o c k P r o d u c t s by Months, 1926-1938  44  P r i c e s o f Wheat, Oats and B a r l e y a t Winnipeg, Annual Average 1908 t o 1935  44  P u r c h a s i n g Power of Beef C a t t l e , Hogs and Sheep at Toronto f o r S e l e c t e d P e r i o d s  44  XV  13. 14.  15. 16.  17.  The Gap Between the Amount o f Loan C a p i t a l D e s i r e d by Capable Farmers and the Amount A v a i l a b l e .  53  Cash Income From S a l e o f Farm P r o d u c t s of Canada, 1926-49, and T r a c t o r S a l e s i n Western Canada, 1919-49  59  Meat Animals and Meats: Index Numbers o f Output, E x p o r t s , Imports and Consumption, 1920-1939 . . . .  113  V a r i a t i o n s i n Demand o f a l l Food and Supply of a l l Food a t D i f f e r e n t L e v e l s o f Wholesale P r i c e , the U n i t e d S t a t e s , 1922 t o 1940  130  The R e l a t i o n s h i p of S i z e of Ranch to Ranch Income . .  135  SOME ASPECTS 07 CANADIAN AGRICULTURAL PRICE POLICY  0  SOME ASPECTS 01? CANADIAN AGRICULTURAL PRICE POLICY  CHAPTER 1  THE AGRICULTURAL INDUSTRY (l)  Development of the I n d u s t r y At the end of the n i n e t e e n t h century Canadian  agriculture  emerged from a p e r i o d i n which i t had occupied a p o s i t i o n d i n a t e t o the s t a p l e exports of f i s h , f u r and lumber*  subor-  At t h a t  time i t became the b a s i s f o r s t a p l e exports of l i v e s t o c k , d a i r y p r o d u c t s , f r u i t s and wheat. Between 1886 dom  and 1896  1  Canadian  exports to the U n i t e d K i n g -  doubled and i n another ten y e a r s had doubled a g a i n *  i n c r e a s e was  due l a r g e l y to wheat, the p r o d u c t i o n of which had  become by 1906 and 1914,  The  the major Canadian  t o t a l Canadian  export i n d u s t r y . Between  1896  e x p o r t s jumped from $110,000,000 t o  over $431,000,000, w i t h the v a l u e of 1914 wheat and f l o u r e x p o r t s i n the neighborhood  o f $140,000,000.  2  By 1914 wheat had  come the b a s i c a g r i c u l t u r a l export-from Canada, and  be-  commercial  1 See E a s t e r b r o o k , ¥. T., ffarm C r e d i t i n Canada. (Toronto 1938), V - v i i i . 2 Dominion Bureau of S t a t i s t i c s , The Canada Y e a r Book, 1947, Ottawa, K i n g ' s P r i n t e r , p. 875.  agriculture i n r e l a t i o n to Europe was l a r g e l y confined to  .2  western Canada* Coincident^with changes i n composition, r a d i c a l changes i n the  d i r e c t i o n of Canadian trade began to appear.  While the  United Kingdom share of Canadian exports was increasing,her share of Canadian import trade was diminishing.  By 1896 oyer  one-half of the Canadian imports were of United States o r i g i n and since that time United States dominance i n the Canadian market has been maintained. In  1  the decade immediately preceding World War I , the r e -  quirements of the growing i n d u s t r i a l organization and the rapid settlement of the west l e d to large increases i n the imports of i r o n and s t e e l products, and machinery and coal, i n addition to the  consumer goods requirements of an expanding and r e l a t i v e l y  prosperous economy*  The rapid increase i n import volume was  complemented by an inflow of c a p i t a l , p r i n c i p a l l y from the United Kingdom*  The growth of the wheat industry was the 2  greatest single dynamic force throughout t h i s period* The War of 1914-18 added impetus to the already rapid growth of manufacturing i n d u s t r i e s , and t h e i r goods began to bulk l a r g e r on the l i s t of exports*  Following the war the pro-  p o r t i o n of manufactured goods f e l l o f f s l i g h t l y , and i n 1920 the eight leading exports, with t h e i r aggregate value exceeding 50 the per cent of / t o t a l exports, were the products of primary industry —  wheat, meat, f l o u r , planks and boards, newsprint, c a t t l e ,  wood-pulp and f i s h . 1 2 3  Loc. c i t . Loc. c i t * Loc. c i t .  While primary products continued to dominate the Canadian export trade during the inter-war years, there was a d e f i n i t e trend toward an increased quantity of manufactured exports*  The  United States became an increasingly important market f o r newsp r i n t and minerals, and i n turn f o r power and the a g r i c u l t u r a l products of eastern Canada*  The p u l l of the United States was  registered i n the tendency f o r the Canadian d o l l a r to remain near par with the American d o l l a r i n spite of wide f l u c t u a t i o n s i n income from wheat i n r e l a t i o n to the European market.  Wheat,  as a basic export from a specialized region to Europe, tended to become a l o c a l centre of disturbance and to involve problems of d i r e c t transfer i n the establishment of an equilibrium between the p u l l of Burope and the United States.  European t a r i f f and  Import r e s t r i c t i o n s reduced the e f f e c t i v e demand f o r Canadian a g r i c u l t u r a l products.  1  Thus importers would take only smaller  quantities at the same p r i c e , or the same quantity at a lower price*  Importers then required l e s s Canadian d o l l a r s than pre-  viously i n order to pay f o r t h e i r imports*  Such a decline i n  demand f o r Canadian d o l l a r s would o r d i n a r i l y tend to force down g the exchange value of the Canadian d o l l a r * 1 See Davidson, C. B., "Recent L e g i s l a t i o n Affecting International Trade i n Farm Products, Proceedings, Canadian P o l i t i c a l Science Association, 1933, pp. 106-126. 2 The following s i m p l i f i e d example i l l u s t r a t e s the e f f e c t on the returns to Canadian wheat producers of a f a l l i n the exchange value of the Canadian d o l l a r . Assume; Liverpool p r i c e of wheat 2/6 per bus. Exchange value £ = $4.00. Canadian producer gets 2/6 = 49.6y minus costs of handling and transportation. Assume: A decline i n demand f o r Canadian wheat so that L i v e r pool price i s 2 S per bus. The producer now gets 2 S s 40j2f per bus. However, i f t h i s decline i s followed by a decline i n value of the Canadian d o l l a r r e l a t i v e to the pound so that £ = $4.96, then the farmer gets 2 S s 49.6y per bus. The e f f e c t of a B r i t i s h devaluation of the pound would, of course, make such readjustment impossible. =  4  Due to the importance of commercial  and f i n a n c i a l transactions  between Canada and the U.S.A., and the decline i n Canadian demand for  American goods, the l e v e l of exchange In the 1930 s remained 1  near p a r i t y .  The r e s u l t was that the western farmer enjoyed no  exchange advantage i n the world market and the whole burden was borne i n the export p r i c e . Even before the world depression of the 1930's began, the appearance of a world wheat surplus threatened to cause prices to  slump.  The world market was unable to absorb the unusually  large world and Canadian crops of 1928.  Between August 1,  1928,  and August 1, 1929, the world wheat carry-over rose from 697 m i l l i o n bushels to 957 m i l l i o n bushels.- 1  I t was the sharp f a l l  i n export p r i c e s which pushed Canada down the i n c l i n e of the depression.  The income of large sections of the economy was  based on these export p r i c e s , and when these values sank the repercussions were widespread.  The impact of the l o s s of export  income f e l l most d i r e c t l y upon the export producers and the cons t r u c t i o n and engineering trades.  "The unequal incidence of the  burden on the d i f f e r e n t groups and regions i n the country was the outstanding feature and the basis of the most serious problems a r i s i n g out of the depression." farm products i n terms of manufactured  2  The purchasing power of goods f e l l from a base  of 100 i n 1929 to 64 i n 1932, and rose s l i g h t l y to 67 i n 1933. I t i s clear that agriculture, along with other exposed groups such as the unemployed and investors i n equities, bore 1 Canada, Report of the Royal.Commission on DominionP r o v i n c i a l Relations, Ottawa, King's P r i n t e r . Book I , p. 144. 2 I b i d , p. 147. 3 I b i d , p. 148.  3  the brunt of the depression. The effect of p r i c e decline alone would have been severe f o r agriculture, but i t was  5  accompanied  by a period of prolonged drought which effected the wheat producing sector*  For ten years the drought held almost unbroken over  the best a g r i c u l t u r a l land of the P r a i r i e Provinces*  Standards of  l i v i n g on p r a i r i e farms f e l l to almost unbelievably low l e v e l s , and was accompanied by serious disinvestment i n agriculture*  The  period i s now generally referred to by farmers as the "hungry thirties".  1  When war broke out i n 1939 the p o s i t i o n of agriculture with respect to supplying the wartime food needs was much more favorable than i t had been i n 1914.  During the early months of the  war there was no important increase i n demand f o r any Canadian farm product.  During t h i s period the chief problems were those  of disposing of surpluses rather than of stimulating production. In order to f a c i l i t a t e the implementation of agreements with the United Kingdom, Canada set up several boards.  The establishment  of the A g r i c u l t u r a l Supplies Board, which served as a central d i r e c t i v e agency dealing with problems i n production and marketing of farm products, was follwed by a Bacon Board, a Dairy Board and a Special Products Board which handled eggs, f l a x f i b r e and other commodities*  In March 1943, the A g r i c u l t u r a l  Food Board was set up as an o v e r - a l l co-ordinating and l i a i s o n 2 agency. 1 For a l u c i d though extremely depressing account of the e f f e c t of depression and drought upon the wheat economy see B r i t n e l l , G. E., The Wheat Economy, The University of Toronto Press, 1939* 2 For a summary of wartime p r i c e p o l i c y see Shefrln, Frank, Wartime P r i c e s of Farm Products, The Economic Annalist, Feb., 1945, p. 10.  Canada's most o u t s t a n d i n g achievement i n wartime food p r o d u c t i o n was t h e i n c r e a s e i n hog marketings.  Hog p r o d u c t i o n had  been on the i n c r e a s e i n Canada as a r e s u l t o f good markets and an abundant supply o f g r a i n s , and p r o c e s s i n g c a p a c i t y was i n excess of normal requirements when the f i r s t  c o n t r a c t was nego-  tiated* TABLE 1 WARTIME: BACON AGREEMENTS WITH THE UNITED KINGDOM ( M i l l i o n pounds)  Minimum c o n t r a c t A c t u a l shipment  1939-40  1940-41  1941-42  1942-43  291.0 331.0  425*6 425.6  600.0 600.0  675.0 675.0  1  1944-45 900.0 1103.8  Canadian d a i r y p r o d u c t s a l s o made an i m p r e s s i v e c o n t r i b u t i o n t o the war e f f o r t .  D u r i n g the y e a r 1939,  t o t a l milk pro-  d u c t i o n i n Canada was estimated a t s l i g h t l y l e s s than 16 b i l l i o n pounds; t h i s was i n c r e a s e d t o a h i g h o f 17.6 b i l l i o n pounds i n 1945.  The 1944 c o n t r a c t f o r cheese c a l l e d f o r shipment o f 150  m i l l i o n pounds; w h i l e shipments f e l l s h o r t of t h i s f i g u r e exports o f b u t t e r t o t h e extent o f 7 m i l l i o n pounds helped t o make up the shortage of the cheese c o n t r a c t .  Shipments o f eggs  r o s e from j u s t over 15 m i l l i o n dozen i n 1941 t o a h i g h o f n e a r l y 90 m i l l i o n dozen i n 1945. Large crops i n 1939 and 1940 and the c u t t i n g o f f o f western European markets i n t h e e a r l y p a r t o f the war r e s u l t e d i n the a accumulation o f / l a r g e s u r p l u s ; o f wheat i n Canada. Under t h e 1  Canada Y e a r Book, 1946, p . 202.  7  Wheat Acreage Reduction Act payments were made to farmers to encourage reduction of wheat acreage i n favor of coarse grains. By 1944, however, there was a strong demand f o r Canadian wheat, and t h i s demand has been substantially maintained to date. The immediate postwar period w i l l be dealt with i n a further chapter i n the discussion of the A g r i c u l t u r a l P r i c e s Support Act, 1944,  1  "An act f o r the support of the prices of  a g r i c u l t u r a l products during the t r a n s i t i o n from war to peace." (2)  Place i n the Economy Agriculture, including stock r a i s i n g and h o r t i c u l t u r e , i s  the most important of the primary industries of Canada.  Accor-  ding to the census of 1941, agriculture employs 25.2 per cent of the g a i n f u l l y employed population and 30.5 per cent of the gainf u l l y occupied males.  A preliminary estimate indicates that  during 1947 Canadian farmers  1  cash returns from the sale of farm  products reached an a l l time recorded high of $1,990.6 m i l l i o n . The revised estimate f o r 1946 i s $1,752.7 m i l l i o n . Total receipts from the sale of l i v e s t o c k i n 1947 are e s t i mated at $590.1 m i l l i o n as against $574.6 m i l l i o n i n 1946. Grains, seeds and hay together yielded a cash income of $654.7 m i l l i o n i n 1947, while vegetables and other f i e l d crops yielded $144.8 m i l l i o n . The current value of fa&a c a p i t a l by provinces f o r 1946 i s shown i n Table 1.  The items included i n the term "farm c a p i t a l  as used i n the table are: 1 2  B  Lands and buildings; implements and  See Chapter 6, Past and Present A g r i c u l t u r a l P r i c e P o l i c i e s . The Canada Year Book. 1948-49, p. 353.  8 machinery, including motor trucks and automobiles; and livestock, including poultry and animals on f u r farms.  The value of lands  and b u i l d i n g s f o r intercensal years i s based on the value of occupied farm lands reported annually by crop correspondents. Annual values of farm Implements and machinery are estimated on the basis of sales reported each year. TABLE 2 CURRENT VALUE OP FARM CAPITAL, BY PROVINCES, 1946 (In millions)  Land and Buildings  Implements and Machinery  Livestock  Total  P.E. Island  42.5  6.0  14.5  63.0  Nova S c o t i a  89.1  11.5  26.4  126.9  New Brunswick  76.6  11.3  26.2  114.1  641.5  85.4  247.8  974.8  1208.7  171.4  401.1  1781.2  Manitoba  337.6  63.8  99.8  501.2  Saskatchewan  892.3  146.9  187.5  1226.8  Alberta  644.5  114.7  183.6  942.8  B r i t i s h Columbia  133.3  16.9  40.9  191.2  Totals  4066.3  628.2  1227.9  5922.4  Quebec Ontario  Source:  The Canada Year Book, 1948-49, p. 355.  Some i n d i c a t i o n of the r e l a t i v e importance of the industry i s given by Table 3.  This table shows the net values of produc-  t i o n by Canadian industries f o r the years 1914-46 i n c l u s i v e . Net production represents t o t a l value under a p a r t i c u l a r  9 heading* l e s s the cost of materials, f u e l , purchased e l e c t r i c i t y and supplies consumed In the productive process* TABLE 3 BET VALUES OP PRODUCTION BY INDUSTRIES, 1941-46. (In m i l l i o n s ) 1941  Industry  1942 $  1943 $  1944 i  1945  1946 *  $  Agriculture  755.7  1361.7  1233.1  1533.8  1269.4  1483.3  Forestry  421.4  429.0  462.3  507.4  550.9  711.0  Fisheries  51.7  64.3  74.7  76.9  103.1  107.9  Trapping  15.1  23.8  21.6  24.0  21.5  31.0  Mining  497.9  514.1  475.5  454.0  413.6  422.0  E l e c t r i c Power  183.1  200.3  200.8  209.8  210.0  220.5  Less duplication i n forest production Totals Primary Production  41.6  47.0  64.0  61.3  64.5  69.2  1883.4  2546.8  2404.5  2744.5  2504.0  2906.7  Construction  269.6  310.9  293.5  249.0  267.9  408.7  Custom & Repair  130.8  141.4  144.9  165.1  178.2  213.3  Manufactures Totals Secondary Production Less d u p l i c a t i o n i n manufactures'  2605.1  3309.9  3816.4  4015.8  3564.3  3467.0  3005.5  3762.3  4254.9  4429.9  4010.4  4088.9  410.3  426.2  410.7  437.0  428.2  518.5  GRAND TOTALS  4478.6  5883.0  6248.7  6737.4  6086.2  6477.1  1  2  1 2  Eliminates d u p l i c a t i o n between agriculture and f o r e s t r y totals. Eliminates d u p l i c a t i o n under manufactures; t h i s item i n cludes items included under other headings.  Source:  The Canada Year Book, 1948-49, p. 1098.  (3)  10  Relative E l a s t i c i t y of Supply i n Expansion  A comparison of tne reaction of agriculture and of manufact u r i n g to tne strong wartime demand i s i n t e r e s t i n g .  With the  outbreak of war; t r a n s i t i o n , tooling and new equipment of manufacturing industries was quickly organized and, by 1941,  the  remarkable gain i n the'net value of these industries over was 70 per cent. i n 1942.  1939  A further increase of 27 per cent took place  The program was advancing toward peak production and  i n 1943 gained another 15 per cent of the preceding year.  By  1944, net value of production had reached $4,015,776,010, which was about $2,073.3 m i l l i o n over 1940,  or a t o t a l percentage i n -  crease of 106.7. During the years 1945 and 1946 there was  a  curtailment of production and the figure of net production f o r the manufacturing  industries i n 1946 dropped about 14 per cent  below that of 1944. 1940  Agriculture was i n a favorable p o s i t i o n i n  as regards g r a i n stocks i n storage; also acreages sown were  at a high l e v e l .  The crop of 1941, however, was l i g h t due to  drought, but the dairying and l i v e s t o c k branches of the industry had expanded r a p i d l y after the outbreak of the war.  Only a  s l i g h t increase i n value of production f o r the a g r i c u l t u r a l i n dustry as a whole was f e l t .  Por 1942 a record y i e l d of grain  and high production of hogs, eggs and cheese for overseas markets brought about an outstanding percentage gain of 30.2 cent over 1941.  per  Net value of a g r i c u l t u r a l production i n 1943  showed a decline of 9.4 per cent f o r that year.  Production  value increased f o r 1944 by 24.4 per cent over 1943,  and r e -  sulted i n the greatest output shown i n any year under review. In the f i r s t few years after the war, food was s t i l l i n great  11  demand and Canadian farmers found markets f o r a l l they could produce.  The net value of a g r i c u l t u r a l production  i n 1945  was  $1,269,362,000, and increased to $1,483,263,000, or by 17 per cent i n 1946. (4)  1  Jurisdiction I t i s provided  i n Section 95 of the B r i t i s h North America  Act that, " i n each province  the Legislature may  make laws i n r e -  l a t i o n to agriculture i n the province"; i t i s also that the Parliament of Canada may  "declared  from time to time make laws i n  r e l a t i o n to agriculture i n any or a l l of the provinces;  and  any  law of the L e g i s l a t u r e of a province r e l a t i v e to agriculture s h a l l have e f f e c t i n and f o r the province  ....  as long and as f a r only  as i t i s not repugnant to any Act of the Parliament of Canada". As a r e s u l t of t h i s provision there exist at the present time Departments of Agriculture with Ministers of Agriculture at t h e i r heads, i n the Dominion and i n the nine provinces. The Dominion Department of Agriculture was 1868  constituted i n  under the authority of 31 V i c t . , c 53, with numerous func-  tions that were by no means purely a g r i c u l t u r a l , i n c l u d i n g : ( l ) agriculture; (2) immigration; (3) public health and quarant i n e ; (4) the marine and immigrant h o s p i t a l at Quebec; (5) arts and manufactures; (6) the census s t a t i s t i c s , and the r e g i s t r a t i o n of s t a t i s t i c s ; (7) patents of invention; (8) copyrights;  (9) Indus  t r i a l designs and trade marks. In the course of time the purely a g r i c u l t u r a l work of the department came to demand greater attention; the non-agricultural 1  The Canada Year Book, 1948-49, p.  1096.  f u n c t i o n s were one by one e n t r u s t e d Government.  12 t o other Departments o f the  The Department of A g r i c u l t u r e i s now h i g h l y  l i z e d within i t s e l f .  By 1949 the Department was d i v i d e d i n t o  f i v e s e r v i c e s ; s c i e n c e , experimental farms, p r o d u c t i o n , and  administration.  branches.  marketing,  Some s e c t i o n s have as many as twelve d i v i -  s i o n s , which are again . s u b d i v i d e d The  specia-  into  sections.  1  p r o v i n c i a l departments of a g r i c u l t u r e have Among the most common a r e :  various  f i e l d crops, d a i r y ,  live-  stock, v e t e r i n a r y , p o u l t r y , a p i a r i e s , f a i r s and i n s t i t u t i o n s , game r e g u l a t i o n s , women's bureau, marketing s e r v i c e s and a g r i cultural  representatives.  Prom time to time farmers i n some p a r t s o f Canada express a desire for provincial t a r i f f s .  The a l l o c a t i o n of powers t o  the f e d e r a l and p r o v i n c i a l governments i n t h i s r e s p e c t was f o r tunate.  Our c o n s t i t u t i o n i s so d r a f t e d as t o e f f e c t i v e l y a v o i d  t h i s creeping  p a r a l y s i s of i n t e r n a l trade.  Any such p r o v i n c i a l  t a r i f f l e g i s l a t i o n would be i n c o m p a t i b l e w i t h S e c t i o n 91, Head 2, o f the B r i t i s h N o r t h America A c t . the powers of P a r l i a m e n t .  S e c t i o n 91 enumerates  Head 2 i s the r e g u l a t i o n o f trade and  commerce.  1 See Dominion o f Canada, Report of t h e M i n i s t e r o f A g r i c u l t u r e , 1949.  (5) The S t r u c t u r e o f the I n d u s t r y  13  The d a t a i n T a b l e 4 I n d i c a t e s the r e l a t i v e importance o f each o f n i n e p r o v i n c e s i n Canadian a g r i c u l t u r e as measured by c a s h income from s a l e o f farm p r o d u c t s . TABLE 4 CASH INCOME FROM THE SALE OF FARM PRODUCTS , BY PROVINCES, FOR SPECIFIED YEARS 1930-47. Year  Prince Edward Island f'OOO  1930.... 1935.... 1940.... 1941.... 1942.... 1943.... 1944.... 1945.... 1946.... 1947 ...  7,323 3,831 7,237 8,551 11,171 14,060 13,734 16,468 17,217 18,978  Year  Manitoba  1  #'000 1930.•.• 1935.... 1940.... 1941.... 1942.... 1943.... 1944.... 1945.... 1946.••• 1947 ... 1  48,312 36,128 64,978 81,648 103,422 146,112 176,815 153,182 170,823 185,893  Nova Scotia #'000 16,242 13,859 17,171 20,064 21,576 25,694 28,008 27,274 34,193 33,098  New Brunswick $»000  Quebec  Ontario  $'000  $'000  12,867 8,847 15,518 19,448 25,172 31,369 33,116 35,604 35,855 38,273  82,781 64,662 120,780 144,963 174,450 200,435 222,562 236,390 251,869 295,824  Saskatchewan  Alberta  British Columbia  $'000  #'000  $'000  $'000  122,393 108,103 150,854 161,955 195,825 327,634 543,689 409,618 399,182 434,104  95,419 98,912 127,192 154,408 168,887 220,447 £38,101 287,922 285,010 345,480  30,266 21,932 28,795 36,600 44,600 57,987 68,136 75,006 85,606 92,679  632,462 511,537 766,066 914,228 1,101,315 1,409,898 1,828,968 1,694,542 1,752,682 1,990,619  216,859 155,263 233,541 286,591 356,203 386,160 404,807 453,078 472,927 546,290 Total  1 S u b j e c t to r e v i s i o n . S o u r c e : The Canada Y e a r Book, 1948-49, p. 354. I n o r d e r o f importance i n 1947 the p r o v i n c e s were:  Ontario  546.3, Saskatchewan 434.1, A l b e r t a 345.5, Quebec 295.8, Manitoba 185.9, B r i t i s h Columbia 92.7, New Brunswick 38.3, Nova S c o t i a 33.1, P r i n c e Edward I s l a n d 19 m i l l i o n s o f d o l l a r s .  * The f o l l o w i n g d a t a , T a b l e  1 4  e x t r a c t e d from a more d e t a i l e d  t a b l e i n The Canada Y e a r Book, 1948-49, i n d i c a t e s the r e l a t i v e Importance o f the major a g r i c u l t u r a l p r o d u c t s . TABLE 5 CASH INCOME FROM SALE OF FARM PRODUCTS, BY SOURCES, 1947. $,000  Item G r a i n Seeds & Havwheat Wheat P a r t i c i p a t i o n Certificates Oats Barley B a r l e y Adjustment Payment < Rye Flax Corn C l o v e r & Grass Seed.• Hay & C l o v e r T o t a l s , G r a i n s , Seeds & Hay • V e g e t a b l e s & Other F i e l d Crops L i v e StockC a t t l e & Calves < Sheep & Lambs • Hogs Horses < Poultry T o t a l L i v e Stock*  347,096 73,822 63,307 67,032 5,299 32,373 45,584 6,258 8,398 5,517 654,686 144,898  $,000  Item  Dairy Products Fruits...... Other P r i n c i p l e Farm P r o d u c t s Eggs Wool Honey Maple P r o d u c t s . . . . . . . T o t a l , Other P r i n c i p l e Farm P r o d u c t s  324,397 48,868  123,585  M i s c e l l a n e o u s & Other.  104,163  103,857 2,573 7,611 9,544  T o t a l Cash Income from Farm Products........1,990,619  255,947 12,627 248,049 7,639 65,812 590,074  ± Cash Income From S a l e of Farm P r o d u c t s , Canada Y e a r Book, 1948-49, pp. 354. I n terms o f cash income from s a l e s of farm p r o d u c t s , wheat i s the s i n g l e most important commodity.  Cash income from wheat  and p a r t i c i p a t i o n c e r t i f i c a t e s i n 1947 was $383.1 m i l l i o n . D a i r y p r o d u c t s f o l l o w e d w i t h $324.4 m i l l i o n , c a t t l e and c a l v e s a t $255.9 m i l l i o n and hogs a t $248 m i l l i o n were t h i r d and f o u r t h respectively.  When the commodities are d i v i d e d i n t o main groups  they arrange themselves  i n the orderJ. t o t a l g r a i n s , seeds  and  hay #654.7 m i l l i o n , t o t a l l i v e s t o c k #590 m i l l i o n , v e g e t a b l e s and other f i e l d c r o p s #144.8 m i l l i o n . The Average Canadian wheat crop (about 95 p e r cent of which i s grown i n the P r a i r i e P r o v i n c e s ) f o r the t e n year p e r i o d 1929-38,was 309 m i l l i o n b u s h e l s . war y e a r s , 1939-45, was farmers produce  The average  439 m i l l i o n b u s h e l s .  crop f o r the s i x Though Canadian  l e s s than 10 p e r cent of the world wheat supply,  approximately t w o - t h i r d s of t h e i r p r o d u c t i o n accounted f o r 35-40 per cent of the world t r a d e i n wheat i n the l a t e 1 9 3 0 s . f  The f o r e g o i n g s t a t i s t i c s a l l p o i n t to one obvious c o n c l u s i o n . The p r a i r i e eeonomy, based l a r g e l y on wheat, i s the g r e a t e s t s i n g l e producer of a g r i c u l t u r a l income. v i n c e s produced  I n 1947  the P r a i r i e P r o -  approximately $965.5 m i l l i o n i n cash farm income  from s a l e of farm p r o d u c t s , or s l i g h t l y l e s s than one-half o f the Canadian (6)  t o t a l o f $1,990.6 m i l l i o n .  F l e x i b i l i t y of the P r a i r i e Economy The d a t a i n the above t a b l e s i n d i c a t e t h a t the P r a i r i e P r o -  v i n c e s produce by f a r the l a r g e s t p a r t of the wheat i n Canada. T h i s p r a i r i e produced wheat r e p r e s e n t s the major share of Canadian a g r i c u l t u r a l exports.  The p r i c e s of s t a p l e exports are  s u b j e c t to g r e a t v a r i a b i l i t y due demand.  to changes i n world supply and  The r e s u l t i n g changes i n wheat p r i c e s have s e r i o u s  1 B r i t n e l l , G. E., & Fowke, V. C , Development of Wheat Mark e t i n g P o l i c y i n Canada, J o u r n a l of Farm Economics, ( h e r e a f t e r r e f e r r e d t o as J F E ) , Nov. 1949, p. 627.  r e p e r c u s s i o n s i n the p r i c e s of other Canadian farm p r o d u c t s *  16  Such changes w i l l r e s u l t even i f the other p r o d u c t s are s o l d l a r g e l y or even w h o l l y i n the domestic market* The domestic market f o r a g r i c u l t u r a l products i s u s u a l l y rather i n e l a s t i c *  Where there i s l i t t l e  t i c u l a r commodity produced  or no s u r p l u s of a p a r -  f o r export, the p r i c e w i l l  an e q u i l i b r i u m i n the domestic market*  establish  T h i s p r i c e may, i n a  p e r i o d o f d e c l i n i n g export markets, be h i g h r e l a t i v e to the p r i c e of  wheat which p r i c e depends upon the export market*  f e r e n t i a l would tend t o r e s u l t i n a temporary i n t o the p r o d u c t i o n of coarse g r a i n s and  r e s o u r c e s so t r a n s f e r r e d * of  p r e v i o u s l y domestic  1  f o r most of the  Even a s m a l l a d d i t i o n to the supply  consumption p r o d u c t s would r e s u l t i n the  e x i s t e n c e of export s u r p l u s e s * to  surge of r e s o u r c e s  livestock.  T h i s r e a l l o c a t i o n would be o n l y temporary  This d i f -  As soon as i t became necessary  e x p o r t , the domestic p r i c e would be a d j u s t e d to the export  price. The d a t a i n Table 6 suggest t h a t t h i s happened.  They are  not c o n c l u s i v e . The c o i n c i d e n c e of a prolonged drought on the p r a i r i e s would tend t o d i s t o r t producers' normal r e a c t i o n s . Depending m a i n l y upon the nature of the product, the t e n dency over the p e r i o d was substantially.  f o r Saskatchewan p r o d u c t i o n to i n c r e a s e  I n the same p e r i o d i n B r i t i s h Columbia,  milch  cows, other c a t t l e and swine reached t h e i r peak i n e i t h e r or  1930,  then f e l l  off rapidly.  i n d u s t r y continued t i l l  1931.  1929  Expansion i n the B.C.  poultry  I n t h a t year i t f e l t the  full  1 See L a t t i m e r , J . E., "Wheat i n Canadian A g r i c u l t u r e " , S c i e n t i f i c A g r i c u l t u r e , Feb. 1938, p. 289-299.  17 p r o d u c t i o n and d e c l i n i n g world mar-  e f f e c t o f the l a r g e p r a i r i e kets.  Prom 1931 t o 1932 the B.C. p o u l t r y p o p u l a t i o n was reduced  f r o m 4,409 thousand t o 3437.2 thousand b i r d s .  In that year  Saskatchewan had added another 96.2 thousand b i r d s . relatively  T h i s was a  s m a l l i n c r e a s e compared t o the 2 m i l l i o n b i r d s added  from 1930-31.  The t r a n s f e r o f p r a i r i e r e s o u r c e s i n t o p o u l t r y  was s l o w i n g down. TABLE 6 NUMBERS OP LIVESTOCK AND POULTRY IN SASKATCHEWAN AND BRITISH COLUMBIA, 1928-1932 ('000) Year  1928  1929  1930  1931  1932  429 117.6  424 76  453.6 115.2  785.9 273.4  764 170  874 141.8  497.9 64.7  940.4 51.9  898 51.7  M i l c h Cows British  Columbia....  418.5 101.2  420 111.9  Other C a t t l e B r i t i s h Columbia* * * *  762.9 283.9  746.9 291.8 Swine  British  Columbia*...  602.2 53.7  599.9 63.1  Poultry British  Columbia.•••  8450.3 3747.3  9302.4 3934.6  9507 3650  11507 4409  11603.2 3437.2  D a t a o b t a i n e d from L i v e s t o c k & Animal P r o d u c t s S t a t i s t i c s , Dominion Bureau o f S t a t i s t i c s , 1932, p . 13.  18 Canada's experience d u r i n g World War  II i n a deliberate  program o f making such s h i f t s i n d i c a t e s much more c l e a r l y what can happen when the e x i s t i n g r e l a t i o n s h i p s of c o s t s and p r i c e s of v a r i o u s products are  altered. TABLE 7  ACREAGE AND PRODUCTION OF SPECIFIED FIELD CROPS IN THE PRAIRIE PROVINCES, 1939-44* ( I n m i l l i o n acres) Acreages  Flaxseed...  1939  1940  1941  1942  1943  1944  25.81 8.23 3.60 1.01 .30  27.75 7.81 3.62 .94 .36  21.55 9.30 4.88 .99 .94  20.65 9.67 6.41 1.25 1.47  16.09 11.79 7.90 .50 2.92  22.44 10.45 6.76 .57 1.30  (In m i l l i o n Product!on  Flaxseed.•.  bushels)  1939  1940  1941  1942  1943  1944  494.0 213.5 81.0 13.7 1.9  525.0 229.0 83.0 12.2 2.9  282.0 211.0 99.0 11.7 6.3  528.4 500.0 241.0 23.0 14.7  267.0 392.0 204.0 5.9 17.6  428.3 392.1 182.8 6.9 9.4  & Q u a r t e r l y B u l l e t i n o f A g r i c u l t u r a l S t a t i s t i c s , October and December, 1941, p . 249; October 1942-March 1944, p. 41; October-December, 1944, p . 144. Quoted i n Fowke, V. C , Economic E f f e c t s o f the War on the Canadian Economy, J o u r n a l o f The Canadian P o l i t i c a l S c i e n c e A s s o c i a t i o n , V o l . I I , August 1945, p. 373-387. From 1940  to 1943  the wheat acreage was  though h a l f t h a t r e d u c t i o n was acreage  r e s t o r e d i n 1944.  i n c r e a s e d by 63 per c e n t from 1940  somewhat i n 1944.  By 1942  cut by 42 per  cent,  Coarse g r a i n s  to 1943,  but d e c l i n e d  the P r a i r i e P r o v i n c e s were p r o v i d i n g  60 p e r cent o f Canadian hog s l a u g h t e r i n g s as compared w i t h 40 per cent of prewar y e a r s . 1  P a t t o n , H. S., "Wartime Wheat P o l i c y i n Canada", JFE Nov. 1942, p. 784.  By 1942  A l b e r t a had a g r e a t e r hog p o p u l a t i o n than O n t a r i o ,  w h i l e Saskatchewan f o l l o w e d c l o s e b e h i n d .  The wartime change  from g r a i n t o mixed farming on the p r a i r i e s was producer's response  t o changing  substantially a  cost-price relationships*  CONCLUSION: T h i s a n a l y s i s has shown t h a t there i s a r e l a t i v e l y h i g h e l a s t i c i t y of s u b s t i t u t i o n between the p r o d u c t i o n of wheat and mixed f a r m i n g .  I f t h e r e i s a s e r i o u s f a l l i n export p r i c e s f o r  Canadian wheat which i s not accompanied by a s i m i l a r p r i e e f a l l for  other farm p r o d u c t s , p r a i r i e farmers w i l l be w i l l i n g  able to t r a n s f e r r e s o u r c e s t o p r o d u c t i o n of those p r o f i t a b l e products.  and  relatively  The r e s u l t i n g i n c r e a s e i n supply of  p r o d u c t s which have an i n e l a s t i c demand w i l l tend t o f o r c e t h e i r p r i c e s down to v e r y low If  levels.  t h i s i s t r u e i t has e x c e e d i n g l y important p r i c e p o l i c y  implications.  The t h r e a t of low wheat p r i c e s hangs l i k e a sword  over the r e s t of Canadian a g r i c u l t u r e .  I n the absence o f p r o -  d u c t i o n c o n t r o l s , e f f o r t s t o s u b s i d i z e the producers of hogs, eggs and p o u l t r y , or o t h e r l i v e s t o c k , through the p r i c e system d u r i n g a p e r i o d of low wheat p r i c e s would almost c e r t a i n l y in  result  s u b s t a n t i a l s h i f t s t o these p r o d u c t s i n the p r a i r i e economy.  20 CHAPTER 2  THE  INCOME PROBLEM:  CHROMIC LOW  INCOME  Perhaps the g r e a t e s t paradox of the modern world i s the phenomenon on the one hand of m i l l i o n s of people  inadequately  f e d , and on the other of e x p o r t i n g c o u n t r i e s threatened w i t h s u r p l u s food s u p p l i e s .  The huge s t o c k p i l e s of the 1930's which-  plagued N o r t h and South American c o u n t r i e s were w h i l e people i n those c o u n t r i e s themselves food and other n e c e s s a r i e s .  accumulated  o f t e n went s h o r t of  There i s l i t t l e i f any evidence t o  show t h a t the l o n g awaited  "marriage  of food and  agriculture"  i n the P.A.O. has produced  or w i l l produce a s o l u t i o n t o the  problem. The  s t r o n g postwar demand, much of which has been supported  by Canadian and American government l o a n s and more r e c e n t l y by American E.R.P., has tended t o h i d e the u n d e r l y i n g d i s e q u i l i b r i u m between world supply and e f f e c t i v e demand f o r a g r i c u l t u r a l p r o ducts.  (For example, almost  a l l of Canada's c r e d i t balance  t r a d e w i t h overseas c o u n t r i e s i n 1946 was advances by the Canadian Government. i n 1946,  from  f i n a n c e d by l o a n s and  These l o a n s and  advances  t o g e t h e r w i t h o f f i c i a l c o n t r i b u t i o n s f o r r e l i e f and a i d ,  t o t a l l e d about $954,000,000.) The  second p r o p o s i t i o n of the D e c l a r a t i o n i n the " F i n a l A c t "  of the Hot S p r i n g s Conference  stated:  " I t i s u s e l e s s t o produce more food u n l e s s men  and n a t i o n s  1 Dominion Bureau of S t a t i s t i c s , Canada 1949, The O f f i c i a l Handbook of P r e s e n t C o n d i t i o n s and P r o g r e s s , Ottawa, p. 224.  p r o v i d e the markets t o absorb i t *  There mast be an expansion  21 of  the whole world economy to p r o v i d e the purchasing power s u f f i c i e n t t o m a i n t a i n an adequate d i e t f o r a l l * in  With f u l l  employment  a l l c o u n t r i e s , e n l a r g e d i n d u s t r i a l p r o d u c t i o n , the absence of  e x p l o i t a t i o n , an i n c r e a s i n g f l o w of trade w i t h i n and between c o u n t r i e s , and investment  o r d e r l y management of domestic  and  international  and c u r r e n c i e s and s u s t a i n e d i n t e r n a l and i n t e r n a -  t i o n a l economic e q u i l i b r i u m , the food which i s produced can be made a v a i l a b l e to a l l p e o p l e . "  1  The framers  of t h i s  statement  a p p a r e n t l y do expect the r e c u r r e n c e of food and f i b r e s u r p l u s e s . (l)  The Long-Run S i t u a t i o n P r o f . T. ¥. S c h u l t z , i n h i s " A g r i c u l t u r e i n an Unstable o  Economy,  d e s c r i b e s the long-run s i t u a t i o n as one c h a r a c t e r i z e d  by a "slowing down i n the growth of demand f o r farm and an " a c c e l e r a t i o n i n the growth of supply".  products"  V i t h only s l i g h t  m o d i f i c a t i o n s the a n a l y s i s a p p l i e s e q u a l l y w e l l to Canadian as to  American c o n d i t i o n s . (i)  Slowing Down i n Growth of Demand (a)  S l a c k e n i n g of Increase i n P o p u l a t i o n The f i r s t  of  demand S c h u l t z f i n d s t o be a s l a c k e n i n g i n the i n c r e a s e i n  population* for  major cause of the slowing down i n growth  F i g u r e 1 i n d i c a t e s the expected p o p u l a t i o n trends  the U n i t e d S t a t e s and Northwestern and C e n t r a l Europe*  1 The 1943 Hot SpringsConference on Food and A g r i c u l t u r e grew out of a movement i n i t i a t e d by the League of N a t i o n s . It res u l t e d i n s e t t i n g up of a Food and A g r i c u l t u r e O r g a n i z a t i o n (F.A.O.) of the U n i t e d N a t i o n s d e d i c a t e d to the t w o - f o l d object i v e of making a g r i c u l t u r e more prosperous and at the same time p r o v i d i n g b e t t e r food and n u t r i t i o n the world over. 2 S c h u l t z , T. ¥., A g r i c u l t u r e i n an U n s t a b l e Economy. McGrawH i l l , New York, 1945.  3 o  260 Forth Western & 240 "Central Europe 220 200  260 240 220 200  180  180  160  160 140 9 o 120^  140 120 United States  100  41  ioo g  80 60  SO 60  40  40  20 1900  4 20 1910  1920  1930 1940 Years  1950  1960  1970  Estimates Ignore war and international migration. •National Be sources Planning Board: Thompson and Welpton's Medium F e r t i l i t y , Medium Mortality Estimates. FIGURE 1 - P o p u l a t i o n trends f o r Northwestern and C e n t r a l Europe and U.S.A., observed 1900-1940 and p r o j e c t e d 1940-70. R e p r i n t e d i n Food F o r The World. I t should be noted t h a t t h i s p r o j e c t i o n o f the trend o f population  growth i n the U n i t e d S t a t e s has not f a r e d too w e l l i n  the l i g h t o f postwar p o p u l a t i o n f i g u r e s .  Joseph S. D a v i s  2  argues  t h a t t h e domestic demand f o r American farm produce w i l l be much g r e a t e r than S c h u l t z has e s t i m a t e d . ever, D a v i s r e s e r v e s judgment.  3  As f o r f o r e i g n demand, how-  I f the g e n e r a l l y accepted  predic-  t i o n s of f u t u r e U.S. p o p u l a t i o n growth are s u b s t a n t i a l l y under1 Food F o r The World, E d i t e d by S c h u l t z , T. W., U n i v e r s i t y o f Chicago P r e s s , 1945, P o p u l a t i o n ; T h e Long View by Frank W. Notest e i n , p . 36-57. 2 D a v i s , J . S., "Our Amazing P o p u l a t i o n Upsurge", J F E , P r o ceedings Number, Nov. 1949, p . 765-778. 3 S c h u l t z , T. W., A g r i c u l t u r e i n an U n s t a b l e Economy, esp. chap. i i i .  estimated tic.  the outlook f o r Canadian a g r i c u l t u r e i s l e s s p e s s i m i s -  I f , however, the American Government c o n t i n u e s to s u b s i d i z e  p r o d u c t i o n of farm p r o d u c t s f o r export, p o p u l a t i o n growth w i l l matter  little.  The  trend of p o p u l a t i o n growth i n Canada as estimated •by the  Dominion Bureau of S t a t i s t i c s i s shown i n F i g u r e  2.  N o t e s t i e n has c l a s s i f i e d the p o p u l a t i o n s of the world  into  t h r e e g e n e r a l growth t y p e s : 1. southern  I n c i p i e n t D e c l i n e - The p o p u l a t i o n s of and  northwestern,  c e n t r a l Europe, N o r t h America, A u s t r a l i a and  Zealand, may  New  a l l be c h a r a c t e r i z e d as those of i n c i p i e n t d e c l i n e .  I n a l l of them o n l y immigration in fertility  can prevent  or the r e v e r s a l of r e c e n t  trends  the v i r t u a l t e r m i n a t i o n of growth w i t h i n  a generation. 2. is  T r a n s i t i o n a l Growth - The  stage of t r a n s i t i o n a l growth  t h a t i n which the d e c l i n e of both f e r t i l i t y  and m o r t a l i t y i s  w e l l e s t a b l i s h e d , but i n which the d e c l i n e i n m o r t a l i t y precedes t h a t of f e r t i l i t y  and produces r a p i d growth.  e a s t e r n Europe are n e a r i n g the end S o v i e t U n i o n and of Japan and are i n mid 3.  The p o p u l a t i o n s  of  of t h i s stage; those of the  of c e r t a i n Latin-American  countries  course.  High Growth P o t e n t i a l - More than h a l f the world's popu-  l a t i o n has not begun i t s p e r i o d of t r a n s i t i o n a l growth. and b i r t h r a t e s remain c l o s e t o pre-modern standards, r a t e s have s c a r c e l y begun to d e c l i n e .  Death  and  birth  T h e r e f o r e , they may  c l a s s i f i e d as p o p u l a t i o n s w i t h h i g h growth p o t e n t i a l s .  be  Egypt,  C e n t r a l A f r i c a , much of the Near E a s t , v i r t u a l l y a l l of A s i a outs i d e t h e S o v i e t Union and  Japan, the i s l a n d s of the P a c i f i c  and  those of the Caribbean, and much of C e n t r a l and South f a l l i n this  America  class.  The o v e r - a l l r e l a t i o n s h i p between world p o p u l a t i o n and demand f o r farm p r o d u c t s has been summed up by B l a c k .  1  "The  s l a c k e n i n g o f i n c r e a s e i n p o p u l a t i o n a p p l i e s t o o n l y about  one-  h a l f of the e a r t h ' s p o p u l a t i o n , but the other h a l f i s too poor to buy the ever i n c r e a s i n g food s u p p l i e s . " (b)  Low Income E l a s t i c i t y of Demand The second cause o f the slowing growth of demand  i s the low income e l a s t i c i t y of demand f o r farm p r o d u c t s .  The  income e l a s t i c i t y of demand i s a measure of the r e l a t i o n between changes i n income and changes i n the use o f income.  I t i s the  r a t i o between the r e l a t i v e i n c r e a s e i n consumption of a product and the r e l a t i v e i n c r e a s e i n income w i t h other f a c t o r s remaining c o n s t a n t . * Income e l a s t i c i t y of demand i s s i g n i f i c a n t as an i n d i c a t o r of what i s happening  t o demand f o r farm p r o d u c t s under the  c o n d i t i o n of i n c r e a s i n g r e a l income. The r e s u l t s of most of the a v a i l a b l e analyses upon consumer expenditure d a t a i n d i c a t e an income e l a s t i c i t y of demand f o r farm p r o d u c t s i n Canada and the U n i t e d S t a t e s between 0.4 and 0.1. S c h u l t z accepts 0.25 as an a p p r o x i m a t i o n .  3  1 B l a c k , John Donald and K i e f e r , Maxine Enlow, Future Pood and A g r i c u l t u r e P o l i c y , Hew York, McGraw-Hill. 2 F o r example, when t f a m i l y a c q u i r e s 10 p . c . more income and expends the a d d i t i o n a l income i n such a way that the o u t l a y of the f a m i l y f o r a p a r t i c u l a r product i n c r e a s e s 10 p . c , the r a t i o i s 1:1. A c c o r d i n g l y the r a t i o i s u n i t y . I f , however, the i n crease i n income of 10 p . c . r e s u l t s i n an i n c r e a s e of more than 10 p . c . i n o u t l a y , the income e l a s t i c i t y of demand f o r t h a t p r o duct i s s a i d t o be g r e a t e r than u n i t y and i s r e f e r r e d to as " e l a s t i c " , or " h i g h i n e l a s t i c i t y " . 3 S c h u l t z , T. ¥., A g r i c u l t u r e i n an Unstable Economy, p. 68.  25  The  income e l a s t i c i t y of demand f o r food i n England has been  estimated  by C l a r k  1  as f a l l i n g w i t h i n the range 0.4  to 0.7.  It  should be noted t h a t these e l a s t i c i t i e s are c a l c u l a t e d at the r e tail level.  They t h e r e f o r e i n c l u d e some a d d i t i o n a l s e r v i c e s  and  wrappings so t h a t income e l a s t i c i t y of demand at the farm l e v e l would be  somewhat lower.  (ii)  A c c e l e r a t i o n i n Growth of Supply (a)  The  Technological Revolution i n Agriculture.  The  t h i r d major f a c t o r c o n t r i b u t i n g to  unequal growth of supply i n progress  and demand i s the t e c h n i c a l r e v o l u t i o n  i n a g r i c u l t u r a l production.  wheat c u l t u r e , f a l l ploughing adaptations  Around 1900,  l a r g e s c a l e use  These techniques  of t r a c t o r s and  p r o p e l l e d combines.  One  spring  and summer f a l l o w i n g were the major  to the s e m i - a r i d c o n d i t i o n s and  season of the p r a i r i e s .  the s h o r t growing  were f o l l o w e d by  t r u c k s , and l a t e r by  the  self-  of the most important t e c h n o l o g i c a l  developments w i t h i n the l a s t twenty y e a r s has been the t i o n of r u s t r e s i s t a n t v a r i e t i e s of wheat. r e s i s t a n t wheat has  the  A solid  introduc-  stem  saw-fly  a l s o come i n t o use d u r i n g the l a s t few  years  i n p a r t s of the p r a i r i e s g e n e r a l l y s u b j e c t to saw-fly damage. Some i n d i c a t i o n of the magnitude of the changer; i n i n v e n t o r i e s of farm machinery i n Canada d u r i n g the p e r i o d 1921 is  g i v e n by the f o l l o w i n g f i g u r e s .  per 100  farms i n 1946.  1946  T r a c t o r s on farms i n c r e a s e d  by 112,676 (292.8 per cent) from 1921 o n l y 15 t r a c t o r s per 100  to  t o 1946.  farms i n 1921,  While there were  there were 56 t r a c t o r s  Automobiles and motor t r u c k s on farms  i n c r e a s e d from 73,359 i n 1921  to 184,077 i n 1946.  Farms i n  1 C l a r k , C o l i n , The C o n d i t i o n s of Economic P r o g r e s s , M a c M i l l a n and Co., L i m i t e d , S t . M a r t i n s S t r e e t , London.  p.  443,  26 possession of a car or motor, truck increased by 159*0 per cent i n 1946  as compared with 1921*  While there were 20*9 per cent fewer  grain binders and 13.9 per cent fewer threshing machines on farms i n 1946  than i n 1931,  the number of grain combines increased  336.9 per cent during the f i f t e e n years: combines to every 1,000  farms.  In 1946  there were 144  1  Technological improvements i n agriculture a f f e c t the e f f i ciency of labor and the t o t a l quantity of farm products produced* I f the movement of machinery and equipment i n t o agriculture i s accompanied by a corresponding outward movement of labor, the r e s u l t i s a somewhat greater net product from about the same amount of the f a c t o r s of production.  I f the outward movement of labor  does not occur, technological Improvement r e s u l t s not only i n i n creased labor e f f i c i e n c y , but an increase i n the t o t a l quantity o f f a c t o r s of production i n agriculture*  Given an i n e l a s t i c de-  mand, the increase i n supply of farm products w i l l r e s u l t i n lower returns to labor* (b)  High Rural B i r t h Rates* In addition to the three major factors above we  f i n d the phenomenon of high r u r a l b i r t h rates*  Table 8 indicates  that workers i n primary i n d u s t r i e s are the most p r o l i f i c .  As a  part of this group farmers have a mean standardized f e r t i l i t y rate of over double that of p r o f e s s i o n a l workers.  This excess  f e r t i l i t y contributes to the always overflowing pool of a g r i c u l t u r a l labor. 1  The Canada Year Book, 1948-49, p.  392.  27 TABLE 8 FERTILITY BY OCCUPATION - TYPE CLASS Mean s t a n d a r d i z e d number of c h i l d r e n ever born to married women by occup at i o n - t y p e c l a s s of husband. OccupationType C l a s s  Mean S t a n d a r d i z e d F e r t i l i t y Rate  I II III IV V VI VII VIII IX  Professional Clerical Trade & Finance Public Service Personal Service T r a n s p o r t & Communication Manufacturing & Mechanical Construction L a b o r e r s (not i n primary occupations) X P r i m a r y Occupations Farmers , Source:  (2)  2.02 2.21 2.39 2.82 2.84 2.98 3.11 3.35 3.98 4.54 4.29  O c c u p a t i o n a l D i f f e r e n c e s i n F e r t i l i t y , Dominion Bureau of S t a t i s t i c s B u l l e t i n No. F-3.  A g r i c u l t u r e ' s Share of the N a t i o n a l Income Applying  the S c h u l t z a n a l y s i s to. Canada we would expect to  f i n d a g r i c u l t u r e as an i n d u s t r y r e c e i v i n g a d i s p r o p o r t i o n a t e l y s m a l l share of the n a t i o n a l income.  Widespread p u b l i c i t y , accom-  p a n i e d by c o n f u s i o n and misuse, has been g i v e n to the d a t a from the r e p o r t of a s p e c i a l committee of The R o y a l Commission on Dominion-Provincial  Relations.  The  i n t e r p r e t a t i o n of t h i s  by farm l e a d e r s has g i v e n r i s e to the slogan, "a f a i r  data  share  the n a t i o n a l income f o r a g r i c u l t u r e " . Such statements as  of  those  s a y i n g t h a t a g r i c u l t u r e , w i t h about a t h i r d of the p o p u l a t i o n i n Canada,obtained only 17.8  per cent of the n a t i o n a l income i n  1926,  and 15 per cent i n 1940  5 p e r cent i n 1932,  t o 1942  have  become commonplace. E . C. Hope has  analysed  the p o s i t i o n of a g r i c u l t u r e i n the  Canadian .economy as r e v e a l e d income. by  by the p u b l i s h e d  d a t a on  Hope has made f o u r adjustments i n the d a t a as  1  reported  the R o y a l Commission: 1.  Adjustments f o r r e t a i l value of income i n k i n d ;  2.  adjustments f o r n o n - a g r i c u l t u r a l income earned farmers;  3.  o  4.  by  adjustments f o r wages of l a b o r engaged i n a g r i culture; adjustments f o r wheat bonuses, P.F.A., P.F.I., and W.A.R.  From the adjusted  d a t a he  concludes that*  " I t would appear on  f a c e of the d a t a used i n t h i s a n a l y s i s t h a t s i n c e 1926 has  28  national  not i n any year r e c e i v e d i t s p r o p o r t i o n a t e 2  t i o n a l income".  He  permanent b i a s of about 4 per  agriculture  share of the  suggests that t h i s r e s u l t i s due  na-  e i t h e r to a  cent i n the c a l c u l a t i o n of  c u l t u r e ' s share of the n a t i o n a l income, or to some s m a l l g i b l e v a l u e or p s y c h i c  the  agriintan-  Income p e r t a i n i n g to a g r i c u l t u r e , which  b a l a n c e s the p a r i t y e q u a t i o n but which cannot be measured i n monetary terms. The  f a i l u r e , by  a wide margin, of some r e g i o n s  to a t t a i n a  p r o p o r t i o n a l income i n a g r i c u l t u r e he a t t r i b u t e s to r e l a t i v e l y large populations farms.  No  i n these areas and  a l a r g e number of  small  attempt i s made i n the a n a l y s i s to e x p l a i n the  bias  as a r e s u l t of an excess of l a b o r i n the whole i n d u s t r y r e l a t i v e to the r e s t of the economy.  I t appears reasonable to conclude  t h a t the p e r s i s t e n t b i a s noted by Hope i s an i n d i c a t i o n t h a t  the  1 Hope, E . C , " A g r i c u l t u r e ' s Share of the N a t i o n a l Income", Canadian J o u r n a l of Economics and P o l i t i c a l Science,9:384-393,1943. 2 I b i d , p. 391. 3 For a c r i t i c a l comment on the a n a l y s i s see Burton, G. L., " A g r i c u l t u r e ' s Share of the N a t i o n a l Income: A Comment?, Canadian J o u r n a l of Economics and P o l i t i c a l S c i e n c e , 10: 206-209, 1944. 1  p r i c e system i s o p e r a t i n g  i n the u s u a l way to b r i n g about a  29  t r a n s f e r o f l a b o r from a g r i c u l t u r e to other i n d u s t r i e s . The  phenomenon of d i f f e r e n t r a t e s of r e t u r n t o l a b o r i n  a g r i c u l t u r e than i n the r e s t of the economy i n Canada i s n o t unique.  C l a r k has s t a t e d t h a t , " G e n e r a l l y  speaking->.-*>• through-  out the world, except i n A u s t r a l i a and Hew Zealand, the d i s c r e p ancy between i n d u s t r i a l and r u r a l wages i s t e n d i n g r a p i d l y to widen.  I n U.S.A. and Canada t h i s d i s c r e p a n c y  fantastic.  has now become  *.#»• the r a t e of movement o f l a b o r away from a g r i -  c u l t u r e i s as r a p i d as ever, but i t can only be concluded t h a t the r e l a t i v e d e c l i n e i n the demand f o r a g r i c u l t u r a l l a b o r has been even more r a p i d s t i l l . crease  T h i s i s due mainly t o the g r e a t i n -  i n the volume of output per worker i n a g r i c u l t u r e (which  has been g r e a t e r than i n i n d u s t r y )  faced w i t h a v i r t u a l l y  s t a t i o n a r y demand f o r a g r i c u l t u r a l p r o d u c t s . " (3)  1  The T r a n s f e r Problem Since  i t i s d e s i r a b l e from the p o i n t o f view of the economy  as a whole t o encourage r a t h e r than t o d i s c o u r a g e advances i n labor-saving  technology f o r a g r i c u l t u r e , and s i n c e farm people  f o r many y e a r s t o come are l i k e l y to have a very  considerable  n a t u r a l i n c r e a s e i n t h e i r numbers, and inasmuch as the growth of demand i s l i k e l y to be l e s s f o r farm products than i t i s f o r goods and  s e r v i c e s of other producers  the primary adjustment t h a t  i s n e c e s s a r y t o approach an e q u i l i b r i u m i s the m i g r a t i o n o f people out of a g r i c u l t u r e i n t o secondary and t e r t i a r y i n d u s t r i e s . Thus we have a t r a n s f e r problem.  What i s necessary i s a r e d i s -  t r i b u t i o n of the working p o p u l a t i o n 1  C l a r k , C o l i n , The C o n d i t i o n s  to r e l i e v e a g r i c u l t u r e o f the  o f Economic P r o g r e s s ,  p . 230.  excess supply for  of l a b o r engaged i n , and dependent upon,  farming  30  i t s income. . — the economic answer t o a g r i c u l t u r a l poverty i s  ti mobility:  the e a s i e r the ' f l i g h t  out o f a g r i c u l t u r e ' , which i s  the i n e v i t a b l e accompaniment of a g r i c u l t u r a l p r o g r e s s ,  the l e s s  u n a t t r a c t i v e w i l l a g r i c u l t u r e have t o be r e l a t i v e t o i n d u s t r y i n order t o accomplish the o b j e c t of the r e l a t i v e u n a t t r a c t i v e n e s s to d r i v e r e s o u r c e s The  out of a g r i c u l t u r e . "  1  f o r c e s t h a t determine the supply and earnings  of a g r i -  c u l t u r a l l a b o r are a t the r o o t o f the farm income problem. higher  The  than average b i r t h r a t e among farm p e o p l e , and the d i f f i -  c u l t y of m i g r a t i o n  r e s u l t i n an excess supply  o f farm l a b o r .  T h i s excess i s f u r t h e r i n c r e a s e d i n p e r i o d s of i n d u s t r i a l unemployment by a r e d u c t i o n , i f not c e s s a t i o n , of normal and  migration  a tendency f o r a r e v e r s e f l o w of urban unemployed seeking to  r i d e out the d e p r e s s i o n  on farms.  The comparative earnings o f  those employed i n a g r i c u l t u r e depend upon the r a t e a t which new l a b o r - s a v i n g technology i s i n t r o d u c e d ,  the p a t t e r n of change i n  demand f o r d i f f e r e n t p r o d u c t s accompanying i n c r e a s e d consumer income, and the percentage o f the p o p u l a t i o n dependent upon a g r i culture . In p e r i o d s when a g r i c u l t u r a l output i s growing f a s t e r than the p o p u l a t i o n , or a t l e a s t than the purchasing  power of the  p o p u l a t i o n , farm p r o d u c t s are cheap and i n d u s t r i a l goods and s e r vices high.  I t i s common t o say i n such a p e r i o d t h a t the "terms  of t r a d e " are a g a i n s t a g r i c u l t u r e .  When the terms of trade are  a g a i n s t a g r i c u l t u r e the obvious way o f g e t t i n g i n t o good balance 1 B o u l d i n g , K. E . , Economic A n a l y s i s and A g r i c u l t u r a l P o l i c y , Canadian J o u r n a l of Economics and P o l i t i c a l S c i e n c e , 1947, p . 436.  w i t h the r e s t of the economy i s t o expand the output o f i n d u s t r i a l goods and s e r v i c e s w i t h an accompanying s h i f t of  the p o p u l a t i o n from the farm to the c i t i e s .  31  of a f r a c t i o n  1  The b a s i c l o n g - r u n s i t u a t i o n i s t h a t there are too many people i n a g r i c u l t u r e and not enough machinery and equipment. In  consequence farm people pay too many b u s h e l s of wheat or  hundredweights of meat or m i l k f o r the producer and consumer goods they buy from the c i t i e s . 1 B l a c k , J . D., and K i e f e r , M. E . , Future Food and A g r i c u l t u r e P o l i c y . New York, McGraw-Hill Book Co., 1948, p . 80.  32 0  CHAPTER 3  FARM INCOME INSTABILITY" V i o l e n t f l u c t u a t i o n s i n income are c h a r a c t e r i s t i c of Canadian primary i n d u s t r i e s . occur due  Income f l u c t u a t i o n s i n  to three main causes:  (2) v a r i a t i o n s i n demand; and  (l) Variations  agriculture  i n supply;  1  (3) p r o d u c t i o n i n s t a b i l i t y of  the  Variations  i n Supply  Variations  i n supply of Canadian a g r i c u l t u r a l p r o d u c t s  are  i n d i v i d u a l farm or a r e a , (l)  most s e r i o u s  i n the p r o d u c t i o n of the P r a i r i e P r o v i n c e s .  Manitoba, Saskatchewan and A l b e r t a farm p r o d u c t i o n and show wide f l u c t u a t i o n s .  The  climate  and  s o i l are  In  income  such t h a t  the  hazards of a g r i c u l t u r e , coupled w i t h a h i g h degree of monocult u r e , r e s u l t i n l a r g e v a r i a t i o n s i n y i e l d s of wheat and  coarse  grains • Physical E . C. Hope  2  factors a f f e c t production very d r a s t i c a l l y .  r e f e r s to two  prolonged p e r i o d s of drought i n  P r a i r i e P r o v i n c e s s i n c e 1813  - one  from 1929  to 1937.  A t h i r d period  to 1848.  From 1862  to 1868  and  from 1917  to 1921  from 1885  and  one  of drought occurred from  there was  there was  to 1896,  the  a period  1838  of dry weather,  a four-year period  of drought;  1 V a r i a t i o n s i n supply r e f e r here to v a r i a t i o n s i n of a g r i c u l t u r a l p r o d u c t s produced i n Canada f o r s a l e . i n aggregate supply a v a i l a b l e i n the world market w i l l v a r i a t i o n s i n demand f o r Canadian p r o d u c t s . 2 Hope, E . C., "Weather and Crop H i s t o r y i n Western C.S.T.A. Review, 1938, No. 16.  quantity Variations result i n Canada",  33  grasshopper outbreaks o c c u r r e d i n 1818-20, 1857-8, 1864-8, 1874-5, 1920-2, and 1931-7.  Rust, sawfly and e a r l y and l a t e  f r o s t s a l s o add t o the hazards of p r o d u c t i o n , thus c o n t r i b u t i n g to t h e u n c e r t a i n t y i n a g r i c u l t u r e . V a r i a t i o n s i n t o t a l p r o d u c t i o n r e s u l t mainly from weather hazards and changes i n acreages.  The average y i e l d o f wheat has  v a r i e d i n Manitoba from 6.4 b u s h e l s i n 1937 t o 26 i n 1915, i n Saskatchewan from 2,6 i n 1937 t o 25.1 b u s h e l s i n 1915, and i n A l b e r t a from 6 b u s h e l s i n 1918 t o 26.8 i n 1942.  1  PKRCEHT  150  100  50  0 1995 Source:  1940  1945  IS 48  Domiiaion Bo,reau of Stat 1 sties, Index of Farm Production.  FIGURE 3 - INDEX NUMBER OF PHYSICAL VOLUMR OF AGRICULTURAL PRODUCTION, CA5ADA, 1935-1938 (1935-39 • 100)  1 Coke, J . , A g r i c u l t u r a l P r o d u c t i o n , P r i c e s and Income i n Canada• P r o c e e d i n g s o f the S i x t h I n t e r n a t i o n a l Conference o f A g r i c u l t u r a l Economists, Oxford U n i v e r s i t y P r e s s , 1948, p . 428.  The Index of Farm P r o d u c t i o n was of  1949.  1935.  first  p u b l i s h e d i n August  The index u n f o r t u n a t e l y does not extend backward p a s t  With the b u l k of Canada's g r a i n crops b e i n g produced i n  the P r a i r i e P r o v i n c e s , any extremely  f a v o r a b l e or u n f a v o r a b l e  weather c o n d i t i o n s i n t h a t a r e a e x e r c i s e c o n s i d e r a b l e c o n t r o l over the t o t a l p r o d u c t i o n of Canadian g r a i n crops, and as a r e s u l t , markedly a f f e c t the index of farm p r o d u c t i o n . weather i n western Canada d u r i n g 1937 of  Hot,  dry  r e s u l t e d i n y i e l d s per  g r a i n a t or near the lowest l e v e l s on r e c o r d .  acre  Cool weather  which c h a r a c t e r i z e d the e n t i r e western season i n 1942  had  the  o p p o s i t e e f f e c t w i t h r e c o r d s and near r e c o r d s b e i n g s e t f o r p e r acre y i e l d s and t o t a l p r o d u c t i o n .  •  1  Y i e l d v a r i a t i o n i s not by any means c o n f i n e d to the prairies.  The  tendency to b i e n n i a l b e a r i n g of B r i t i s h Columbia  apples i s shown i n F i g u r e 4. low (2)  High y i e l d s o r d i n a r i l y r e s u l t i n  prices. V a r i a t i o n s i n Demand (i)  A g r i c u l t u r e ' s R e a c t i o n t o Demand D e c l i n e . The r e p e r c u s s i o n s of world-wide b u s i n e s s  have s e r i o u s e f f e c t s upon Canadian farm income.  fluctuations  The most impor-  t a n t d i f f e r e n c e between a g r i c u l t u r e and i n d u s t r y d u r i n g f l u c t u a t i o n s i n business a c t i v i t y i s the way v a r i a t i o n s i n demand.  i n which they r e a c t to  On the downswing of the b u s i n e s s c y c l e  most i n d u s t r i a l p l a n t s reduce p r o d u c t i o n i n order to reduce costs.  T h i s i s p o s s i b l e because a l a r g e p o r t i o n o f most i n d u s -  t r i a l p l a n t s ' c o s t s are v a r i a b l e c o s t s .  Farms on the other hand,  1 Dominion Bureau of S t a t i s t i c s , Index of Farm P r o d u c t i o n , August 1949.  35 w i t h a l a r g e p r o p o r t i o n of f i x e d costs, which i n c l u d e f a m i l y labor, l o s e l e a s t by m a i n t a i n i n g p r o d u c t i o n . f u n c t i o n i n c o n t r a c t i o n a decrease in price.  i n demand i s r e f l e c t e d  supply fully  The r e a c t i o n o f Canadian a g r i c u l t u r e t o changes i n  1  demand are shown i n F i g u r e 5. drought  With t h i s i n e l a s t i c  Had i t not been f o r a f o u r - y e a r  from 1917 t o 1921 the p r o d u c t i o n of a g r i c u l t u r a l  would have been c o n s i d e r a b l y h i g h e r i n t h i s p e r i o d .  products  The v e r y  l a r g e p r o d u c t i o n o f 1928 i s a t t r i b u t a b l e more t o the bumper crops of  the p r a i r i e s than to farmers' response  prices.  t o h i g h World War I  The most s i g n i f i c a n t r e l a t i o n s h i p  5 i s the way  i n which a g r i c u l t u r a l p r o d u c t i o n i s maintained price f a l l s .  Had a p e r i o d o f severe drought  despite drastic  not o c c u r r e d on the  p r a i r i e s i n the 1930 • s, Canadian a g r i c u l t u r a l p r o d u c t i o n would l i k e l y have been maintained  a t a p o i n t v e r y l i t t l e below t h a t o f  the average o f the e l e v e n post World War I y e a r s .  T h i s would  have o c c u r r e d d n f a c e of a drop i n p r i c e of more than 50 p e r cent from 1929 to 1932. K a r l Brandt has d e s c r i b e d the behavior and p o s i t i o n o f world 2 a g r i c u l t u r e d u r i n g the world d e p r e s s i o n o f the t h i r t i e s . the f i r s t  Among  s i g n s of the world d e p r e s s i o n was a weakening o f the  p r i c e of a g r i c u l t u r a l p r o d u c t s .  E a r l y i n 1928 the world market  p r i c e s o f some o f the world's c h i e f a g r i c u l t u r a l s t a p l e commodit i e s began to s l i d e downward from the average l e v e l o f the 1 The statement here t h a t the supply curve of a g r i c u l t u r a l products i s i n e l a s t i c would a t f i r s t appear t o c o n f l i c t w i t h Chapter 1. The supply curve i s e l a s t i c i n expansion, but i t i s i r r e v e r s i b l e . The supply curve i n c o n t r a c t i o n i s a d i f f e r e n t and much l e s s e l a s t i c one. 2 Brandt, K a r l , The R e c o n s t r u c t i o n of.World A g r i c u l t u r e , W. W. N o r t o n & Company, Inc., New York, p . 57-91.  preceding three years.  When the d e p r e s s i o n h i t bottom, one  phenomenon was most s i g n i f i c a n t . d u c t i o n was s t i l l  The world's  36  a g r i c u l t u r a l pro-  at the peak l e v e l of p r e v i o u s p r o s p e r i t y .  T o t a l i n d u s t r i a l p r o d u c t i o n was, at the same time, down 71 per cent o f 1928 p r o d u c t i o n , and i n many s p e c i f i c f i e l d s down t o 50-40 p e r cent or l e s s of the p r o d u c t i o n f o r t h a t y e a r . I n t h e f a c e o f t h i s d e p r e s s i o n the s t a b i l i t y of food sumption i s remarkable.  T o t a l n a t i o n a l consumption of food de-  c l i n e d o n l y t o the extent t h a t l e s s food was imported  i n some  c o u n t r i e s and not compensated f o r by a d d i t i o n a l domestic duction. people  con-  pro-  Otherwise d u r i n g the depths of the d e p r e s s i o n the  consumed as much or even more food than they had a t the  peak o f p r o s p e r i t y .  1  The f i n a n c i a l upheaval  i n a g r i c u l t u r e due  t o low p r i c e s , a n d a l l the h a r d s h i p i t caused  a p p a r e n t l y helped  a good d e a l to ease the s u f f e r i n g of unemployed and low income workers i n the c i t i e s , by p r o v i d i n g an even f l o w o f food a t low prices. (ii)  Income E f f e c t s of Changes i n Demand. I n the aggregate  both world  supply and world deo  mand f o r a g r i c u l t u r a l products are i n e l a s t i c .  A s m a l l change i n  e i t h e r w i l l r e s u l t i n a l a r g e change i n world p r i c e . in of such world p r i c e changes are fetlected/Canadian  The e f f e c t s  farm income.  These e f f e c t s are f e l t not only by wheat growers and other p r o ducers f o r export markets, but w i t h i n a year on n e a r l y the whole  3 of Canadian a g r i c u l t u r e . 1 2 3  I b i d , p . 91. See Appendix i . See Chapter 1.  The index numbers of the value of Canadian f i e l d exhibit a d e f i n i t e c y l i c a l pattern.  See Table 9.  On the base of  1926-27 s 100,  v a l u e s were low from 1909  35.1  As a r e s u l t of s t r o n g wartime demand and  to 54.3.  t o 1915  ranging  from the d i s -  l o c a t i o n i n postwar Europe, v a l u e s rose s t e a d i l y t o 139.1 then f e l l to 87.1 1920's.  s l i g h t l y to 131.7  i n 1921.  I n 1922  37  crops  in  1920  values f e l l sharply  and remained at about that l e v e l h a l f way  through  the  With somewhat h i g h e r p r i c e s and good y i e l d s value  l e v e l l e d o f f at about 100 u n t i l the c r a s h of Prom 1931  to 1932  c u l t u r a l d e p r e s s i o n was  the major c o n t r i b u t i n g low p r i c e s .  1929. f a c t o r to the a g r i -  The y e a r s 1937  and 1938  saw  some improvement i n p r i c e , but f u r t h e r d r a s t i c y i e l d r e d u c t i o n s in  the crops of 1936-37 and 1937-38.  and 1939  were o f f s e t by a r e t u r n  With some v a r i a t i o n s sanB g e n e r a l  hog p r i c e s  tendency.  Y i e l d improvements i n  1938  to d e p r e s s i o n l e v e l p r i c e s . at Toronto have e x h i b i t e d  the  38  TABLE 9 INDEX NUMBERS OF PRICES, PRODUCTION AND VALUES OP FIELD CROPS, 1909-10 TO 1939-40 CANADA  Crop Year 1909-10 1910-11 1911-12 1912-13 1913-14 1914-15 1915-16 1916-17 1917-18 1918-19 1919-20 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 1939-40 Source:  ProPrices duction Values (Base 1926-27 = 100) 75.6 69.7 72.6 66.0 68.8 90.7 83.7 106.7 138.7 158.5 178.7 149.3 101.1 86.6 72.4 102.3 102.1 100.0 96.5 84.6 104.9 57.8 46.8 43.1 55.7 67.4 55.9 80.9 77.2 54.7 55.4  63.8 50.4 74.5 76.4 72.8 59.9 89.2 75.2 74.6 78.4 77.8 88.2 83.4 100.5 112.4 88.0 98.4 100.0 110.4 120.7 82.1 103.9 84.5 95.3 74.0 73.9 83.1 68.7 65.4 91.3 103.9  48.3 35.1 54.1 50.4 50.0 54.3 74.7 80.2 103.6 124.2 139.1 131.7 84.3 87.1 81.4 90.1 100.4 100.0 106.5 102.1 86.2 60.1 39.6 41.1 41.2 49.8 46.5 55.6 50.5 49.9 57.5  Deflated Prices  1  107.8 93.4 109.1 107.9 107 113.5 78.2 68.6 65.8 55.9 79.1 79.4 78.9 76.2 67.7 84.8 50.0 45.8 45.3 60.4 69.8 58.0 82.4 74.0 53.7 55.7  Monthly B u l l e t i n o f A g r i c u l t u r a l S t a t i s t i c s , Dominion Bureau o f S t a t i s t i c s , A g r i c u l t u r a l Branch, J a n . 1940, p . 31.  1 D e f l a t e d by D.B.S. index o f p r i c e o f commodities and s e r v i c e s farmers buy, 1913-1948.  39 TABLE 10 HOGS:  AVERAGE WHOLESALE PRICES PER 100 LBS., AT TORONTO, 1890-1943  Year  Price  Year  1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916  4.63 4.82 4.98 6.21 4.60 4.28 3.87 5.05 4.87 4.62 5.76 6.69 6.55 5.83 5.09 6.22 6.81 6.44 5.95 7.30 8.48 6.62 7.69 9.03 8.29 8.47 10.54  1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943  Source:  Price  -  mm  mm  —  15.55 18.17 19.59 18.98 11.72 12.63 9.76 9.10 12.85 13.32 10.35 10.51 12.38 12.32 7.39 4.66 5.54 8.60 8.94 8.43 8.92 9.45 8.91 11.42 13.26 15.69 16.87  Livestock & Livestock Products S t a t i s t i c s , Dominion Bureau o f S t a t i s t i c s , A g r i c u l t u r a l Branch, 1943, p . 42.  The combined  e f f e c t of changes i n supply and demand on the  c a s h income from the s a l e o f farm products can be seen i n T a b l e l l . In F i g u r e 6 the y e a r l y d e f l a t e d g r o s s revenue from one acre of wheat a t S c o t t , Saskatchewan,  i s shown.  The dash l i n e i n the  c h a r t , d e f l a t e d g r o s s revenue, y i e l d v a r i a b i l i t y removed,indic a t e s changes i n p u r c h a s i n g power of the product of one a c r e .  The  c h a r t shows q u i t e c l e a r l y  the c y c l i c a l r i s e and f a l l o f farm  income. TABLE 11 CANADIAN FARMERS CASH INCOME FROM SALE OF FARM PRODUCTS, 1926-1948 Cash Income $000,000  Year 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938* 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948  mm mm mm  -  -. mm  -  -  -  -  mm  963.4 940.9 1,072.5 936.3 640.5 450.4 388.5 402.0 491.6 519.5 580.1 640.0 660.8 717.0 748.2 896.4 1,099.2 1,407.5 1,829.9 1,694.7 1,742.8 1,962.3 2,449.9  1926 t o 1944 - Q u a r t e r l y B u l l e t i n o f A g r i c u l t u r a l S t a t i s t i c s , Dominion Bureau of S t a t i s t i c s , January-  March, 1945, V o l . 38-No. 1.  41  TABLE 12 HEFLATED GROSS HBVENDE FROM ODE ACRE OF SDMHHHPALLOW PLABTED SO WBSkT EACH YEAR 1912-1944 A3? SCOTT, SASKATCSBWaU  Year  Yield From 1 Acre Fallow  Cash Price #1 Uorth Basis Fort William  Price Index 1935-39 = 100  Deflated Price  1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944  22*5 21.1 16.1 40.0 40,3 17.3 2.7 6.2 17.3 26.0 8.7 28.0 7.0 20.7 13.3 14.7 22.7 9.3 20.8 27.0 20.5 5.1 12.8 13.3 4.7 1.3 8.7 13.3 12.7 4.7 29.3 10.6 27.1  95.5 86.25 111.75 93.88 160.88 221.0 224.5 263.0 273.5 148.12 99.88 106.25 142.25 137.5 143.88 145.12 117. 149.5 78.1 53.6 51.9 67.2 82.3 90.3 103.9 133.6 63.3 73.9 71.7 72.6 89.6 117.5 125.0  -(34.1 (84.1 84.1 89.6 97.8 128.6 148.2 157.5 180.3 147.4 131.7 129.6 129.3 128.6 126.8 126.7 125.0 123.7 115.7 102.1 95.1 92.2 96.5 96.4 98.& 104.3 101.3 99.4 107.4 112.3 125.1 132.1 138.9  113.56 102.66 132.87 104.77 164.49 171.85 151.48 166.98 151.69 100.49 75.84 81.98 110.02 106,92 113.47 114.54 93.60 120,86 67,50 52,50 54.57 72.89 85.28 93.67 105.80 127.97 62.18 73.74 66.76 64.65 71.62 83.95 89.99  DeDeflated Gross Revenue, Yield flated arose Variability Revenue Removed #  25.55 21.64 21.39 41.91 66.29 29.73 4*09 10.35 26.24 26.13 6.60 22.95 7.70 22,13 15*09 16.84 21.26 11.24 14.04 14.18 11.19 3.72 10.92 12.46 4.97 1.66 5.41 9.60 8.48 3.04 20.98 9.43 24.39  <  *  18.78 16.96 21.98 17.33 27.21 28.42 25*05 27.62 25.09 16.62 12.54 13.56 18.20 17.68 18.77 18.94 15.48 19.99 11.16 3.63 9.03 12.06 14.10 15.49 17.50 21.17 10.28 12.19 11.04 10.63 11.85 14.71 14.88  ( i = 16.54) (2 ° 121.06) *Price index of Commodities and Services used by Farmers, D.B.S., not available for 1913 and 1912; used index for 1914. Sources Wheat prices - Winnipeg Wheat Prices for 21 Years, 1908-9 - 1928-9. W. Sanford Evans Statistical Service, Winnipeg, Manitoba. Yield - Test Plots, Dominion Experimental Station, Scott, Saskatchewan. Price index lumbers of Commodities and Services used by Farmers 1913 te 1948. D.B.S.  (3)  of  Production Instability  o f I n d i v i d u a l Farm or A r e a  Production i n s t a b i l i t y  of  the major causes of  Figure wheat  7 indicates  the  i n various parts I n 1937  insurance •  coefficient  farm or a r e a i s  the y i e l d  out  of  the p e r i o d 1918-1935.  the Dominion Economics D i v i s i o n i n c o - o p e r a t i o n  carried  one  farm income.  of v a r i a b i l i t y of  of Saskatchewan f o r  with  and t h e S a s k a t c h e w a n D e p a r t m e n t o f  a study  on t h e  economic  aspects  of  yield  1  Some i n d i c a t i o n o f  the  complexity  v a r i a t i o n may be g i v e n b y l i s t i n g found  individual  instability in prairie  the U n i v e r s i t y o f Saskatchewan Agriculture  the  t o be  of  the  causes of  the f a c t o r s  which  yield  investigators  significant.  1.  S o i l and t o p o g r a p h y . C h e m i c a l , p h y s i c a l and b i o l o g i c a l c h a r a c t e r i s t i c s of the s o i l , ( p o t e n t i a l f e r t i l i t y , a r a b i l i t y , t e x t u r e and s t r u c t u r e o f s o i l , s u b s o i l , tendency to d r i f t , l o c a t i o n w i t h r e g a r d to a x i s of drought a r e a ) .  2.  C l i m a t i c elements: h a i l , wind, f r o s t .  3.  Prevalence rots.  4.  I n f e s t a t i o n b y b i r d s , a n i m a l s , r o d e n t s and i n s e c t s ; e . g . , g r a s s h o p p e r s , cutworms, s a w f l y , crows, s p a r rows, b l a c k b i r d s , gophers, badgers.  5.  Farm p r a c t i c e  of plant d i s e a s e :  temperature, Rust,  flood,  smut and r o o t  factors:  (a)  P r e p a r a t i o n of cultivation,  (b)  selection  (c)  use  (d)  depth,  of  Rainfall,  the  o f wheat  tested rate  seed b e d ,  and s t a t e  of  varieties,  and s e l e c t e d  and d a t e  of  seed,  seeding,  1 Some i n f o r m a t i o n f r o m t h i s s t u d y was g i v e n b y H a n s e n , ¥ . J . , Economic A s p e c t s o f Crop ( Y i e l d ) Insurance w i t h R e f e r e n c e t o the P r o v i n c e o f S a s k a t c h e w a n , P r o c e e d i n g s of the N i n t h A n n u a l M e e t i n g o f the C a n a d i a n A g r i c u l t u r a l Economics S o c i e t y , June 1957, p . 4 7 - 5 8 .  FIGURE 7 COEFFICIENT OF VARIABILITY OF YIELD OF MEAf PROVINCE OF SASKATCHEWAN, CANADA 1918-1935  V////J/J/A  Source:  Economic Aspects of Crop (Yield) Insurance with Preference to The Province of Saskatchewan. Proceedings Ninth Annual Sleeting, Canadian Agricultural Economies Society, June, 1937.  (e) treatment  of seed f o r d i s e a s e  control,  (f) adequacy of farm power, equipment t i m e l i n e s s of farm o p e r a t i o n s , (g) s o i l d r i f t i n g  and  control,  (h) weed c o n t r o l , (i) insect  control,  (j) c u l t u r a l methods: fertilizers,  R o t a t i o n and  use  of  (k) c o n d i t i o n and type of farm implements, (seed d r i l l ) • Y i e l d per acre i s the r e s u l t a n t of the u n p r e d i c t a b l e combin a t i o n of the f o r e g o i n g f a c t o r s . for  The  s o l u t i o n , i f there i s one  t h i s phase of farm income i n s t a b i l i t y , l i e s i n the f i e l d s  farm management and crop i n s u r a n c e .  Further discussion  of the  p r o d u c t i o n i n s t a b i l i t y problem i s beyond the scope of t h i s thesis.  of  43  CHAPTER  4  UNCERTAINTY AND RESOURCE USE It  h a s b e e n shown t h a t f a r m income i s u n s t a b l e ,  substantial p o r t i o n of this variations. general in  instability  These v a r i a t i o n s take  level  o f changes i n t h e  of p r i c e s f o r a g r i c u l t u r a l products  and o f s h i f t s  The i n a b i l i t y  sufficiently  prices,  or o f r e l a t i v e p r i c e s from year to year w i l l  as p r i c e In  unable Net  uncertainty.  expectations  of farmers  to form  to  accurate  of e i t h e r the l e v e l o f  to p r e d i c t the trend  o f n e t income o v e r  income depends l a r g e l y upon t h e l e v e l and t h e p r i c e s o f t h e p r o d u c e r  s e r v i c e s farmers u s e . t o as l o n g - r u n income Year  be r e f e r r e d  1  addition to year to year p r i c e uncertainty  products,  a  i s attributable to price  the form  r e l a t i v e p r i c e s between p r o d u c t s .  and t h a t  This  the farmer i s  a longer  period.  of the p r i c e s of farm and consumer g o o d s and  t y p e o f u n c e r t a i n t y w i l l be r e f e r r e d  uncertainty.  t o y e a r p r i c e . u n c e r t a i n t y m a i n l y a f f e c t s t h e way i n  which farmers use t h e i r income u n c e r t a i n t y  land,  labor  and e q u i p m e n t .  a f f e c t s t h e movement o f c a p i t a l  Long-run and l a b o r b e -  t w e e n a g r i c u l t u r e and t h e r e s t o f t h e economy, and a l s o t h e way farmers use t h e i r (l) (i)  labor  and c a p i t a l .  E f f e c t s of Price Uncertainty Year  to Year P r i c e  Year  to year p r i c e uncertainty  on t h e I n d i v i d u a l Farm  Uncertainty. consists of uncertainty  1 I n a d d i t i o n to y e a r t o year p r i c e u n c e r t a i n t y f a c e s u n c e r t a i n t y as t o y i e l d s .  the farmer  of  the  general  prices  level  agricultural prices  between p r o d u c t s .  level  of  total  farm products  products prices  of  are  the  for  F i g u r e 11 c o m p a r e s  a t W i n n i p e g f r o m 1908  price  farmers  level  ducts,  of  of  the  farm products  the  and t h e  present p r i c e  continue.  found that for  the the  United States errors  period.  An e x a m i n a t i o n curacy of  any r u l e  prices.  farm products  10  (ii)  and  of  is  The r e animal  between  feed  shown i n  o a t s and  to year  changes i n  relative  simply  Johnson has for  prices  to  of  Figure  barley  to  the  of farm p r o -  prediction  assume t h a t  the  t e s t e d t h i s method  t h e p e r i o d 1910  of  Figure 8 w i l l  35  to  1943.  per cent of  indicate  the  thumb method f a r m e r s may u s e problem of p r e d i c t i n g  a p r o d u c t i o n p e r i o d of one  for  for He  the  mean  the  one  serious for  predicting  relative to  f a r m e r , c a n be  inac-  prices  three years seen i n  of is  Figures  12.  M e a s u r e s F a r m e r s Take to Year P r i c e Uncertainty. If  of  of  1  an e v e n more d i f f i c u l t 9,  to p r i c e s  One method  a v e r a g e f r o m 12  That the over  of p r i c e  of wheat,  year  they could p l a n a c c o r d i n g l y .  a c c u r a c y i n the  the  1936.  could predict  will  relative  p e r i o d 1890-1937.  products  dollar prices  to  index  p e r i o d 1926-1938 i s  a p p a r e n t l y use  future  the  the  to y e a r i n  The r e l a t i o n s h i p  w h i c h many f a r m e r s  price  shown b y t h e  field  i n F i g u r e 9.  and hog p r i c e s  If  are  - Figure 8 for  prices  shown  and o f  V a r i a t i o n s from year  farm product p r i c e s  lationship  10.  of  selling  price  M i n i m i z e the E f f e c t  c a n be p r e d i c t e d  of Y e a r  o n l y w i t h i n wide  to  limits,  1 J o h n s o n , D . ( J . , "A P r i c e P o l i c y f o r A g r i c u l t u r e C o n s i s t e n t w i t h E c o n o m i c P r o g r e s s t h a t w i l l P r o m o t e A d e q u a t e and More S t a b l e Income f r o m F a r m i n g , J . F . E . , U o v . 1 9 4 5 . , ,  rr  -  1-14-  — ii —  44\ I  |  I  i |  T' 1  |  —i—j—,  i l  i  1  1  i  |  1  I  1 ! 1  i  !  1 —  i  1  i  i i  1  i  ! i i  i  —1— 1 1  i  f  I 1 i  I  M M  1 !  ' > P? Wi  1 ! i  —i  i 1  !  i  I ,  j  M  .  ! '  •  1  1;  i  i  l! ;  — 1  i i j-  i  !  •  1  M  '  1  i  M  l  I M  !  1  • :  i  1  !  1  1  f  1  1 1  t  i  1  1  I 1  j 1„  !  i  i  i !  ' i  1  1  i  !  i  |  0  1  (  i 1  ! [  !  j  !  I  1  1  I  '  (  i  i  !  1  |  i  1  ;  1  t  - - i  1! I 1  •  V  ;  !  igirv  IB  t  T "  w  M  t  !  i 1i  )i 1  j1 1  ! J  ; ;  !  '  L  1  ;  1/  1  1 1  ill  I i •;  1 /!  1  / r III  \!  i.'I  1  — j i  i  l  \  ! f  ! • ! i L ,\Lmfi  i  s 1—r  jJL it • ii' III; !  :  irrr 1  I  1 1  1  1 r  |  1 1  -4-  L .  .  i  |  i  i  ! ! 1 i i i , . [...  1'  1  1  !  j 1—„.  Mi! M ! M :  i  I  i  !  i ii  i  |  ;  1 I  j  i  \ j  I  ii  ',  1 1 '  l i  i  !  1  ;  i  i  i  1  !  li  . I' '  i  i  !  1  .  ,  i  i  '  !|  i  !  I  P i_ i  III  i  i  i  M ' i  M l l  M  M  ! ! i  ' (  ._ i._ .—\—  i i  I  rx  I  li lOt •r  !  •  ,  •i 1  i  i  1  |  '  i  1  1 '  >A •4-r 19 !0  ; i  ! !  \ i  |  i  I! ' M  M !  i  i  _j  I 1 f  j '  i i '  • i 1  .  . i_ t_  t  i  r t  • 1  i  & A i i  i  1 i i ! 1  i 1 ; i j  i  L  1  •  r  1  i  i I 1  "  i  j I  1  i  ! i  i  1  /ifJ f . /  J _  (  j i  I  1  t 1  t Ii /  1 1  i  ;  I  i  j  I  !  ;  }'  |  |  i  1  \ i  M M  |  r 1  •  |  I  1 i 1 I  1 i lt  j  M  j  !  '  i  i  • ;  1  / L^T  1 1 1  !  ! 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I i  I I  •i ' I ! 1  ! 1 : [•'''  !  !  1  r  i  '  !  I  M !  1  1  !  I  1  i: . 1 M .1 1150 M !  1 — * • •  i  ; —!—  '  1  i-i  1  1  l ;  !  M M  1  ;  \  —  t 1  —i— i ; —!—i—  1  i I  i  |  |  j  i !  ><••••• i ! 1 — J V - t e A »S: i_  i  1  1 •[ ! j  T*-  r ! •! ft  j i '  1  wr  M M  | 1  i  i ! 1  '  1  1 ' 1 1 I f! r  1  I I I  I 1 I  1  1  i  l  I I | 1 1  1 1 i  1 1 ! i  ! !  I  i  i ! ; 1 ..L. . 1 .1 . 1 ! 1  1  i  ; f  |  f  1  1  L  !  L  1 J (  i !  i  !• i  1  1  :i ! ' l\i  !  j  M '  • II  i  '  •  ..  ;  ! i  ]  J !  1  i  L  !  !  I  |  i j  1  < ! '—j—  M  i  1  i  !  '  pa.  1  1  (  1 1  i IX  1  1  4-  ' i • 1 — 1 — 1 — \ — I  i  4-iJ-L AH P \KA(I, 1 ] B9I[)" 7  i 1 1  ji  > . 1 : ! .  i  !  i i*  1 j  i  • ' M  BIN)  11 I  .  i- •  i  1 i  1  i  1  • j  .1  I  '  1 !  |  _  j 1 f i  1 ;  |  M  1  i  1  i  i  !  1  1 _ [  I  — j —  I 1 i  —[—  1  I  |  I j  !i  i  |  ! I ! -1  i ]  !  j 1 !  2 ?' i ! i i !:  1  4+f  ism  -TY1  ;  r i USD A. /i i Bast 1?13 M M M !M j  i  1 !  i i  i  J  . . L L  1  i !  I i [ ! ' I  ! 1 i ; ji . i  —  i  D  ]  |  i  •  f  u-i-l  1  m  i  1  I !  j  mm  i i I  J_  1  j I Jt : ; c\ ;  i  !  ; |  -f-  \ - h 1 !  -H-  —  FIGURE 12 PURCHASIHG POWER OF BEEF CATTLE AT TOBOHTO 1868-1937 Average 1855-1932 • 100  Index  1870  1930 1935 1920 1900 1910 12a CYCLES IB THE PURCHASING POWER OF HOGS AT TORONTO 1817-1937 1890  1880  Average 1910-14 = 100  1880  1870  1890  1900 1910 1920 12b PURCHASING POWER OF SHEEP AT TORONTO 1870-1937 (Good Camps Since 1914)  1940  Average 1910-1914 = 100  Index  A  / ft  I  s m  1930  If  V  1880  1890  1900 12c  1910  \  1920  <A I\  1 V  1930  194  45 t h e r e are f o u r measures or adjustments the farmer may make, or he f o r c e d t o make, to p r o t e c t h i m s e l f a g a i n s t t h i s u n c e r t a i n t y . are d i v e r s i f i c a t i o n , f l e x i b i l i t y , l i q u i d i t y and s a f e t y  They  preference  i n choice of f a c t o r s . (a)  Diversification. D i v e r s i f i c a t i o n means the combination of s e v e r a l  p r i s e s on one farm. combinations. more s t a b l e .  enter-  There are s e v e r a l reasons f o r making such  One i s the p o s s i b i l i t y of making the farm income V a r i a t i o n s i n the (aggregate Value) t o t a l r e c e i p t s  from s e v e r a l p r o d u c t s a r e l e s s than the average v a r i a t i o n f o r each product taken s e p a r a t e l y .  There i s a l s o the p o s s i b i l i t y of  i n c l u d i n g some product w i t h a h i g h degree of income s t a b i l i t y . Another reason f o r d i v e r s i f i c a t i o n i s to o b t a i n a more even seas o n a l d i s t r i b u t i o n of r e c e i p t s .  The most important reason has  been the p o s s i b i l i t y of combining supplementary or complementary e n t e r p r i s e s w i t h i n the f a r m . The  p r i c e r e l a t i o n s h i p between v a r i o u s a g r i c u l t u r a l p r o d u c t s  i s l a r g e l y unpredictable light  1  and s u b j e c t to f r e q u e n t  change.  I n the  o f the u n c e r t a i n and c o n s t a n t l y changing p r i c e r e l a t i o n -  s h i p s shown i n F i g u r e s 9-12 above, i t i s reasonable  to conclude  t h a t d i v e r s i f i c a t i o n w i l l be c a r r i e d beyond the p o i n t which would y i e l d maximum n e t revenue.  To the extent t h a t t h i s  departure  from maximum n e t income i s a t t r i b u t a b l e t o u n p r e d i c t a b l e p r i c e s , it  i s a cost o f p r i c e u n c e r t a i n t y . (b)  Flexibility. F l e x i b i l i t y r e f e r s t o the ease w i t h which l a n d ,  1 E n t e r p r i s e s which make demands f o r l a b o r and equipment a t such times as.not s e r i o u s l y to c o n f l i c t are c a l l e d supplementary. E n t e r p r i s e s such t h a t one d e f i n i t e l y makes a c o n t r i b u t i o n t o the other a r e complementary.  ( i n c l u d i n g b u i l d i n g s ) , l a b o r , machinery and equipment can be s h i f t e d from one use t o another as the need a r i s e s . The  main c o n t r i b u t i o n which a f l e x i b l e o r g a n i z a t i o n of t h e  farm has t o o f f e r i s i n i n c r e a s i n g p r o f i t e x p e c t a t i o n s .  The ad-  o p t i o n o f f l e x i b i l i t y may be a r e a c t i o n t o e i t h e r y i e l d uncert a i n t y or t o p r i c e u n c e r t a i n t y .  I f the farmer produces only one  p r o d u c t , h i s equipment must be l a r g e enough to handle not the average, b u t the maximum crop.  Thus he s a c r i f i c e s the opportu-  n i t y of h a n d l i n g most crops a t a minimum c o s t .  Additional f l e x i -  b i l i t y i s r e q u i r e d i f the farmer i s to make the best of h i s resources.  He must be able t o s h i f t from an e n t e r p r i s e which has  become u n f a v o r a b l e  f o r p r i c e or t e c h n o l o g i c a l reasons to one  which i s more f a v o r a b l e . I n farming  f l e x i b i l i t y plays a s i g n i f i c a n t r o l e .  Farmers  a d j u s t the weights a t which animals are marketed, and under c e r t a i n circumstances f e e d i n v e n t o r i e s are b u i l t up or: decreased. Flexibility  i s u t i l i z e d t o overcome n a t u r a l hazards as w e l l as  to adapt the farm o r g a n i z a t i o n to changing economic c o n d i t i o n s . For the i n d i v i d u a l farmer f l e x i b i l i t y i n c r e a s e s c o s t s , but ensures g r e a t e r p r o f i t s over a p e r i o d of time. Even i f a farmer was assured  of the s e l l i n g p r i c e , there  would s t i l l be a need f o r c o n s i d e r a b l e y i e l d uncertainty.  flexibility  t o counteract  The p a r t of the cost of f l e x i b i l i t y which i s  d i r e c t l y a t t r i b u t a b l e t o p r i c e u n c e r t a i n t y , however, i s a c o s t to s o c i e t y which might i n p a r t be e l i m i n a t e d by p r i c e p o l i c y . (c)  Liquidity. L i q u i d i t y i s another type of adjustment which a farmer  might make t o u n c e r t a i n t y .  T h i s has been d e f i n e d as the mainten-  ance of cash balances  or near moneys i n order t h a t the f i r m may  47  take advantage of f a v o r a b l e o p p o r t u n i t i e s which r e q u i r e the use of cash,  or t o be able t o m a i n t a i n  the c a p i t a l a s s e t s o f the farm  i n t a c t i n the f a c e o f f a v o r a b l e circumstances. o p i n i o n t h a t the d e s i r e f o r l i q u i d i t y probably i n f l u e n c e on r e s o u r c e (d)  Johnson i s o f the has very  allocation i n agriculture.  Safety Preference  i n Factor  little  1  Choice.  R i s k a v e r s i o n , o r i n t e r n a l c a p i t a l r a t i o n i n g which i s a d i r e c t r e s u l t o f u n c e r t a i n t y , i s one of the most important a f f e c t i n g t h e combination o f f a c t o r s i n a g r i c u l t u r e .  forces  Faced  with  u n c e r t a i n t y the farmer has tended t o p l a c e g r e a t e r emphasis on the use of l a b o r , r a t h e r than c a p i t a l equipment, s h o r t and i n t e r mediate investment r a t h e r than l o n g time, and has l i m i t e d the s i z e o f the farm. The most important  r e s u l t o f t h i s u n c e r t a i n t y i s the undue  emphasis which i s p l a c e d on labor.'  A farmer who, f o r example,  c o n s i d e r s changing from horse to t r a c t o r power f a c e s the p o s s i b i l i t y t h a t one or two bad y e a r s may r e s u l t i n l o s s of a l l h i s equipment t h r o u g h - f a i l u r e t o meet h i s payments, thus c r i p p l i n g the farm.  He i s t h e r e f o r e u n w i l l i n g t o r e p l a c e horses  l a b o r by a t r a c t o r d e s p i t e the h i g h e r marginal  and h i r e d  p r o d u c t i v i t y of  new equipment. The wages o f the farm operator Labor becomes the r e s i d u a l claimant,  and h i s f a m i l y are not f i x e d . and farm operators u s u a l l y  "hang on"under adverse c o n d i t i o n s u n t i l p r i v a t i o n f o r c e s evacuat i o n , or government i n t e r v e n e s . chase c a p i t a l items, 1  When funds are borrowed to pur-  a commitment i s made which i s u s u a l l y backed  Johnson, D. G., Forward P r i c e s f o r  A g r i c u l t u r e , p . 56.  by the a s s e t s of the farm.  A s e r i e s of bad y e a r s may  i n the l o s s of a l l or p a r t of these a s s e t s .  On  48  thus r e s u l t  a l a r g e propor-  t i o n of Canadian farms a small c o n t r a c t u a l payment looms l a r g e r e l a t i v e to the net cash income.  T h i s no doubt r e s u l t s i n the  employment of more f a m i l y l a b o r and  economizing on the use  of  Lenders too,tend to he h e s i t a n t to make l a r g e l o a n s  to  modern l a b o r saving  equipment.  farmers when the r i s k of l o s s i s h i g h . get s h o r t term p r o d u c t i o n tal  loans  I t i s g e n e r a l l y e a s i e r to  than loans  f o r purchase of c a p i -  equipment. The  e f f e c t of u n c e r t a i n t y , known as r i s k a v e r s i o n , i s to  cause the farm operator l e s s c a p i t a l equipment. l a b o r i n t h a t i t may adjusted  be  to use  more f a m i l y and  hired labor  and  H i r e d farm l a b o r i s s i m i l a r to f a m i l y obtained  on short term c o n t r a c t and wages  may  be  q u i t e r e a d i l y to changing economic c o n d i t i o n s .  The  r e s u l t of t h i s e f f e c t i s to depress l a b o r r e t u r n s , and  to  m a i n t a i n very h i g h r e t u r n s f o r many c a p i t a l items, ( i i i ) Maximizing Net  Income Over a P e r i o d of Time  Presumably a farmer p l a n s h i s farm b u s i n e s s so as to maximize net income.  However, i f there  i s a good d e a l of  uncertainty,  he must c o n s i d e r  a l s o the p o s s i b i l i t y t h a t s e r i o u s l o s s e s i n  or two  put him  y e a r s may  out of b u s i n e s s ,  s t r i k e a compromise between p l a n n i n g planning  for safety.  T h i s income and  one  i n t h a t case he has  f o r maximum net income s a f e t y may  to  and  mean that margi-  n a l r e t u r n s from a d d i t i o n a l investment w i l l exceed marginal c o s t , but  i t i s done i n the i n t e r e s t of s a f e t y .  n a t i o n of the two  most acceptable  The  p a r t i c u l a r combi-  w i l l depend upon the  subjective  p r e f e r e n c e s of the farmer, s u b j e c t at times to the r e s t r i c t i o n s p l a c e d upon the use of c a p i t a l by a l o a n i n g agency.  49  The f a c t i s ,  however, t h a t c a p i t a l equipment w i l l tend to be used more spari n g l y than i t would be used i f only net income had to be  consi-  dered. (2)  Between A g r i c u l t u r e and the Rest of the Economy  The f i r s t p a r t of t h i s chapter d i s c u s s e d the e f f e c t s of year to y e a r p r i c e u n c e r t a i n t y and the measures which farmers take to minimize i t s e f f e c t s .  The second p a r t d e a l s w i t h the nature and  e f f e c t s of l o n g - r u n income u n c e r t a i n t y . Long-run  income uncer-  t a i n t y r e f e r s t o the farmers' i n a b i l i t y to f o r e c a s t the l e v e l of net income over a l o n g e r p e r i o d . P e r i o d i c f l u c t u a t i o n s i n net farm income r e s u l t l a r g e l y changes i n the farmers c o s t - p r i c e r e l a t i o n s h i p .  from  I n T a b l e s 13 to  15 r e c o r d s f o r three types of h y p o t h e t i c a l farms have been c a l c u l a t e d f o r the p e r i o d 1926 are based  t o 1946.  I n each case the  on constant y i e l d s and constant c a p i t a l  calculations  investment.  Y e a r to y e a r r e a l v a l u e of goods and s e r v i c e s used by the farmer i s assumed to be c o n s t a n t .  The l a s t column i n each t a b l e ,  opera-  torfe l a b o r income, r e p r e s e n t s the r e t u r n which the operator r e c e i v e d f o r h i s y e a r ' s work and management.  This figure i s i n  a d d i t i o n to the v a l u e of the house rent and the p r o d u c t s he h i s f a m i l y used from the farm.  and  50  TABLE 13 ILLUSTRATION OF THE EFFECT OF PRICE COST RELATIONSHIPS OF A HYPOTHETICAL SASKATCHEWAN WHEAT FARM ( l ) Assuming Constant Y i e l d s and P r i c e s , and Costs V a r y i n g I n Accordance w i t h Dominion Bureau of S t a t i s t i c s Indexes Cash Operatoi's Cost of Net Labor F a m i l y Total T o t a l (2) L i v i n g Income Income Income Expenses Year 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946  4992 4214 3626 3767 3477 2163 1893 2285 2459 2362 3044 3251 2503 2627 2610 2787 3759 4129 4024 4440 4404  $ 3455 3453 3415 3385 3204 2900 2739 2673 2770 2768 2809 2947 2890 2836 2827 3127 3417 3575 3729 3783 3880  $ 1537 761 211 382 273 - 737 - 846 - 388 - 311 - 406 235 304 - 387 - 209 - 217 - 340 342 554 295 657 524  *  (1) F o r d e t a i l s of c a l c u l a t i o n s see Appendix  1  767 759 751 744 720 658 620 607 620 620 623 652 646 630 676 711 750 769 780 780 799  2304 1520 962 1126 993 - 79 - 226 219 309 214 858 956 259 421 459 371 1092 1323 1075 1437 1323  ii.  (2) T o t a l Expenses i n c l u d e cash o p e r a t i n g expenses, cash c o s t s of f a m i l y l i v i n g , i n t e r e s t on c a p i t a l and d e p r e c i a t i o n .  51  TABLE-14 ILLUSTRATION OF THE EFFECT OF PRICE-COST RELATIONSHIPS OF A HYPOTHETICAL FRASER VALLEY DAIRY FARM ( l ) Assuming Constant Y i e l d s and P r i c e s , and C o s t s V a r y i n g I n Accordance w i t h Dominion Bureau of S t a t i s t i c s Indexes Cash Operator's Cost of Total(2) Net Labor Family Total Income Expenses Living Income Income Year $ 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946  4205 4093 4368 4557 4214 2985 2278 2243 2809 3024 3020 3386 3350 3219 3386 3936 4538 5034 5155 5283 5654  t 4964 4961 4900 4853 4565 4075 3823 3719 3874 3870 3935 4154 3464 3978 4266 4442 4903 5155 5400 5486 5641  $  1  *  - 759 - 868 - 532 - 296 - 351 -1090 -1545 -1476 -1065 - 846 - 915 - 768 - 114 - 759 - 880 - 506 - 365 - 121 - 245 203 13  ( l ) F o r d e t a i l s o f c a l c u l a t i o n s see Appendix  767 759 751 744 720 658 620 607 620 620 623 652 646 630 .676 711 750 769 780 780 799  8 - 109 219 448 369 - 432 - 925 - 869 - 445 - 226 - 292 - 116 532 - 129 - 204 205 385 648 535 983 812  ii.  (2) T o t a l Expenses i n c l u d e cash o p e r a t i n g expenses, cash c o s t s of f a m i l y l i v i n g , i n t e r e s t on c a p i t a l and d e p r e c i a t i o n .  52 TABLE 15 ILLUSTRATION OF THE EFFECT OF PRICE-COST RELATIONSHIPS OF A HYPOTHETICAL BRITISH COLUMBIA APPLE PRODUCER(l) Assuming Constant Y i e l d s , P r i c e s V a r y i n g i n Accordance With a Computed Index and C o s t s w i t h a Dominion Bureau of S t a t i s t i c s Index  Year 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948  Index o f ( 2 ) Value Per Box 1935-39 Total * 100 Income  $  97.5 109.0 103.2 94.0 96.3 85.5 116.0 153.1 220.4 182.1 206.5 230.9 213.5 208.8  1813 2027 1919 1748 1791 1590 2157 2848 4099 3387 3841 4294 3971 3883  Total(3) Expenses  Net Income  *  $  2777 2823 2980 2916 2854 3060 3186 3515 3694 3870 3931 4041 4337 5008  964 - 796 -1061 -1168 -1063 -1470 -1029 - 667 405 - 483 - 90 253 - 366 -1125  (.1) F o r d e t a i l s of c a l c u l a t i o n s see Appendix  Cash Cost o f Family Living  Operator's Labor Income  * 620 623 652 646 630 676 711 750 769 780 780 799  #.  -  344 173 409 522 433 794 318 83 1174 297 690 1052  ii.  (2) Index o f v a l u e p e r box computed from d a t a i n the Q u a r t e r l y B u l l e t i n of A g r i c u l t u r a l S t a t i s t i c s . (3) T o t a l expenses i n c l u d e s cash o p e r a t i n g expenses, cash c o s t s of f a m i l y l i v i n g , i n t e r e s t on c a p i t a l and d e p r e c i a t i o n . The above t a b l e s g i v e some i n d i c a t i o n o f the e f f e c t on n e t income o f s h i f t s i n farm c o s t p r i c e r e l a t i o n s h i p s . uncertainty  The r e s u l t a n t  o f net income over a p e r i o d of s e v e r a l y e a r s can be  expected t o a f f e c t the a t t r a c t i v e n e s s of farm investments and t h e r e f o r e : ( l ) the movement o f c a p i t a l and l a b o r between a g r i c u l t u r e and the r e s t o f the economy, (2) the combination o f f a c t o r s w i t h i n the farm.  (i)  Capital Rationing. The  tion  analytical  that  capital  revenue.  Ms  tively  going  of  fixed  the  indicates  the  ductivity  it  the  prices,  based upon the  f i r m an u n l i m i t e d and t h a t  the  is  and n e e d n o t be not  always t r u e  assump-  supply  some r a t i o  would  of h i s  model a d j u s t e d  i n any p a r t i c u -  i n farming.  create  and m a r g i n a l  for  may  equals marginal  true  unencumbered  of  entrepreneur  With  a s s e t s a f a r m e r ' s b o r r o w i n g power  theoretical  suggests that i t  firm is  to  ideal  capital  to  the  and s c a l e u n t i l m a r g i n a l , c o s t  C ertainly  value  of  available  output  This is  1  case.  given  model  resources at  increase  lar  there i s  53  assets.  this  is  a  rela-  Figure  situation  13  and  a gap between m a r g i n a l r e v e n u e  pro-  cost.  FIGURE 13 - THE GAP BETWEEN THE AHDUJ9T OF LOAN CAPITAL DESIRED BY CAPABLE FARMERS AND THE AMOUNT AVAILABLE.  0  % i  i 1  Interest Rate  (  I n F i g u r e 13, to  a farmer.  OA r e p r e s e n t s t h e  OB r e p r e s e n t s  revenue  CD i s  Marginal Revenue Productivity  A B Supply of Capital  marginal productivity production.  >v  4  of  the  productivity  of  the  capital  f  amount  of  capital  amount r e q u i r e d t o to  that  of  gap b e t w e e n i n t e r e s t  the rate  available  equate  other  the  factor  of  and m a r g i n a l  capital.  1 Schultz, T. W., "Capital Rationing, Uncertainty, Tenancy Reform", J o u r n a l of P o l i t i c a l Economy, XLVTII p . 309-24.  o  and F a r m (1940),  What c a u s e s t h i s gap b e t w e e n t h e mer s h o u l d u s e is  able  at going  or w i l l i n g  to  h o n e s t y and a b i l i t y with a l l  the  rates  obtain?  interest  capital  and t h e  In addition  to  assessing  farmer,  decisions  the  f a r m e r h a d t o make r e g a r d i n g  is  n e c e s s a r y on t h e i r  price  s i t u a t i o n s may make i t  contract.  At the  loaning  same t i m e  it  for  the  reduces the  value  faced the  loan.  yield  farmer  he  the  agency i s  part for unfavorable  impossible  54 far-  the  amount t h a t  the  care  the  of  of  Great  his  of  amount  to  of  or  fulfill  the  security. In agriculture, uncertainties and p e s t s , tion. t o be  as w e l l  As a r e s u l t  1  extremely  a farmer to of  be  obtain  complete  as  the  usually  no more  called  prospective  t h e s e causes.,  interest  certain  ratio  as p o s s i b l e of  the  capital  rationing.  is  that  it  so  that  the  equal.  cent.  is  of repayment,  owned  situa-  lenders  marginal  or i f  the  is  tend  difficult  and s a l e  capital  This is  diseases  F o r example,  l o a n by s e i z u r e  of borrowed to  t h a n 50 p e r  economic  of u n c e r t a i n t y  capital  r a t e s are  from weather,  general  The e f f e c t  sufficient  settlement  assets,  is  of  the  cautious.  r e t u r n and t h e  o r d e r to of  as  arise  kept  for  rate in  necessary of  farm  very  essence of  low, what  2  1 See H u d s o n , S . C , " F a c t o r s A f f e c t i n g t h e S u c c e s s o f Farm Mortgage Loans i n Western Canada", S c i e n t i f i c A g r i c u l t u r e , Mar. 1941, p . 368-376. 2 T . W. S c h u l t z h a s d e f i n e d c a p i t a l r a t i o n i n g as f o l l o w s : By c a p i t a l r a t i o n i n g we mean t h a t " t h o u g h t h e r a t e o f r e t u r n f r o m e x t r a c a p i t a l i n p u t s on a f a r m i s g r e a t e r t h a n t h e i n t e r e s t r a t e on c a p i t a l , t h e f a r m e r , l a r g e l y b e c a u s e o f t h e b u r d e n o f economic u n c e r t a i n t y c o n f r o n t i n g h i m , e i t h e r d o e s n o t want t o b o r r o w a d d i t i o n a l c a p i t a l o r c o u l d n o t o b t a i n i t i f he t r i e d . Schultz,T.W., A g r i c u l t u r e i n an U n s t a b l e E c o n o m y , p . 2 0 3 . D . Gale Johnson d r a w s a s l i g h t l y f i n e r d i s t i n c t i o n , d i f f e r e n t i a t i n g b e t w e e n what he c a l l s e x t e r n a l c a p i t a l r a t i o n i n g and s e l f - i m p o s e d o r i n t e r n a l capital rationing. Johnson, D . G . , Forward P r i c e s f o r A g r i c u l t u r e , p . 89.  (ii)  55  Risk Aversion. In a d d i t i o n to  t h e r e may he tioning.  effects  considerable  or to  interest  rate  to  the  any k i n d i s  ignorance and t h e  of  internal  T h i s may be due  areas t h a t debt of dence,  the  of  the  external  capital  or self-imposed  prevailing  a bad t h i n g ,  rationing,  capital  ra-  o p i n i o n i n some to  lack  of  confi-  gap w h i c h may e x i s t b e t w e e n  marginal productivity  of  rural  the  additional  capi-  tal.  o (iii)  Effects  o f C a p i t a l R a t i o n i n g and R i s k A v e r s i o n .  The phenomena closely  related,  farmer,  while  of  risk  aversion  except  that  the  the  second i s  much t h e  same s i t u a t i o n .  h a v e two  effects,  (a)  l a b o r by a f f e c t i n g affect  the  (a)  scale  first  Risk aversion to  combination  There has  estimation  been l i t t l e  that  to  results  analysis  H i s work i n d i c a t e d  was  interest  agency  to  rationing  efficiency  used,  of  and (b)  There i s  s u c h work i f  i n the  if  any  they  research  good  done w o u l d be  United States  as  that  o f c a p i t a l was  rate,  $480 a man y e a r .  average f o r  while  the  A t an output  the  a little  consistent  of  census  four regions less  |800  the  16.  data  States.  than  marginal p r o d u c t i v i t y of  to  shown i n T a b l e  an e m p i r i c a l a n a l y s i s  on t h e  of  reason  a g r i c u l t u r a l r e g i o n s i n the U n i t e d  marginal productivity times the  of  attempted  four  the  of marginal p r o d u c t i v i t i e s  believe  pertaining  of  loaning  and c a p i t a l  of f a c t o r s  of p r o d u c t i o n i n a g r i c u l t u r e *  Johnson has  the  k e e p down t h e  factors  similar  of  reaction  are  Factors.  unfortunately  done i n C a n a d a o n t h e  with  the  rationing  operations.  Combination of  the  is  reaction  they tend  the  of  the  and c a p i t a l  marginal  the  three of  labor  56 productivities  were 12 p e r c e n t f o r c a p i t a l  The l a t t e r  is  for  A reduction  1939.  reduce  identical  with  less  t h a n 10 p e r c e n t .  labor.  t h e a v e r a g e f a r m wage  o f 20 p e r c e n t i n t h e l a b o r  the m a r g i n a l p r o d u c t i v i t y  a little rate  almost  and $390 f o r  of c a p i t a l  supply  rate would  f r o m 12 p e r c e n t  The d i f f e r e n t i a l  to  between the  o f i n t e r e s t and m a r g i n a l p r o d u c t i v i t y w o u l d r e m a i n v e r y rationing  and any r e d u c t i o n i n c a p i t a l / w o u l d capital.  result  wide,  i n t h e u s e o f more  1  TABLE 16 ESTIMATED MARGINAL PRODUCTIVITIES OP FACTORS OF PRODUCTION ON S P E C I F I E D TYPES OF IOWA FARMS, U . S . A .  A l l Farms Northeast D a i r y Area Cash G r a i n Area W e s t e r n Meat A r e a Southern Pasture Area E a s t e r n Meat A r e a C r o p .• Hog Dual & Dairy General Special "Large" »Small , ,  Source:  Land  Labor  Equipment  .0465 .0331 .0615 .0382 .0187 .0398 .0447 .0114 .0201 .0201 .0757 .0515 .0468  .0791 .0973 .1066 .0302 -.1091 .0685 -.2491 .0590 .0211 .2815 -.0209 .0400 .1030  .2013 .1484 .1809 .2410 .3133 .2147 .1791 -.2293 .1380 .3404 .0404 .2591 .2084  Livestock & Feed  Miscellaneous Operating Expense  .8390 .6588 .4177 .7130 2.6419 .5012 .2633 .7890 .5389 .9913 1.5936 .4411 1.4698  .3931 .3783 .3693 .4037 .4025 .3407 .6239 .5457 .4637 .5469 .4459 . 4164 .3751  H e a d y , E . 0 . , " P r o d u c t i o n F u n c t i o n s F r o m a Random Sample of Farms". J F E , N o v . 1946, p . 989-1004.  The m a r g i n a l p r o d u c t i v i t i e s  indicate  approximately  w h i c h m i g h t b e e x p e c t e d on t h e a v e r a g e f r o m t h e a d d i t i o n dollar's  worth of various  productive  the  return  o f one  agents.  1 J o h n s o n , D . G . , " C o n t r i b u t i o n o f P r i c e P o l i c y t o The Income and R e s o u r c e P r o b l e m s i n A g r i c u l t u r e " , J F E , N o v . 1 9 4 4 , p . 631-664.  f&BLB 17 CLASSIFICATION OF GROWERS BY GBOSS INCOME Calendar Year 1947 Based on Reports from 32 Packing-Houses SISfBICf  Number of Growers Reported (#0-500 Group Excluded)  Percentage of Reported Growers with Gross Income Over $500, Less fban $2,000* (1)  Percentage of Reported Growers with Gross Income #2,000-3,000*  Pereentago of Reported Growers with Gross Income #3,000-5,000*  (2)  (3)  Kelowna, Rutland, Glenmere, Okanagan Centre and Westtoank....  748  29.41$  13.37$  19.39$  Oliver, Osoyoos, Kaleden and Kererasos...  569  35.32$  16.17$  18.10$  Pent leton and Baramata..  436  20.64$  12.39$  28.67$  368  47.28$  19.29$  19.84$  542  31.74$  13.84$  20.11$  Totals  2,663  * In calculating the percentages for each d i s t r i c t , growers with gross income of #0-500 were excluded; these totalled 941 for a l l d i s t r i c t s .  •a  58 (b)  Scale  of O p e r a t i o n s .  C a p i t a l r a t i o n i n g and r i s k the  scale  fruit  of farm o p e r a t i o n s .  Some i n d i c a t i o n o f  f a r m s as m e a s u r e d b y g r o s s  Farm h o l d i n g s by s i z e  aversion effectively  income i s  the  limit  size  given i n Table  i n the P r a i r i e P r o v i n c e s  are  of 17.  shown i n  Table  18. TABLE 18 FARM HOLDINGS BY S I Z E I N MANITOBA, SASKATCHEWAN AND ALBERTA, 1946 Size  Manitoba  1-50 acres 51-100 a c r e s 101-200 a c r e s 201-299 a c r e s 300-479 a c r e s 480-639 a c r e s 640 and o v e r TOTAL Source:  1.  Saskatchewan  4,276 3,331 16,709 3,837 14,845 5,722 5,728  1,719 1,405 29,305 3,349 39,390 19,965 30,479  3,154 1,753 28,292 3,849 25,759 9,694 17,040  54,448  125,612  89,541  Canada Y e a r Book,  1948-49.  Tenancy Faced w i t h the n e c e s s i t y  a f a r m e r may r e n t higher r a t i o rowing,  of  or borrow.  rented to  many f a r m e r s f i n d  r o u t e by which they ment.  Tenancy as i t  of  nation's  the  Alberta  of  supplementing h i s  S i n c e he i s  to  tenancy  i n whole  a much  has developed 1  or i n p a r t the  i n C a n a d a t e n d s t o be  Capital  only  o f more l a n d and e q u i p wasteful  r a t i o n i n g has had s t r i k i n g  e f f e c t s upon l a n d tenure i n the P r a i r i e P r o v i n c e s . 1 See V a n V T i e t , c u l t u r e , M a r . 1941,  rent  owned a s s e t s t h a n he c a n o b t a i n b y b o r -  can o b t a i n the use  resources.  able  own a s s e t s  There has  H . , "Land T e n u r e P r o b l e m s " , S c i e n t i f i c p . 388-394.  Agri-  been a d e f i n i t e to  the  change  number o f  a l l farms d u r i n g the p a s t  A r e d u c t i o n from 78.5 is  recorded.  by\ t e n a n t s of  as  tional to  part  16.4  per cent  The l a r g e s t  Since  good t i m e s .  cause  great  is  greatest  a rise  and r e n t s  increase  addi10.0  i n tenant  and  Saskatchewan.  1  in agricultural  rest  of  the  is  invest-  so u n c e r t a i n  p a r t of machinery purchases i n periods  o f p r o d u c e r g o o d s must be  o f l o w f a r m income  o f new t r a c t o r s .  economy o f  in  As soon  zoom u p w a r d .  such v i o l e n t  as The  fluctuations  in  substantial.  Government L o a n P o l i c y .  absence  of  institutions  quirements of the  them.  1900  feature  o f farm c r e d i t i n Canada i s  s p e c i f i c a l l y designed  agricultural  east before  conditions.  1 2  operated  same p e r i o d f r o m  i n f a r m income t r a c t o r s a l e s  The most n o t i c e a b l e  in  land  f a r m income o v e r a p e r i o d o f y e a r s  As shown b y F i g u r e 1 4 ,  on t h e  purchase  (iv)  1946  t h r o u g h c a p i t a l r a t i o n i n g and  fluctuations  farmers d r a s t i c a l l y cut purchases  effect  in  The p e r c e n t a g e  o p e r a t e d farms o c c u r r e d i n  f a r m e r s make b y f a r t h e  there  per cent  i n 1921. the  years.  Machinery & Equipment Investment.  a v e r s i o n to  ment.  twenty-fire  a l l f a r m s were  percentage  Income u n c e r t a i n t y r e a c t s risk  of  owner-operated farms  61.9  i n c r e a s e d d u r i n g the  owner p a r t t e n a n t  2.  to  o p e r a t o r owns p a r t o f  also  per cent.  i n 1921  per cent  compared t o 1 0 . 6  l a n d has  21.3  per cent  I n 1946,  f a r m s where t h e  59  i n the p r o p o r t i o n of  credit.  re-  L e n d i n g p r a c t i c e s worked o u t  have p r o v e d l e s s  There has been l i t t l e  t o meet t h e  the  if  suitable  any e f f o r t  under  western  made t o  adapt  2  The C a n a d a Y e a r B o o k , 1 9 4 5 - 4 9 , p . 3 9 1 . See E a s t e r b r o o k , ¥ . T . , F a r m C r e d i t i n C a n a d a .  The C a n a d i a n Government h a s r e c o g n i z e d p r o b l e m and s o u g h t  t o meet i t  b y the  on l a n d s  exceeding  actually  50 p e r c e n t  of  Ho l o a n may be i n e x c e s s  the of  v a n c e s on s e c o n d m o r t g a g e s  appraised value $5,000,  of  and l o a n s  twenty-five  uncertainty  level  of  ducts.  and n o t lands.  the  on an  Further  ad-  aggregate  to  Summary  consists  of  agricultural prices,  the y e a r  to p r e d i c t  and o f r e l a t i v e  longer  period.  changes i n the  The c o s t s o f y e a r uneconomic  due t o  cost-price  of  measures  factors  bility,  l i q u i d i t y and s a f e t y p r e f e r e n c e  to y e a r u n c e r t a i n t y  L o n g - r u n income u n c e r t a i n t y  of  c a p i t a l to  affects  farm income, agriculture.  Canada Y e a r Book, 1946,  p.  185.  take  to minimize  are d i v e r s i f i c a t i o n , i n factor  of  the  lenders  ina-  over  the  a  form  the  the flexi-  choice.  t h e movement  and l a b o r b e t w e e n a g r i c u l t u r e and t h e r e s t  sufficient  farmers'  relationship  used by farmers  of year  the u n c e r t a i n t y  the  the  between p r o -  of p r o d u c t i o n w i t h i n  effects  cause of  prices  to y e a r p r i c e u n c e r t a i n t y  combinations  The s p e c i f i c  uncertainty.  to year v a r i a t i o n i n  L o n g - r u n income u n c e r t a i n t y i s  bility  1  first  1  Price  lend  of  such farm  years.  F a r m e r s a r e f a c e d w i t h p r i c e and income  farm.  security  are repayable  may be made t o b r i n g  (3)  of  capital.  o p e r a t e d b y t h e b o r r o w e r up t o  a m o r t i z e d p l a n o v e r p e r i o d s up t o  fe^oo.  on t h e  60 rationing  capital  p r o v i s i o n of l o a n  The C a n a d i a n F a r m L o a n B o a r d makes l o a n s mortgage  the  of  capital  economy.  Be-  are u n w i l l i n g  E v e n when s u c h c a p i t a l  to  is  available,  many f a r m e r s  is  are  a low m a r g i n a l p r o d u c t i v i t y 1 d u c t i v i t y of c a p i t a l .  1 F o r e v i d e n c e on t h e o p e r a t o r s ' l a b o r income,  averse of  to b o r r o w i n g .  The  result  l a b o r and a h i g h m a r g i n a l p r o -  a f f e c t of s i z e of farm business see A p p e n d i x i i i .  upon  62  CHAPTER 5  LIMITATIONS OP P R I C E POLICY  Price  has  resources, tribution  two m a j o r f u n c t i o n s .  and t h e  other,  One i s  allocation  the d i s t r i b u t i o n of income.  o f income d e p e n d s u p o n t h e  the p r o d u c t i v i t y of  the  not n e c e s s a r i l y  those r e s o u r c e s .  Attempts to  c o m p a t i b l e w i t h the  income f r o m t h o s e r e s o u r c e s . so  as  to  dustry,  stabilize it  can l e a d to b e t t e r  i m p r o v e income  of r e s o u r c e s  developed i n the p r e c e d i n g s e c t i o n . ductivity to  o v e r and above  the  cost  some  p r i c e c a n be  the r e s o u r c e s  use  and  factors  i d e a l o f maximum t o t a l  However, i f  the r e t u r n to  The d i s -  ownership of r e s o u r c e s  d i s t r i b u t i o n by r a i s i n g the p r i c e of the p r o d u c t of is  of  guaranteed  employed i n an i n for  Any i n c r e a s e  the  reasons  in total  of s t a b i l i z a t i o n i s  pro-  a net  gain  society.  (l)  P r i c e P o l i c y and Income D i s t r i b u t i o n • It  is  a fact  that  an economy i s  its  r e s o u r c e s when t h e m a r g i n a l  any  use  fails  the m a r g i n a l tor.  equal i t s  cost f a i l s  to  social is  to whether  of  a productive factor  equal the is  opportunity cost not  of  in  so p r e c i s e .  o f the  fac-  The d e c i -  an income p r o b l e m e x i s t s must be b a s e d u p o n  v a l u e s which are h i g h l y s u b j e c t i v e . that  t h e most o u t  m a r g i n a l r e v e n u e p r o d u c t i v i t y , o r when  The income p r o b l e m , h o w e v e r ,  s i o n as  said  to  cost  not g e t t i n g  The b e s t  an income p r o b l e m e x i s t s whenever  that  c a n be  the d i s t r i b u t i o n  of  income,  satisfy  either  the  (i)  at  a p a r t i c u l a r time,  generally  g r e a t body o f  i n various nations,  may be u s e d  are: in  to  terms  the  as  the  (l)  vices,  a basis  there  of  of h e a l t h ,  or e q u a l i t y  level  of  These  1  The f o u r  goals price  goals  of l i v i n g f o r people, d e f i n e d  n u t r i t i o n , housing,  opportunities;  goals  public  ser-  (2) a c h i e v i n g a r e d u c t i o n i n  i n c o m e d i s t r i b u t i o n ; (3) a c h i e v i n g  o f income  among b r o a d e c o n o m i c  a h i g h degree  of  or  stability  a  occupational in  the  income.  What P r i c e P o l i c y C a n n o t D o .  (2)  The i n t e r r e l a t i o n s h i p s b e t w e e n t h e p r o b l e m a r e as f o l l o w s . ployment, cient Part  legisla-  c o n t r i b u t i o n of  income p r o b l e m .  education,  and (4) a t t a i n i n g  aggregate  acceptance.  A c h i e v i n g a minimum s c a l e  g e n e r a l d i s p a r i t y of  groups;  the  and s o c i a l  a p p e a r t o be f o u r income  f o r d e t e r m i n i n g the  solution  and c u l t u r a l  parity  not  criteria.  economic  w h i c h i n a g e n e r a l way h a v e r e c e i v e d  policy  does  Income D i s t r i b u t i o n G o a l s . Out o f t h e  tion  accepted welfare  or t h r o u g h t i m e ,  there  are l a r g e  resources of  the  I n the  first  place,  and t h e  income  even w i t h f u l l  numbers i n a g r i c u l t u r e who l a c k  t o p e r m i t them t o  reason i s  resource  that  earn s a t i s f a c t o r y  an e n t e r p r i s e  em-  suffi-  incomes.  economy d o e s n o t  encour-  2 age  sufficiently Among t h e  better  in  people.  important p o s i t i v e  d i s t r i b u t i o n . o f the  are investments 1 2  investment  i n people  Johnson, D . G a l e , I b i d , p . 111.  measures  nation's  that w i l l  labor force  w h i c h enhance  over  make f o r the  years  t h e i r m o b i l i t y and  Forward P r i c e s f o r A g r i c u l t u r e ,  p.  109.  a  productivity. all  fall  Education, medical  into  this  class.  enlarged p u b l i c grants  services,  A strong  and a i d s  c a s e c a n he made f o r rural  for  equipped  of  r u r a l y o u t h who l e a v e f o r  the  bear  a wholly disproportionate  share  ing  and e d u c a t i n g  terms  of food,  Investments  of  productivity developing  the  F o r t h e most p a r t i t  1  c h i l d r e n of  clothing,  shelter,  this  enhance  of  the  economy  type  cities. of  the n a t i o n  the  -  is  Rural cost  cost  the  best  farm of  and  v e r y a p p r e c i a b l y the  i n d i v i d u a l , and e s p e c i a l l y  and  rear-  reckoned  medical attention  demanding c o n s i d e r a b l e  greatly  farm communities  families  people  such i n v e s t m e n t s .  to  64 housing  n u t r i t i o n and  in  education.  economic  significant  labor migration,  in  a  they  2 increase  his  mobility  Programs to people  must be  provide the  hopes of  raising  of  r e a c h i n g the  resources,  farmers.  assistance  on t h e  tern.  basis  farmers'  to  the  people.  i n p r o p o r t i o n to thereby  of  widening  the the  b u l k of r u r a l  social  welfare  price  to  Price  productivity  and  gap between h i g h and families  i n need  c r i t e r i a produce by the  even s m a l l i n c r e a s e s  t h r o u g h p r i c e p o l i c y w o u l d l i k e l y be  by v e r y l a r g e w i n d f a l l g a i n s for' l a r g e  farm  system, i n  failure.  t h e y are h a r d l y a f f e c t e d of  of  Most a t t e m p t s  through the  p o o r , a r e doomed t o  The a c h i e v e m e n t incomes  production.  p r o d u c t i v i t y and m o b i l i t y  The g r e a t  f o r market t h a t '.•  of  standard of l i v i n g  l o w income  little  the  directly  i n c r e a s e s income  ownership  a factor  increase  tied  a higher  as  operators.  of  so  price  sys-  i n poorer accompanied  Such gains  1 The F a m i l y A l l o w a n c e A c t 1944 was a s t e p i n t h i s d i r e c t i o n . I t was i n t r o d u c e d as a b a s i c s o c i a l s e c u r i t y measure d e s i g n e d t o a s s i s t i n p r o v i d i n g equal opportunity for a l l Canadian c h i l d r e n . 2 F o r an e x t e n d e d t r e a t m e n t o f t h i s p o i n t see S c h u l t z , T . V . , R e d i r e c t i n g Farm P o l i c y , The M a c M i l l a n Company, Hew Y o r k , 1 9 4 3 , p. 68-71.  w o u l d "be a t considered (3)  the  expense of  C a n Do  Though p r i c e p o l i c y income  (i)  creasing  to  productivity  due  to  the  (ii)  i n further  Price It  accurately  of  an o u t l o o k  in stabilizing  income,  development  programs  rural  of  people i s  o f more c a p i t a l per man,  of u n c e r t a i n t y , for  capital  into  would f r e e  this migration, of  labor  mainly thus  in-  agricul-  farm l a b o r  however,  and a  lower  labor,  general  level  commodities If  for of  forecasters  agricultural prices  c a n be done t h e  program backed by p r i c e year  to p r e d i c t  which w i l l p r e v a i l  this  at  fairly  and t h e  the  rela-  end o f  a  Government c o u l d  guarantees.  to year p r i c e u n c e r t a i n t y  oper-  With such would  a  be  eliminated. L o n g - R u n Income  Uncertainty.  The i n s t a b i l i t y  of net  results  largely  from the  and t h e  rest  the  See  of  underemployment  that  program i n o p e r a t i o n ,  1  distri-  Uncertainty.  production period.  (iii)  use  may be p o s s i b l e  the  tive.prices  largely  toward  The movement o f  reduction  m a r g i n a l r e t u r n to  ate  the  F a i l u r e to p r o v i d e  result  i n the  and m o b i l i t y  labor efficiency.  migrate.  would  can a s s i s t  of p r i c e p o l i c y  o f making p o s s i b l e  ture,  it  little  Income D i s t r i b u t i o n .  increase  that  c a n do r e l a t i v e l y  more e q u a l l y ,  The r o l e to  and c o u l d h a r d l y "be  fair.  What P r i c e P o l i c y  buting  65  Canadian taxpayers  of  interrelationships  economy5!  C h a p t e r 3 and  f a r m income  4.  rather  as  has b e e n  between  than from f a c t o r s  shown  1  agriculture peculiar  6 6  to  agriculture.  income,  except i n i n d i v i d u a l cases,  i n general export  The m a j o r p o r t i o n of  price levels  stability business  cycle  considered  as  price policy some f i x e d  questions stand  itselfHowever,  so l o n g  as  such a s o l u t i o n  is  something  c a n be done  income d u r i n g t h e  to  cycle.  problem of  stabilize  the is  aggregate  Such measures  s i m i l a r t o unemployment i n s u r a n c e  little  doubt  that  to be  of  should  i n other  w o u l d be p o s s i b l e  desirable,  asked.  First,  substantial  in a later  of  throughout  the p r e d e p r e s s i o n there  be  sectors  An a t t e m p t  Second,  level.  b y means  of  a depression  at  Assuming  a r e a number o f  would the  c a s h payments  u n d e r s u c h a scheme?  Elements  it  to m a i n t a i n farm incomes  A peacetime  1  and  attaining  the  acceptable?  questions  self  employment  of  percentage  the  necessary  (4)  of  solution  such a p r i c e p o l i c y i s  tically  with l e v e l s  fluctuations  economy.  There i s  to  f r o m the  farm  the  forthcoming,  the  arises  of  c o n t r i b u t i o n w h i c h c a n be made t o w a r d  o f f a r m income  agricultural  of  instability  demand.  The g r e a t e s t  not  associated  the  that  pertinent  C a n a d i a n economy b e  to  able  farmers which might  w o u l d the  w i l l b e made t o  scheme be  answer  poli-  these  chapter.  a Desirable Price Policy for  Canada  a g r i c u l t u r a l p r i c e p o l i c y f o r Canada d i v i d e s  naturally into  be  f o u r main p h a s e s :  1.  The t r a n s i t i o n f r o m war t o  2.  The a d j u s t m e n t o f c e r t a i n c o m m o d i t i e s w h i c h have s u f f e r e d a c o n s i d e r a b l e p e r m a n e n t d e c l i n e i n demand.  Johnson, D . Gale,  peace.  Forward P r i c e s f o r A g r i c u l t u r e , p .  204.  it-  67 3. 4.  P r i c i n g d u r i n g the b u s i n e s s c y c l e . P r i c i n g d u r i n g p e r i o d s o f n o r m a l demand.  Phase facilitate cessation  one  and two b o t h r e q u i r e p r i c e p o l i c i e s  obviously necessary of  the  supply adjustments.  p r o d u c t , w o u l d * i n the  o r income a s s i s t a n c e ,  result  farmers.  prices  It  is  l e v e l , at which the  necessary, f o l l o w i n g  industry,  d u s t r y , would m a i n t a i n i t s f a r below such a l e v e l  absence  i n very serious  of a g r i c u l t u r a l commodities  upon the  or t h e  affected  is  of  can c o n t r i b u t e v e r y l i t t l e  Given a high l e v e l  of  employment i n t h e r e s t  i t vcan a v o i d a r b i t r a r i l y  courage it ing  excess l a b o r to  stay  to f a c i l i t a t e setting  the p e r i o d of  level  J u s t how depends  society.  to of  such the  adjustments.  economy,  adjustment. so h i g h as  One to  The o t h e r i s  is  enthat  of l i v i n g f o r farmers  dur-  adjustment.  Price policy during should not  prices  in agriculture.  c a n h e l p to m a i n t a i n minimum l e v e l s  in-  l a r g e l y upon l a b o r .  P r i c e p o l i c y alone  things  that  segment o f t h e  of p r o d u c t i o n .  standards  allow  below  s h o u l d be a l l o w e d t o f a l l  a c c e p t e d minimum w e l f a r e  p r i c e p o l i c y c a n do two  reductions  such a d e c l i n e , to  previous level  prices  income  in  6f some p r i c e  concerned to f a l l  The b u r d e n o f downward a d j u s t m e n t  that  The sudden  s t r o n g w a r t i m e demand, o r a p e r m a n e n t d e c l i n e  demand f o r a s p e c i f i c  for  which w i l l  attempt  the b u s i n e s s  cycle  t o m a i n t a i n f a r m income b y h o l d i n g up  of market p r i c e s .  other groups i n the  t h e downswing o f  1  Income  economy i s  assistance  necessary  at  the  t o f a r m e r s as t o this  time.  some  Such  1 M o s t schemes f o r m a i n t a i n i n g p r i c e o f f a r m p r o d u c t s d u r i n g t h e downswing o f t h e b u s i n e s s c y c l e have some e l e m e n t o f p r o d u c t i o n c o n t r o l , dumping, o r p h y s i c a l d e s t r u c t i o n . The f i r s t h a s b e e n shown b y e x p e r i e n c e i n the U . S . A . t o be l a r g e l y i n e f f e c t i v e . Dumping i s l i k e l y t o c a u s e r e t a l i a t o r y m e a s u r e s . P h y s i c a l dest r u c t i o n o f f o o d and f i b r e i s e x t r e m e l y d i s t a s t e f u l t o t h e p u b l i c .  assistance living. prevent  to  It  agriculture  should  s h o u l d m a i n t a i n minimum l e v e l s  also i r o n  out  should  back-to-the-land  n o t he  at  movement,  l o n g - r u n problem of  labor  a level for  of production for  the  result  end o f  the  low  and i n f a r m  h i g h enough  t h i s would  only  to  to  people.  encourage  aggravate  all  of n o r m a l d e m a n d , s h o u l d  agricultural  and c o l l e c t i v e l y , c o n s i s t e n t w i t h t h e demand a t  cyclical  a  the  efficiency.  Price policy, for periods  narily  the  serious disinvestment i n agriculture  Assistance  level  enough o f  of  income  in  products,individually  best possible  production period.  i n substantial  result  transfers  It to  estimates  should not farmers.  of  ordi-  69  CHAPTER 6  PAST AND PRESENT AGRICULTURAL PRICE P O L I C I E S  1  The Dominion Government has i n t e r f e r e d w i t h the open market d e t e r m i n a t i o n of the p r i c e s o f a g r i c u l t u r a l commodities i n s e v e r a l ways*  Most of the methods have been developed to c o n t r o l  or a f f e c t the p r i c e o f wheat; some o f these have been adapted to p r i c i n g other farm products*  The methods used i n c l u d e :  encouragement o f c o - o p e r a t i v e marketing, p r i c e  the  stabilization  measures, government wheat b o a r d s , p r i c e c e i l i n g s , and more r e c e n t l y , the use of f l o o r p r i c e s to a i d i n the p e r i o d o f t r a n s i t i o n from war t o peace*  T h i s p r i c e i n t e r f e r e n c e has been supple-  mented by a program of d i r e c t c a s h payments to farmers*  These  payments are designed t o m i t i g a t e the e f f e c t s o f extreme p r i c e and p r o d u c t i o n i n s t a b i l i t y *  D u r i n g the r e c e n t war, the Govern-  ment a l s o r e s o r t e d t o l a r g e s c a l e s u b s i d i e s i n order to b r i n g f o r t h the r e q u i r e d p r o d u c t i o n o f farm commodities, w h i l e h o l d i n g the l i n e a g a i n s t i n f l a t i o n by means of p r i c e (l)  ceilings*  The Board of G r a i n S u p e r v i s o r s E a r l y i n 1917, c e n t r a l i z e d buying on b e h a l f o f a l l i e d govern-  ments e f f e c t i v e l y cornered the Winnipeg market, and by the end o f the y e a r i t became obvious t h a t the open market could not operate 1 The m a t e r i a l i n t h i s chapter i s p a r t l y based upon B r i t n e l l , G. E., Dominion L e g i s l a t i o n A f f e c t i n g Western A g r i c u l t u r e , 1939* Canadian J o u r n a l o f Economics and P o l i t i c a l S c i e n c e , 6:275-282, 1940.  a t the same time as c e n t r a l i z e d buying* S u p e r v i s o r s was  The Board o f G r a i n  t h e r e f o r e e s t a b l i s h e d on June 11, 1917*  Board took over a l l wheat produced i n Canada* t r a d i n g i n f u t u r e s u n t i l J u l y 21, (2)  There was  This no  1919*  The Canadian wheat Board 1919-1920 Ten days a f t e r the l a t t e r date f u t u r e s t r a d i n g was  closed  a g a i n ; a new board, The Canadian Wheat Board, had been appointed* T h i s Board was  appointed because i t d i d not appear t h a t e i t h e r  c e n t r a l i z e d b u y i n g , or an open and s t a b l e market, would e x i s t i n 1919-20.  The Board of G r a i n S u p e r v i s o r s had p a i d f i x e d p r i c e s ,  the new Canadian Wheat Board p a i d an advance to the producer, and gave him p a r t i c i p a t i o n c e r t i f i c a t e s e n t i t l i n g him t o h i s p r o p o r t i o n a t e share of any s u r p l u s above the i n i t i a l  price.  T r a d i n g i n wheat f u t u r e s began again i n 1920, p r i c e s soon began t o f a l l *  and wheat  The farmers a s s o c i a t e d h i g h wheat  p r i c e s w i t h the monopoly marketing of wheat, and a g i t a t e d f o r the r e t u r n of the Wheat Board* e f f o r t s had f a i l e d , a t t e n t i o n was  continually  I n 1923, when a l l  turned t o the p o s s i b i l i t y o f  c o - o p e r a t i v e marketing. (3)  The Canadian C o - o p e r a t i v e Wheat P r o d u c e r s L t d . The Canadian C o - o p e r a t i v e Wheat Producers L t d . , began opera-  t i o n s as a c e n t r a l s e l l i n g agency of the t h r e e p r o v i n c i a l p o o l s . These c o - o p e r a t i v e s handled a l a r g e share o f the g r a i n crop from 1 For a comprehensive review o f government a c t i v i t y i n the marketing o f Canadian wheat, 1917 to 1939, see The G r a i n Trade c o n t r i b u t e d by D r . T. W. G r i n d l e y , Canada Y e a r Book. 1939, pp. 569-80. 2 See The D i a r y o f Alexander James M c P h a l l . e d i t e d by H a r o l d A. I n n i s , U n i v e r s i t y of Toronto P r e s s , Toronto, Canada, 1940.  2  71  1923 to 1930.  With the f a l l i n p r i c e s and d i f f i c u l t y of s e l l i n g , the Cent r a l S e l l i n g Agency got into deep water i n 1929.  In that year  they f a i l e d to s e l l t h e i r share of the huge crop of 1928.  In  1930, the three P r o v i n c i a l Governments gave assistance i n the form of f i n a n c i a l guarantees.  In 1930-31, the Dominion Govern-  ment was again involved i n wheat marketing.  At t h i s time, John  I . McFarland was appointed manager of the Pool's Central S e l l i n g Agency, and Dominion Government guarantees were given to the hanks. The Central S e l l i n g Agency, with no change of name, now hecame a government s t a b i l i z a t i o n agency.  Under the d i r e c t i o n of  Mr. McParland, financed by the banks, guaranteed by the Dominion Government, and using as a base the accumulated stocks of the Canadian Co-operative Wheat Producers L t d . , the agency entered into the buying and s e l l i n g of wheat and wheat futures f o r the purpose of s t a b i l i z i n g the market. The holdings of the Canadian Co-operative Wheat Producers Ltd., varied from 39,935,000 bushels i n November 1930, up to 213,688,000 bushels at July 31, 1935, and f e l l to 205,187,000 bushels at December 2, 1935. (4)  The Canadian Wheat Board, 1935 In 1935 the Government passed the Canadian Wheat Board A c t .  The l e g i s l a t i o n provided f o r a voluntary marketing organization to purchase wheat from farmers at a fixed p r i c e , and issued part i c i p a t i o n c e r t i f i c a t e s which e n t i t l e d the producers d e l i v e r i n g 1  Statutes of Canada, 25-26, George V, C. 53.  1  to the Board to receive a share of any p r o f i t s r e a l i z e d by the Board*  72  The purpose of the Board was to provide a buffer between  western farmers and the chaotic conditions i n the international wheat market*  The Board, subject to the approval of the Govern-  or- in-Council, was to set the p r i c e at the beginning of each year*  In the event of l o s s , the d e f i c i t was to be transferred to  the Domini on Government* The Canadian Wheat Board Amendment Act, 1939, contains two 1  important changes:  the one designed to afford the maximum pro-  t e c t i o n to the smaller producers, the other to r e l i e v e the pressure to which the Board was annually subjected i n setting the i n i t i a l payment*  Accordingly, the Board may,  henceforth "buy  wheat •.•.not i n excess of f i v e thousand bushels from any one producer i n any crop y e a r , and an enacted i n i t i a l payment of 0  seventy cents per bushel basis BTo. 1 Manitoba, i n store Fort William, i s substituted f o r the power previously given the Board to set  the i n i t i a l p r i c e * The Board has exercised i t s power of p r i c e setting from Sep-  tember 6, 1935, to date*  The minimum p r i c e f o r Ho* 1 Northern  wheat was announced on September 6, 1935, at 87-$- cents* ket  The mar-  p r i c e was s l i g h t l y below t h i s f o r about eight months of the  crop year, and the Board handled 150,700,000 bushels of the t o t a l country marketings, amounting to 216,300,000 bushels* 1936 and 1937,  In each of  the Government announced that the Board p r i c e  would only become e f f e c t i v e i f the market p r i c e f e l l below 90 cents* 1  This d i d not occur, so the Board received none of the  Statutes of Canada, 3 Geo. VI, C  39.  crops of 1936  and  73  1937.  Dr. Grindley has made some comments on the basis upon which the Board f i x e d the p r i c e i n 1935. s i b l e bases:  1  He has mentioned three pos-  (1) one possible of attainment through sales on the  market; (2) one that would enable farmers to (a) "get (b) cover production  by",  costs, (e) make a p r o f i t ; (3) a p r i c e calcu-  l a t e d to compensate roughly f o r the farmer's burden through t a r i f f protection of Canadian industries, or one that would avoid large government expenditures f o r r e l i e f * bably no one of these bases was  He concluded that pro-  transcendent at the time of p r i c e  f i x i n g , and that t h e i r weight w i l l vary i n d i f f e r e n t years* i s reasonable to suppose that the 1935  It  p r i c e was based on the  concept of f a i r market value - a reasonable Interpretation of what was  considered possible of attainment by sales during  crop year*  the  I f Dr. Grindley i s correct i n t h i s assumption, the  f i x i n g of the 1935  p r i c e represented an attempt to predict supply  and demand, ani to set a p r i c e f o r Canadian wheat which would e q u i l i b r a t e the two* When the Winnipeg p r i c e of wheat f e l l below the Board p r i c e i n 1938  due to the appearance of large world wheat supplies, the  Government d i d not hesitate to act*  The Prime Minister announced  a base p r i c e of 80 cents per bushel, basis So. 1 Manitoba Nortern, i n store Fort William.  I t was  wheat would s t i l l be competitive  also declared that Canadian  on the world market.  I t should  be noted that such a p o l i c y i s , i n effeot, export subsidization. The Canadian Wheat Board suffered great losses on the hand1  Canada Year Book, 1939 » p.  575.  l i n g of the 1938-39 crop, amounting to about 61*5  millions*' ' 1  As a r e s u l t of these large l o s s e s , coupled with severe c r i t i c i s m from eastern Canada, the p r i c e f o r the 1939 minimum of 70 cents.  crop was  set at a  D e l i v e r i e s by any one grower were l i m i t e d  to 5,000 bushels, and the plan was extended to cover wheat grown i n eastern Canada*  At 70 cents, the p r i c e was  considerably above  the market p r i c e , and apparently was to some extent, a resultant of the p o l i t i c a l pressure from the west and the c r i t i c i s m from the east. The regulations and controls introduced during the war  years  were mainly an extension of pre-war arrangements to maintain minimum p r i c e s .  These arrangements involved r e s t r i c t i o n s on pro-  duction of wheat and government purchase and sale of wheat. couragement was  En-  also given to the production of feed grains i n -  stead of wheat, and a ban was placed on the export of feed grains so as to conserve domestic supplies. Following the outbreak of the war,  the Canadian Wheat Board  sold through the usual channels; offering wheat i n the cash and futures markets at Winnipeg at p r i c e s determined i n those markets.  In June 1940,  the Board sold 50 m i l l i o n bushels to the  B r i t i s h Cereal Import Committee at above market p r i c e , and i n 1940-41 sold 100 m i l l i o n bushels. for the f i r s t year of the war,  The 70 cent basis continued  and a good deal of the 1939  was marketed through trade channels.  erop  In 1939-40, farmers could  d e l i v e r t h e i r excess supply (excess over 5,000 bushels) to a cooperative pool at an I n i t i a l payment of 56 cents under the terms 1 S r i t n e l l , G>. E., and Fowke, V. C., "Wheat Marketing P o l i c y i n Canada? JFE, Nov. 49, p. 634.  of the Wheat Co-operative Marketing Act* (5)  1939.  P r a i r i e Farm Assistance Act 1959 In the year 1940. the average p r i c e of wheat daring August-  October was l e s s than 80 cents.  Accordingly, the year was, f o r  the purposes of the P r a i r i e Farm Assistance Act 1939, declared to he an emergency y e a r .  2  The P r a i r i e Farm Assistance Act 1939,  cannot s t r i c t l y speaking he c l a s s i f i e d as p r i c e p o l i c y ; however, i t s operation, at l e a s t i n the ease of "national emergency", i s so c l o s e l y related to market p r i c e that i t i s necessary to include the Act i n t h i s chapter.  The-Act provides two quite separate and  d i s t i n c t methods of approach to the problem which may be presented by conditions i n a p a r t i c u l a r year.  One method i s c l a s s i f i e d  as "crop f a i l u r e assistance"; the other as "national emergency". A "national emergency" i s c l e a r l y meant to cover a s i t u a t i o n caused by a combination of low p r i c e s and low y i e l d s when the f i n a n c i a l burden of maintaining the farmer on the land becomess too heavy f o r the i n d i v i d u a l , the municipality, or the p r o v i n c e .  3  Any crop year i n which the average price i s l e s s than 80 cents per bushel may be declared by the Governor-in-Council to be an emergency year f o r the purposes of the Act.  (The Act states that  "average p r i c e " means the average of the d a i l y closing prices of Ho. 1 Manitoba Northern wheat i n store Fort William, between the t h i r t y - f i r s t day of July and the f i r s t day of November i n any year as ascertained by the Minister pursuant to regulations.) 1 Statutues of Canada, 3 Geo. VI, C. 34. 2 "The P r a i r i e Farm Assistance Act, 1939? Statutes of Canada. 3 Geo. VI, C. 50. 3 B r i t n e l l , G. E.,"Dominion L e g i s l a t i o n A f f e c t i n g Western Agriculture* 1939'j The Canadian Journal of Economics and P o l i t i c a l Science, G: 1940, p. 279.  In an emergency year the sums payable to farmers based on township y i e l d and p r i c e are as follows:  76  l i g h t to twelve bushels  per acre ten cents per acre, f o r each cent to ten by which the average p r i c e i s l e s s than 80 cents per bushel.  I f the y i e l d i s  four to eight bushels. $1.50 per acre i s paid, and i f the average y i e l d i s not more than four bushels per acre, the award i s $2.00 per acre. Ho award i s made with respect to more than one-half of the c u l t i v a t e d land of the farmer, nor with respect to more than two hundred acres of land. In years when no "national emergency" i s declared, a s s i s tance i s available on application by the P r o v i n c i a l Government, i f i n areas of s p e c i f i e d size ( i n Saskatchewan 135  townships)  the average y i e l d of wheat as a r e s u l t of anything other than h a i l , i s f i v e bushels per acre or l e s s .  P r o v i s i o n i s made f o r ,  "award to each farmsr i n a crop f a i l u r e area by way of assistance a sum of two hundred d o l l a r s ; or a sum not exceeding two d o l l a r s and f i f t y cents per acre with respect to h a l f the cultivated acreage of the farmer not to exceed two hundred acres, whichever i s the greater".  (Sec. 4(2)).  The minimum and maximum a farmer  may receive are thus #200 and #500 respectively.  The. p r i c e of  wheat i s not a consideration i n the payments under the crop f a i l u r e assistance section of the Act. Under the P r a i r i e Farm Assistance Act a levy of one per cent of the sale price of a l l g r a i n i s deducted from the p r i c e paid to the farmer at the time of sale, and becomes part of a special account i n the Consolidated Revenue Fund c a l l e d the P r a i r i e Farm Emergency Fund.  This fund, however, makes up a small proportion  of the t o t a l payments required, the remainder necessarily comes  from the Dominion Treasury. t o t a l l e d #6,693,112.  1  77 Payments f o r the crop year 1940-41,  The levy probably produced a revenue of  about $2,000,000. (6)  The wheat Agreement In Septembers 1943, the Canadian Government ordered discon-  tinuance of wheat trading on the Winnipeg Grain Exchange.  This  action was taken due to transportation d i f f i c u l t i e s , and the fear that the steady r i s e i n the Winnipeg p r i c e might jeopardize Canada*s long-run wheat control program and act as an additional threat to the general p r i c e s t a b i l i z a t i o n program* At the same 2  time the i n i t i a l advance paid to farmers f o r wheat delivered to the Canadian Wheat Board was r a i s e d from 90 cents to $1.25, plus p a r t i c i p a t i o n c e r t i f i c a t e s , basis carload l o t s of Ho. 1 northern i n store Fort William - Port Arthur or Vancouver. On the 24th of July, 1946, the Canadian Government signed a wheat agreement with the United Kingdom.  Under the agreement the  United Kingdom undertook to buy and Canada undertook to s e l l the following quantities: i) ii iii' lv)  within within within within  crop crop crop crop  year year year year  1946-47 1947-48 1948-49 1949-50  160,000,000 160,000,000 140,000,000 140,000,000  bushels bushels bushels bushels  The p r i c e per bushel to be paid by the United Kingdom to the Canadian Government, b a s i s No. 1 Manitoba Northern, i n store Fort William - F o r t Arthur, Vancouver or C h u r c h i l l , was as follows. 1 Wheat Studies of The Food Research I n s t i t u t e , V o l . XVIII, Sept. 1941-May, 1942, p. 118. 2 See Skeoch, L. A., "Changes i n Canadian Wheat P o l i c y " , Canadian Journal of Economies and P o l i t i c a l Science, November 1943, IX, 565-69.  In respect of wheat bought and sold In the crop year: i) ii) iii) iv)  1946-47 1947-48 1948-49 1949-50  78  fl.55 $1*55 not l e s s than $1.25 not l e s s than §1.00  The actual p r i c e paid f o r the wheat to be bought and sold within the crop years 1948-49 and 1949-50 was to be negotiated and sett l e d between the United Kingdom Government and the Canadian Government not l a t e r than 31st December* 1947. and 1948 respectively*  "In determining the p r i c e s f o r these two crop years*  1948-49 and 1949-50, the United Kingdom Government w i l l have r e gard to any difference between p r i c e s paid under t h i s agreement i n 1946-47 and 1947-48 crop years, and the world p r i c e of wheat i n the 1946-47 and 1947-48 crop y e a r s . " (7)  1  The Wheat Co-operative Marketing Act 1939 The Wheat Co-operative Marketing Act provides that any co-  operative association or associations of primary producers, or any elevator company or association of elevator companies oper a t i n g or c o n t r o l l i n g one hundred or more country elevators i n the P r a i r i e Provinces or B r i t i s h Columbia, may set up a s e l l i n g agency to market wheat on a co-operative basis*  The Dominion  Government may agree to guarantee the sum of s i x t y eents per bushel, basis No. 1 Northern, Fort William*  Out of t h i s guaran-  tee the s e l l i n g agency may make an advance to the producers* P r o v i s i o n i s made f o r the return of any surplus to the grower; and any l o s s which may r e s u l t through f a i l u r e to r e a l i z e the i n i t i a l payment, plus marketing costs, w i l l he borne by the Dominion 1 Dominion of Canada, O f f i c i a l Report of Debates* House of Commons, Vol* 6, 1946, p . 4848. 2 Statutes of Canada. 3 Geo. VI, C. 34.  Government*  Organization under the Act has not been on a large  79  scale* (8)  The A g r i c u l t u r a l Products Co-operative Marketing Act 1939  1  According to the terms of t h i s Act, " a g r i c u l t u r a l product" means any kind of grain other than wheat, milk and milk products, vegetables and vegetable products, livestock and l i v e s t o c k produets, f r u i t and f r u i t products, poultry and poultry products, honey, maple syrup, tobacco, and any other product of agriculture designated by the Governor-ln-Councll* The main purpose of the Act i s similar to that of the Wheat Co-operative Marketing Act*  The Dominion Government may guaran-  tee to any group of producers who form a co-operative association and enter into an agreement as defined by the Act, an i n i t i a l payment on any s p e c i f i e d product up to eighty per cent of the average wholesale p r i c e of the product i n the three preceding years*  As i n the case of the Wheat Co-operative Marketing Act,  p r o v i s i o n i s made f o r the d i s t r i b u t i o n of any surplus to the producers, and f o r charging any loss to the Dominion Government* The passing of t h i s Act, so f a r as the author knows, i s the f i r s t time Canada has attempted  to use prices or price relationships at  a point or period of time i n the past as a d i r e c t basis f o r p r i c e setting*  2  This i s a marked contrast with United States  1 Statutes of Canada, 3 Geo. 71, C. 28. 2 TJais Act i s c l a s s i f i e d by the Government as marketing rather than p r i c e l e g i s l a t i o n . "Another problem concerns the p o s s i b i l i ty of producers groups attempting to use the Act f o r the purpose of p r i c e support. The Government has made i t quite clear that the Act i s not intended as a means of supporting p r i c e s , but f o r assistance i n financing the orderly marketing of a g r i c u l t u r a l products on a voluntary pool basis." Turner, A* H., Canadian Marketing ana P r i c e Support L e g i s l a t i o n i n Canada, JFE, Nov. 1  1949,  p. 594-609.  80  agricultural price policy*  I n t h a t country a g r i c u l t u r a l p r i c e s  are s e t a t a percentage o f p a r i t y .  P a r i t y p r i c e , as d e f i n e d by  e x i s t i n g l e g i s l a t i o n , means a p r i e e f o r a farm product t h a t  will  g i v e i t a p u r c h a s i n g power equal t o t h a t which i t enjoyed i n some base  period.  1  I f i n a period  o f f a l l i n g p r i c e s , a g r i c u l t u r a l producers i n  l a r g e numbers a r e able l o s s e s may be s u s t a i n e d  t o take advantage o f the A c t , b y t h e Dominion t r e a s u r y .  substantial  The use o f an  average o f the p r i c e o f the t h r e e p r e v i o u s y e a r s w i l l tend t o keep t h e p r i c e r e l a t i o n s h i p s up-to-date w i t h a b s o l u t e and r e l a t i v e changes i n demand.  The l i m i t a t i o n o f i n i t i a l payments t o  e i g h t y p e r cent o f the p r e v i o u s t h r e e y e a r s  1  average, as w e l l as  the p r o v i s i o n f o r c o n t r o l w i t h i n t h i s l i m i t by the C a b i n e t ( S e c . 2 ( i i i ) ) , w i l l f u r t h e r reduce l o s s e s , and g i v e f l e x i b i l i t y t o the administration  o f the A c t .  Wartime a g r i c u l t u r a l p o l i c y was a t a l l times s u b j e c t o v e r r i d i n g purpose o f v i c t o r y . increased  I t was designed t o b r i n g  t o the about  p r o d u c t i o n o f d e s i r e d p r o d u c t s , and a t t h e same time*  i t was the p o l i c y t o prevent i n f l a t i o n by the s e t t i n g of p r i c e ceilings.  T h i s r e s u l t e d i n a host o f s u b s i d i e s , most o f which  have now been (9)  discontinued.  The A g r i c u l t u r a l P r i c e s Support A c t Perhaps the most i n t e r e s t i n g l e g i s l a t i o n which w i l l a f f e c t  1 The development o f the p a r i t y p r i c e concept and a d e t a i l e d e x p l a n a t i o n o f the computation o f p a r i t y p r i c e s i s g i v e n in Chapt e r s 14 and 15 o f G e o f f r e y Shepherd, A g r i c u l t u r a l P r i c e A n a l y s i s , 1947, Iowa S t a t e C o l l e g e P r e s s . 2 See S h e f r i n , Frank, A g r i c u l t u r a l P o l i c y : S u b s i d i e s and Bonuses 1943, The Economic A n n a l i s t , F e b . 1944, a l s o P r i c e s , Bonuses and S u b s i d i e s by the same author i n Economic A n n a l i s t , Deo. 1942.  Canadian agriculture during the postwar period i s The A g r i c u l -  81  t u r a l P r i c e s Support Act, 1944. Under t h i s Act an A g r i c u l t u r a l 1  P r i c e s Support Board sets minimum prices at which the Government w i l l buy, or private agencies may buy.  The Act applies to  any natural product of agriculture except wheat, designated by the  Govemor-in-Council, and includes processed meat, dairy and  poultry products, i f so designated.^ The Board i s authorized to buy at the Board p r i c e or to pay to the producers of an a g r i c u l t u r a l product the difference between a p r i c e prescribed by the Board and the average market p r i c e , as determined by the Board, during a specified period i f such average p r i c e i s below the prescribed p r i c e . the  The only hint given to the Board on where to set  prices i s found i n Section 9(2)•  n  I n prescribing p r i c e s  under paragraphs (a) and (c) of subsection one of t h i s section, the Board s h a l l endeavour to ensure adequate and stable returns for agriculture by promoting orderly adjustment from war to peace conditions and s h a l l endeavour to secure a f a i r r e l a t i o n s h i p between the returns from agriculture and those of other occupations." A l l prices so prescribed are subject to the approval of the cabinet. Expenditures under the Act, other than administrative expenses, are to be drawn from the Consolidated Revenue Fund, i n an amount not to exceed two hundred m i l l i o n d o l l a r s .  No date of  1 Statutes of Canada, 8 Geo. 71, C. 29. 2 E f f e c t i v e August 1, 1949, oats and barley produced i n the three P r a i r i e Provinces are marketed through an oat and barley pool operated by the Canadian Wheat Board. I n i t i a l payments are based on support p r i c e s announced by the Federal Government on March 15, 1949, l e s s charges before d e l i v e r y .  , termination i s specified i n the Act. (10)  82  some Observations Up u n t i l 1943,  the Canadian Government had i n one way  and  another i n t e r f e r e d with the open market p r i c i n g of Canadian a g r i c u l t u r a l commodities*  The Government had created the Board of  Grain Supervisors, and used the Central S e l l i n g Agency as a Government s t a b i l i z a t i o n agency, and through the Canadian Wheat Board set minimum p r i c e s f o r wheat from 1935  to June 1943*  interference was never designed as a permanent p o l i c y *  This  I t was  made necessary by the exigencies of the moment. Upc to that time the Government held the view that wheat should be marketed by private trade under the "open market" system*  The l o s s of $61*5  m i l l i o n on the 1938-39 crop, and the storm of protest which the l o s s occasioned, d i d much to confirm t h i s opinion. to r e - e s t a b l i s h the Canadian Wheat Board i n 1935 was  The d e c i s i o n only p a r t l y  a recognition of the necessity for s t a b i l i z a t i o n a c t i v i t i e s as such.  I t was probably more c l o s e l y related to the impending  general e l e c t i o n .  The p r i c e set by the Board i n 1935 was  likely  a shrewd appraisal of f a i r market value and what the farmer 1 The amount spent under the a g r i c u l t u r a l P r i c e s Support Act 1944, up te March 1948, with breakdown was as follows. 1. T o t a l #807,618.90. 2. Administration #75,212.23. 3. To meet net operating l o s s of meat board, dairy products board, and the special products board i n respect to overseas contracts f o r 1946-47, #109,305.18. 4. P r i c e support i n respect to the 1946 potato crop i n eastern provinces, #123,101.49. 5. P r i c e support i n respect to the 1947 apple crop i n Nova Scotia, #500,000.00. Canada, House of Commons Debates, Mar.  3, 1948, p.  1832.  needed to "get by".  83 The Board d i d not apparently have the ser-  vices of s p e c i a l i s t s i n the prediction of demand*  A f t e r the  heavy l o s s on the 1938-39 crop. Parliament took over the task of setting the i n i t i a l f i x e d p r i c e .  The Board had apparently been  subjected to "pressure by various groups, so was now r e l i e v e d of 0  this responsibility. In the postwar period we have had t r a n s i t i o n p r i c e p o l i c i e s such as the Wheat Agreement and the A g r i c u l t u r a l P r i c e s Support Act*  These p o l i c i e s have been designed to ease the change from  war to peacetime conditions of demand.  Their e s s e n t i a l purpose  i s to prevent farmers' incomes from f a l l i n g to very low l e v e l s while postwar adjustments are being made. Canada's long-run postwar a g r i c u l t u r a l p r i c e p o l i c y has not yet been f u l l y formulated*  I t appears, however, that the Govern-  ment w i l l oontinue monopoly marketing of wheat and coarse grains. With regard to other commodities, the A g r i c u l t u r a l P r i c e s Support Board has to date been very c a r e f u l to avoid large expenditures* There are two main reasons:  F i r s t , i t has an annual fund of only  |200,000,000, and second, large p r i c e support expenditures now would set a precedent* With the coming into e f f e c t of the P r a i r i e Farm Assistance Act 1939, income payments to Canadian farmers became an establ i s h e d p r i n c i p l e of our a g r i c u l t u r a l p o l i c y *  There i s l i t t l e  doubt that such payments are preferable to r e l i e f as they bear no stigma; indeed, the scheme might he more seriously c r i t i c i z e d on the grounds that i t presents the i l l u s i o n of an insurance scheme based on the a c t u a r i a l p r i n c i p l e *  The terms of the Act,  however, would bear c a r e f u l review and examination to see  whether:  84  ( l ) i t encourages the c o n t i n u a t i o n o f some sub-marginal  farms, (2) i t encourages the most d e s i r a b l e s i z e of farm as judged by economic and s o c i o l o g i c a l standards* A g r i c u l t u r a l p r i c e supports are now regarded by some economists as the "core" of Canadian a g r i c u l t u r a l p r i c e p o l i c y *  1  While t h i s view i s without doubt a p p l i c a b l e t o the U n i t e d S t a t e s , the  author b e l i e v e s i t t o be l e s s tenable i n Canada*  As pointed  out above, the mere existence o f the Canadian Wheat Board A c t , the  A g r i c u l t u r a l P r i c e s Support A c t , and the two Co-operative  Marketing Acts provide the machinery f o r p r i c e supports, but commit  the Government t o no s p e e i f i o p r i c e or "percentage o f  parity". The emphasis i n Canadian a g r i c u l t u r a l p r i c e p o l i c y has n o t s h i f t e d back from c o n t r o l to i n t e r f e r e n c e *  Instead, Canada has  i n 1949 signed the I n t e r n a t i o n a l Wheat Agreement*  By the terms  of t h i s Agreement, Canada agrees t o supply 203 m i l l i o n bushels of wheat annually f o r f o u r years at a p r i c e l i m i t e d t o a maximum o f $1.80 f o r each of the f o u r y e a r s *  The minimum i s #1*50 per  bushel f o r the f i r s t year and 10 cents l e s s f o r each succeeding year* We can expect t o have a p e r i o d of very considerable c o n t r o l of the p r i c e s of a g r i c u l t u r a l commodities*  This being the case,  i t i s necessary to study the economies of such p r i c e c o n t r o l * The d e c i s i o n t o c o n t r o l has been made*  Our problem now i s the  choice of s p e c i f i c p o l i c i e s which w i l l c o n t r i b u t e t o b e t t e r 1 See E r i c Englund," The Hext Twenty-Five. Years i n World A g r i c u l t u r e ^ w i t h S p e c i a l Reference t o Canadian A g r i c u l t u r e ? A g r i c u l t u r a l I n s t i t u t e Review, A g r i c u l t u r a l I n s t i t u t e of Canada, Ottawa, Canada, p. 3 0 .  resource a l l o c a t i o n and the reduction of i n s t a b i l i t y and uncertainty.  A further requirement i s that p o l i c i e s chosen must be  p o l i t i c a l l y acceptable and consistent with the capacity of the economy to absorb any losses they may incur.  36  CHAPTER 7  FORWARD PRICES Canadian farmers have envied their American cousins ever since the United States adopted the p o l i c y of p a r i t y p r i c e s . Canadian economists have joined t h e i r American counterparts i n condemning p a r i t y prices*  Economists point out that a p r i c e  based upon some past r e l a t i o n s h i p rather than actual or expected supply and demand i n t e r f e r e s with the a l l o c at ive function of the prloe system*  1  The p o s i t i o n of the c r i t i c who has no alterna-  t i v e to o f f e r i s , however, a d i f f i c u l t one*  In 1940, T. W.  Schultz suggested forward p r i o i n g , and t h i s provided the necessary a l t e r n a t i v e *  The p r i n c i p l e of forward p r i c i n g f o r a g r i c u l -  t u r a l products i s now widely supported by a g r i c u l t u r a l and other economists* In a paper given to the American Economic Association i n December, 1940, T* W* Schultz, speaking of loans made by the commodity Credit Corporation, recommended ( l ) that loan rates be based, not upon percentages of p a r i t y , but on "production, marketing, and consumption c r i t e r i a " ,  and (2) that these loan rates  he announced "well i n advance of the time that farmers s t a r t 1 P a r i t y p r i c e s are a type of forward prloe i n that they are announced i n advance of production decisions* They are based upon the p r i n c i p l e of giving a g r i c u l t u r a l commodities a purchasing power equal to that which they enjoyed i n some past "base period"* Forward p r i c e s , as v i s u a l i z e d by Schultz, would be based, not on some past r e l a t i o n s h i p , but on the best possible estimates of future supply and demand*  making plans f o r the production of the new  crop."  These recommendations have evolved into a p o l i c y proposal now known as forward p r i c e s * farm labor e f f i c i e n c y *  The scheme i s designed to improve  This would be accomplished by the Govern-  ment setting the p r i c e of important a g r i c u l t u r a l commodities one production period ahead*  I t i s argued that farmers could then  proceed with t h e i r production plans knowing what r e l a t i v e p r i c e s would be*  Host of the costs of p r i c e uncertainty f o r one produc-  t i o n period would thus be avoided* In depression periods forward p r i c e s would take on a d i f ferent r o l e *  During a depression compensatory payments would be  made to farmers*  These payments would be equal to the d i f f e r e n c e  between market price and the announced forward p r i c e *  The f o r -  ward p r i c e during a depression would be based not on estimates of supply and demand, but on a proportion, say 85 per cent, of the average p r i c e of the three pre-depression years*  Such a p o l i c y  would considerably reduce the p r i c e uncertainty and fear of depression which are the main causes of r i s k aversion and c a p i t a l rationing* A*  Forward P r i c e s for One Production Period  This section deals with p r i c i n g f o r a normal production period*  2  D. Gale Johnson described t h i s part of the proposal as follows:  "Put another way,  our purpose i s to outline a forward  p r i c e p o l i c y which i s not intended to r e s u l t i n income transfers 1 Schultz, T* ¥*, "Economic E f f e c t of A g r i c u l t u r a l Programs", American Economics Review, XXX: 3 (February 1941),pp. 127-54. 2 Normal i s here taken to be a period i n which the economy i s operating at high l e v e l s of employment, and i n which the r e l a t i v e p r i c e mechanism i s e f f e c t i v e l y operating to allocate resources.  to farmers  and w i l l r e s u l t i n such t r a n s f e r s o n l y i f the p r i c e  e x p e c t a t i o n s as formulated a r e i n e r r o r . "  The f o l l o w i n g i s  1  e s s e n t i a l l y a summary of the main economic and a d m i n i s t r a t i v e problems o f such a program as Johnson saw them. major d i f f i c u l t i e s l i k e l y t o be encountered p o l i c y i n Canada w i l l be l e f t t o the next (l)  The a p p r a i s a l o f  i n o p e r a t i n g such a chapter,  The Time P e r i o d F o r Forward P r i c e s The  t i m i n g problem c o n s i s t s o f two p a r t s .  These p a r t s  are t h e p o i n t i n time a t which t o make the announcement, and t h e p e r i o d of time f o r which the p r i c e should be e f f e c t i v e . The farmers  t i m i n g o f the announcement should be such as t o a l l o w a s u f f i c i e n t p e r i o d f o r comparison o f a l t e r n a t i v e oppor-  t u n i t i e s b e f o r e commitments have t o be made* for  The forward p r i c e s  a l l p r o d u c t s should form an i n t e g r a t e d whole* and no product  can be c o n s i d e r e d an e n t i t y i n i t s e l f . The  " p r o d u c t i o n p e r i o d " i s c o n s i d e r e d t o be the time r e -  q u i r e d t o b r i n g about a s i g n i f i c a n t change i n p r o d u c t i o n tions.  opera-  F o r crops the p r o d u c t i o n p e r i o d i s c o n s i d e r e d t o be t h e  time r e q u i r e d f o r p l a n n i n g , p l a n t i n g or seeding, growing, harvest i n g and marketing  the b u l k of the c r o p from any one y e a r ' s  harvest• I n d e f i n i n g p r o d u c t i o n p e r i o d s f o r l i v e s t o c k , i t i s necess a r y t o r e f e r t o p e r i o d s i n which o p e r a t i o n s are c o n c e n t r a t e d i n order t o determine s t o p p i n g and s t a r t i n g p o i n t s . The peaks o f the s p r i n g and f a l l p i g crops a r e a case i n p o i n t .  D a i r y c a t t l e are  g e n e r a l l y bred t o c a l f i n the s p r i n g t o take advantage o f summer p a s t u r e , or i n the f a l l  t o use s u r p l u s l a b o r t o advantage and t o  coincide with high p r i c e s . 1  Breeding  on t h e range f o r beef  cattle  Johnson, D. (*., Forward P r i c e s f o r A g r i c u l t u r e , p . 178.  89  and sheep i s generally timed to take advantage of the spring and summer grass* For hogs and poultry the production periods can be f a i r l y v e i l defined*  For each of the two hog crops, a period of 16  months encompasses the planning and f i n a l marketing of most producers*  For poultry, a period of about 16 months i s necessary to  include egg production and marketing of surplus laying stock*  A  period of 16 to 18 months should prove adequate f o r milk products prices*  Forward p r i c e s for beef c a t t l e o f f e r the greatest d i f -  f i c u l t y i n d e f i n i t i o n of the production period*  These d i f f i c u l -  t i e s arise from the lengthy time between breeding and slaughter, and the importance of the feeder market*  I f forward p r i c e s were  set f o r feeders only, the period could be l i m i t e d to 18 months* Two basic rules are offered f o r use as appropriate guides i n the determination of the length of period and time of announcement .  ( i ) the time of announcement should provide a s u f f i c i e n t  period f o r comparison of alternative opportunities before commitments must be made, and ( i l ) the forward p r i c e should extend suff i c i e n t l y f a r into the future to permit the completion of the marketing f o r the p a r t i c u l a r production period* A storage p o l i c y f o r feed grains to s t a b i l i z e consumption i n time, to the extent consistent with the equation of marginal costs and gains from storage, i s compatible with a forward p r i c e program*  Given a system of forward prices f o r l i v e s t o c k pro-  ducts, a storage program may be used as an implementing technique to achieve forward p r i c e s f o r feed grains* Table 19 i s an adaption of a s i m i l a r table given by Johnson to indicate suitable announcement dates and e f f e c t i v e periods of  the forward p r i c e s f o r s e l e c t e d  90  commodities*  TABLE 19 ANNOUNCEMENT AND EFFECTIVE PERIOD OF THE FORWARD PRICES FOR SELECTED COMMODITIES Commodity Wheat Barley Hogs S p r i n g Hogs F a l l Poultry  Announcement  Effective Period  Feb. 1951 Feb. 1951 N O T * 1950 Mar. 1951 J a n . 1951  J u l y 1951-June J u l y 1951-June Sept.l951-Feb. Feb. 1951-Aug. June 1951-May  1952 1952 1952 1952 1952  When the above d a t e s and p e r i o d s are c o n s i d e r e d i n the  light  of p r e s e n t p r o d u c t i o n p r a c t i c e s , they measure up q u i t e w e l l . i s important t o r e a l i z e t h a t f o r most commodities  It  the forward  p r i c e w i l l have t o extend from s i x t e e n t o twenty-four months* (2)  T r a n s i t i o n Problems I t i s argued t h a t the problems of t r a n s i t i o n from one  ward p r i c e t o another w i l l not be unduly s e r i o u s .  for-  F o r any crop  p r o d u c t the f a c t t h a t changes are made when marketing i s a t a low ebb w i l l minimize the d i f f i c u l t i e s .  Movements upward w i l l  cause  the l e a s t d i s l o c a t i o n because p r e s e n t p r i c e s would tend t o r i s e to  the new p r i c e , l e s s the c o s t of s t o r a g e . T r a n s i t i o n problems f o r l i v e s t o c k which are produced more or  l e s s c o n t i n u o u s l y w i l l be more s e r i o u s *  I n the event o f a r i s e  i n the next p e r i o d , p r o d u c e r s w i l l w i t h h o l d marketings and p r o c e s sors w i l l increase inventories* orderly transition*  T h i s w i l l tend to promote an  I n the event o f a p r i c e r e d u c t i o n f o r the  next p e r i o d , however, the only n a t u r a l l i m i t  to bunch marketing  would be the f a c t t h a t p r i c e i s announced d u r i n g the time when  marketing i s at a minimum*  I t may be necessary to provide a  91  schedule of t r a n s i t i o n p r i c e s so that adjustment may take place over a period of a month to s i x weeks* (3)  S p e c i f i c i t y of guarantees The maximum and minimum l i m i t s of s p e c i f i c i t y have been de-  fined*  The minimum degree of s p e c i f i c i t y would be a national  average farm p r i c e *  The maximum would be a forward p r i c e which  includes s p e c i f i c l o c a t i o n , seasonal and grade d i f f e r e n t i a l s * Such d i f f e r e n t i a l s would be r e l a t i v e l y easy to arrive at i n Canada*  We are accustomed to l o c a t i o n d i f f e r e n t i a l s , and grading  standards are well established and understood f o r most products* A simple procedure f o r including grade l o c a t i o n and seasonal d i f f e r e n t i a l s has been suggested* announced f o r an area*  The forward p r i c e would be  I f the actual prices received i n the area  are on the average below the forward p r i c e , payments would be made to producers f o r the amount of the d e f i c i t *  This plan would  give p r i c e assurance to producers, yet the incentive to f i n d the best possible market outlet would be maintained* (4)  Commodities Included Canadian agriculture i s based l a r g e l y on l e s s than a dozen  crops and l i v e s t o c k products*  There are i n addition many minor  products which compete f o r the use of a g r i c u l t u r a l resources* The choice of products to Include i n such a forward p r i c e program would depend upon the administrative and technical problems i n volved, and the economic relationships among commodities i n production*  I t i s believed that the techniques of d i r e c t subsidy  payments would solve most of the technical and administrative  problems* Where the e l a s t i c i t y o f s u b s t i t u t i o n between two commodities i s l a r g e , one commodity may be excluded i n order t o s i m p l i f y p r o blems o f a d m i n i s t r a t i o n without m a t e r i a l l y a f f e c t i n g r e s o u r c e use*  However, some areas a p p a r e n t l y  differ significantly i n  e l a s t i c i t y o f s u b s t i t u t i o n between commodities* . I f a t t e n t i o n i s given  to t h i s v a r i a b i l i t y , n o t many o f the f e e d g r a i n s can be  excluded* I n any ease where farmers a r e l i k e l y t o f i n d i t d e s i r a b l e t o s h i f t from a product n o t i n c l u d e d t o those t h a t are, the p r o d u c t should be i n c l u d e d *  F a i l u r e t o i n c l u d e such a commodity must  cause f a i r l y s e r i o u s oosts o f f l e x i b i l i t y * The  r e l a t i o n s h i p between f a c t o r s and p r o d u c t s must a l s o be  considered*  The p r i c e e f f e c t s g o i n g from outputs t o i n p u t s  i n d i c a t e t h a t outputs and i n p u t s a r e h i g h l y subs t i t u t a b l e . the s h o r t run, the r e v e r s e i s n o t t r u e *  In  Hogs a r e an example*  A f a l l i n the p r i c e o f b a r l e y w i l l o f t e n r e s u l t i n a w i t h h o l d i n g of hogs f o r b r e e d i n g ,  w i t h a view t o l a r g e p r o f i t s l a t e r *  For-  ward p r i c e s f o r e i t h e r hogs o r b a r l e y alone would p r o b a b l y n o t s t a b i l i z e hog p r o d u c t i o n .  As a consequence, i t would be neces-  s a r y t o i n c l u d e forward p r i c e s f o r b o t h the i n p u t and the output i n the program* (5)  Forward P r i c e Schedules f o r P e r i s h a b l e  Products  I t i s recommended t h a t f o r p e r i s h a b l e crop p r o d u c t s ,  a price  schedule, r a t h e r than a s i n g l e forward p r i e e , be e s t a b l i s h e d * The  p r i c e schedule would be so c a l c u l a t e d t h a t the l e v e l o f f o r -  ward p r i c e s would v a r y i n v e r s e l y w i t h the average y i e l d *  This  would s t a b i l i z e t o t a l r e t u r n per  acre p l a n t e d  regardless  of  the  93  y i e l d which m a t e r i a l i z e d * (6)  Problems o f  Forecasting  A v e r y l a r g e p a r t of the g a i n from forward p r i c i n g would come from the e l i m i n a t i o n o f p r i c e u n c e r t a i n t y r a t h e r than the accuracy of f o r e c a s t s *  The  to the producer  g a i n s from the  reduc-  t i o n of c a p i t a l r a t i o n i n g * i n c r e a s i n g the s i z e of the farm, r e c o m b i n a t i o n of f a c t o r s are a l l of t h i s s o r t *  I t has been  argued t h a t the e r r o r s i n p r i c e f o r e c a s t s can be as g r e a t those of a l l farmers together, gains to j u s t i f y i t s a d o p t i o n .  and  as  s t i l l r e s u l t i n enough net  1  There are good reasons, however, f o r s t r e s s i n g the 2 of e s t i m a t e s .  and  accuracy  O b v i o u s l y the g a i n s w i l l be g r e a t e r i f e s t i m a t e s  are r e l a t i v e l y a c c u r a t e .  Important i n a c c u r a c i e s w i l l l e a d  to  s u b s t a n t i a l t r a n s f e r s of income to a g r i c u l t u r e , accompanied serious p o l i t i c a l repercussions There are two i s the e s t i m a t i o n  i n the r e s t of the  by  economy.  major aspects to the f o r e c a s t i n g problem.  One •  of r e l a t i v e p r i c e s w i t h i n a g r i c u l t u r e ; the  other i s the e s t i m a t i o n  of the d o l l a r l e v e l of p r i c e s , or  the  r e l a t i v e l e v e l of a g r i c u l t u r a l and n o n - a g r i c u l t u r a l p r i c e s . I f the e r r o r s i n the d o l l a r l e v e l of e s t i m a t e s are greater  than f i v e t o ten per  cent and  are n o r m a l l y d i s t r i b u t e d ,  they would not have a major impact on the use resources* importance*  of a g r i c u l t u r a l  E r r o r s i n estimates of r e l a t i v e p r i c e s are The  not  of  greater  e l a s t i c i t y of s u b s t i t u t i o n of outputs i n a g r i -  c u l t u r e i s l a r g e . Thus w i t h p r i c e c e r t a i n t y , e r r o r s i n f o r e c a s t 1 Johnson, D. (J., Forward P r i c e s f o r A g r i c u l t u r e , p. 195* 2 T h i s problem w i l l be examined i n d e t a i l f o r Canada i n the f o l l o w i n g chapter.  94  of some Importance w i l l l e a d t o a d i s t r i b u t i o n o f outputs markedly d i f f e r e n t from that required  t o maximize consumer s a t i s f a c -  tion. I t i s suggested, i n order t o keep s u b s i d i e s t h a t t h e forward p r i c e announced be the expected p r i c e , b u t t o pay s u b s i d i e s  a t a minimum, equilibrium  only when the market p r i c e i s 10 per  cent o r more below the forward p r i c e .  The e s t a b l i s h m e n t o f such  a range would reduce the degree o f p r i c e c e r t a i n t y , but o n l y t o a l i m i t e d extent.  The b e s t estimate o f r e l a t i v e p r i c e s would  s t i l l be the r e l a t i v e forward p r i c e s . Johnson has estimated the c o s t i n the U n i t e d S t a t e s o f oper a t i n g such a program on a 10 per cent e r r o r p e r m i t t e d b a s i s . demand c o n d i t i o n s tures  If  a r e r e a s o n a b l y s t a b l e , annual subsidy expendi-  should not exceed $100 t o $200 m i l l i o n and would p r o b a b l y  average no more than $50 m i l l i o n . B.  Long-Run Income C e r t a i n t y  A substantial portion  and S t a b i l i t y  o f the i n s t a b i l i t y o f Canadian n e t  farm income r e s u l t s f r o m the i n t e r r e l a t i o n s h i p s between a g r i c u l t u r e and the r e s t o f the A t l a n t i c economy r a t h e r tors peculiar to agriculture.  than from f a c -  Extended p e r i o d s o f c y c l i c a l l y low  farm incomes tend t o l e a d t o d i s i n v e s t m e n t and f a i l u r e t o p r o v i d e adequately f o r the w e l f a r e o f farm f a m i l i e s . technological  The stoppage o f  change and a d a p t a t i o n , the maintenance o f s t r i n g e n t  c a p i t a l r a t i o n i n g , and the u n d e r u t i l i z a t i o n o f many human r e s o u r ces,  are a l l p r o d u c t s o f income i n s t a b i l i t y . Much o f the t h i n k i n g  o f American a g r i c u l t u r a l economists on  t h i s problem has been i n terms o f income t r a n s f e r s t o a g r i c u l t u r e during depression periods.  The purpose of such t r a n s f e r s would  be t o p r o t e c t farm income i n the aggregate changes generated  95 from the u n p r e d i c t a b l e  i n the r e s t of the economy*  The p r o p o s a l s  g e n e r a l l y been to m a i n t a i n farm income d u r i n g d e p r e s s i o n s by  hare the  e s t a b l i s h m e n t of some minimum f a r m r e t u r n p e r u n i t of product e q u i v a l e n t to a s e t percentage  o f p r e - d e p r e s s i o n prices*' ' 1  The g e n e r a l arguments i n f a v o r of such a p l a n , and  difficul-  t i e s a n t i c i p a t e d , as viewed by Johnson, w i l l be presented here i n summary. (l)  Minimum L e v e l of Farm Income or P r i c e s F a c t o r s f a v o r i n g a r e l a t i v e l y h i g h minimum l e v e l of income  are as f o l l o w s :  A r e l a t i v e l y h i g h minimum income l e v e l would  permit farmers t o make long-run investments, t a l rationing. people  thus l i m i t i n g  capi-  I t would reduce the s o c i a l h a r d s h i p s which farm  suffer during depressions.  A h i g h minimum l e v e l would  m a i n t a i n farm p u r c h a s i n g power. Among the most important r e s t r i c t i o n s upon how  h i g h such a  l e v e l can be s e t i s the danger of a t t r a c t i n g too many r e s o u r c e s into agriculture.  T h i s i s p a r t i c u l a r l y t r u e i f the a s s i s t a n c e i s  not s e l f - l i q u i d a t i n g , i n o t h e r words, i f n o t h i n g i s done to h o l d down the l e v e l of farm incomes d u r i n g p r o s p e r i t y . p r o p o s a l s does make p r o v i s i o n f o r t h i s . The  suggested  One  of the  2  c r i t e r i a f o r when income payments should com-  mence are changes i n n a t i o n a l income, or the l e v e l of employment. 1 A p p a r e n t l y the f i r s t such p r o p o s a l was by T. V. S c h u l t z , "Two C o n d i t i o n s Necessary f o r Economic P r o g r e s s i n A g r i c u l t u r e " , Canadian J o u r n a l of Economics and P o l i t i c a l S c i e n c e . X (August 1944), pp. 310-11. There have been numerous o t h e r s . See Johnson, D. Or., Forward P r i c e s f o r A g r i c u l t u r e , p. 206. 2 See Shepherd. G. S.. A g r i c u l t u r a l P r i c e P o l i c y , e s p e c i a l l y Chap. 28.  Most w r i t e r s f a v o r the c h o i c e of some s p e c i f i e d l e v e l o f employment a t which income t r a n s f e r s to a g r i c u l t u r e should b e g i n * (2)  D i s t r i b u t i o n o f Income Payments A c h o i c e of t h r e e bases f o r d i s t r i b u t i o n of payments i s pos-  sible*  One  i s to r e l a t e payment t o producers i n terms o f r e s o u r -  c e s owned or c o n t r o l l e d * t i o n or output*  Another i s t o r e l a t e payment to produc-  A t h i r d i s to d i s t r i b u t e payments among farmers  on the b a s i s o f t h e i r u n d e r t a k i n g c e r t a i n f a i r l y s p e c i f i c t a s k s , such as s o i l c o n s e r v a t i o n , c r o p adjustments and programs*  building  1  Johnson's view i s t h a t the f u n c t i o n of the p a r t i c u l a r payments made d u r i n g a d e p r e s s i o n should be kept r e a s o n a b l y cut - to ameliorate the impact upon farm people*  clear  of c y c l i c a l l y f l u c t u a t i n g incomes  T h i s suggests t h a t the payment should be made  as a p r i c e payment* Income payments made as p r i c e payments o n l y , would be r e g r e s s i v e f o r two  reasons*  F i r s t , a s m a l l percentage  farmers would r e c e i v e most of the payments* mers who  of the  Second, those  depend i n p a r t on o u t s i d e employment would get  assistance*  f o r these reasons i t i s suggested  far-  little  t h a t the payments  should i n c l u d e a minimum t o t a l sum which would be p a i d to each bona f i d e farm f a m i l y i n l i e u o f p r i c e payments.  The  suggested  payment i s twenty d o l l a r s per y e a r per f a m i l y member* There i s the f u r t h e r problem o f how are t o be d i s t r i b u t e d among p r o d u c t s *  compensatory payments  One  suggestion i s that  1 The l a t t e r i s the view o f John D* B l a c k . See B l a c k , J . and K i e f e r , M. E., Future Food and A g r i c u l t u r e P o l i c y .  D.,  97  p r o d u c t i o n o f v a r i o u s p r o d u c t s be  e v a l u a t e d i n terms o f p r i c e r e -  l a t i o n s h i p s among a g r i c u l t u r a l p r o d u c t s which would p r e v a i l i f f u l l employment e x i s t e d at the time* farm p r i c e s would be determined by t o t a l amount of payment*  The  average l e v e l of a l l  the c r i t e r i o n d e t e r m i n i n g  An a l t e r n a t i v e i s t h a t the e x t r a a g r i -  c u l t u r a l p r i c e r e l a t i o n s h i p s be based on the average p r i c e s three depression years*  the  of  S p e c i f i c a l l y * the average p r i c e f o r each  commodity would be determined f o r the p r e - d e p r e s s i o n y e a r s * minimum assured p r i c e f o r each commodity would be  The  t h i s average  p r i c e * reduced by the percentage change i n the average l e v e l prices required  t o m a i n t a i n net a g r i c u l t u r a l income a t the  of  chosen  percentage o f p r e - d e p r e s s i o n l e v e l * (5)  Administrative  and Economic I s s u e s  (i) Integration The  o f D e p r e s s i o n and Non-depression programs*  onset of a d e p r e s s i o n a f t e r non-depression forward  p r i c e s have been s e t i n v o l v e s  an i n t e g r a t i o n problem*  The  price  s e t t i n g agency would be f a c e d w i t h the d e c i s i o n of whether to m a i n t a i n the announced p r i c e , or to immediately change t o lower p r i c e *  The  the  f u l f i l l m e n t of the conmitments i s c o n s i d e r e d to  be d e s i r a b l e from the p o i n t o f view of l o n g - r u n e f f e c t i v e n e s s the p r i c e p o l i c y *  I t i s c o n s i d e r e d u n l i k e l y t h a t income t r a n s -  f e r s from t h i s procedure w i l l be opinion  of  very large*  I n Johnson's  the emergence from a d e p r e s s i o n i s not l i k e l y to e n t a i l  s e r i o u s problems i n (ii) Duplication  administration* o f Payments.  There are s e v e r a l o p i n i o n s on the s e r i o u s n e s s of d u p l i c a t i o n of payments.  Johnson argues t h a t s i n c e i n h i s p r o p o s a l s  t h e r e i s no forward p r i c e f o r f e e d g r a i n s *  i n f l a t e d sales  will  not  be a major problem*  Some economists b e l i e v e , however, t h a t  98  s a l e s back and f o r t h between farmers i n order t o d u p l i c a t e payments would be common*  1  ( i i i ) D i s t o r t i o n o f Resource Use* When there i s a g e n e r a l f a l l i n w h o l e s a l e p r i c e s farmers would be a b l e t o buy l a r g e q u a n t i t i e s o f cheap f e e d g r a i n s as feed f o r l i v e s t o c k *  They would s e l l t h e p r o d u c t a t market p r i c e  p l u s compensatory payment*  Other u s e r s o f g r a i n s , such as m i l -  l e r s and brewers, would be a t a disadvantage*  Therefore,  r e s o u r c e use would s h i f t toward l i v e s t o c k p r o d u c t i o n *  Similarly,  farmers would be a b l e t o buy f e e d e r s and f i n i s h them t o g e t compensatory payments. It  i s suggested t h a t the s o l u t i o n t o t h i s d i f f i c u l t y may  be found i n one of two t e c h n i q u e s .  One i s s u b s i d i z e t h e non-  a g r i c u l t u r a l use i n the same way t h a t t h e a g r i c u l t u r a l use i s subsidized*  The other i s t o r e q u i r e the farmer buying t h e p r o -  duct t o make the compensatory p r i c e payment.  T h i s procedure  would e q u a l i z e the r e l a t i v e buying power o f farmers and nonfarmers*  I t would appear t h a t i t could be r e s t r i c t e d t o r e l a -  t i v e l y few commodities, p r o b a b l y f e e d e r c a t t l e , wheat and b a r l e y , (iv)  The R o l e o f S t o r a g e . Storage should r e t a i n the r o l e o f a t t a i n i n g the appro-  p r i a t e d i s t r i b u t i o n o f consumption i n time by s t a b i l i z i n g the amount a v a i l a b l e f o r consumption from year t o y e a r d e s p i t e y i e l d fluctuations.  P u b l i c storage should a l s o be used t o o f f s e t  changes i n p r i v a t e storage which r e s u l t from the maintenance o f farm p r i c e r e t u r n s w h i l e markets 1  fall*  Shepherd, 6* F., A g r i c u l t u r a l P r i c e P o l i c y , p . 376.  (4)  99  Summary*  Forward p r i c e s d u r i n g a d e p r e s s i o n would be a program o f i n come maintenance*  The major f e a t u r e s o f such a program would be  as f o l l o w s : 1*  When a d e p r e s s i o n has s t a r t e d , a s e r i e s o f forward  p r i c e s w i l l be announced which w i l l g i v e a g r i c u l t u r e i n t h e aggregate  an estimated 75 p e r cent o f the p r e - d e p r e s s i o n n e t  a g r i c u l t u r a l income* 2.  The forward p r i c e s w i l l have time spans o f approximately  one p r o d u c t i o n p e r i o d *  They w i l l be determined  the average p r i c e o f the l a s t 3*  on t h e b a s i s o f  three pre-depression years*  Market p r i c e s w i l l be p e r m i t t e d t o seek t h e i r own l e v e l ,  and t h e d i f f e r e n c e between the market p r i c e s and the d e p r e s s i o n forward p r i c e s w i l l be p a i d t o a g r i c u l t u r a l producers  as a com-  p e n s a t o r y payment* 4*  F o r c e r t a i n products such as t h e major f e e d g r a i n s , no  compensatory payments would be needed because t h e i r p r i c e depend upon l i v e s t o c k p r i c e s *  will  100  CHAPTER 8  THREE MAJOR DIFFICULTIES IB A FORWARD PRICE PROGRAM FOR CANADA The p r e v i o u s c h a p t e r o u t l i n e d a program o f forward p r i c e s as v i s u a l i z e d by some a g r i c u l t u r a l economists i n the U n i t e d S t a t e s * Such a program appears t o f u l f i l l most o f the requirements o f a d e s i r a b l e p r i c e p o l i c y f o r Canada.  Three major d i f f i c u l t i e s o f  forward p r i c e s as an a g r i c u l t u r a l p r i c e p o l i c y f o r Canada w i l l now be c o n s i d e r e d . A.  1  The Problem  of Forecasting  Johnson m a i n t a i n s t h a t e r r o r s i n p r i c e f o r e c a s t s can be as g r e a t or g r e a t e r than the c o l l e c t i v e e r r o r s o f a l l farmers, and the n e t g a i n s from a forward p r i c e system would s t i l l j u s t i f y i t s adoption.  The g a i n s , he b e l i e v e s , are l a r g e l y from the e l i m i n a -  t i o n o f p r i c e u n c e r t a i n t y t o the producer, r a t h e r than the accuracy of f o r e c a s t s .  * The g a i n s from the r e d u c t i o n of c a p i t a l  r a t i o n i n g , i n c r e a s i n g the s i z e o f the f i r m and recombination o f f a c t o r s are a l l o f t h i s s o r t . "  3  The f i r s t two o f t h e s e , how-  ever, would be l a r g e l y the r e s u l t o f h i s l o n g - r u n c o u n t e r c y c l i c a l program o f p r i c e maintenance r a t h e r than the e f f e c t o f c e r t a i n t y w i t h i n one p r o d u c t i o n p e r i o d . 1 These are n o t by any means the o n l y d i f f i c u l t i e s w i t h such a scheme. A l l the o t h e r s , however, appear t o l e n d themselves t o more simple s o l u t i o n s than do these t h r e e . 2 Johnson, D. G., Forward P r i c e s f o r A g r i c u l t u r e , p . 195. 3 I b i d , p . 195.  There are two  101 One  main aspects to the f o r e c a s t i n g problem.  i s the e s t i m a t i o n of r e l a t i v e p r i c e s w i t h i n a g r i c u l t u r e ; the other i s the e s t i m a t i o n prices.  of the d o l l a r l e v e l o f a g r i c u l t u r a l  E r r o r s i n e s t i m a t e s o f the r e l a t i v e l e v e l are l i k e l y  have the more s e r i o u s e f f e c t on e f f i c i e n c y .  T h i s i s because  p o s s i b i l i t y of t r a n s f e r r i n g f a c t o r s of p r o d u c t i o n t o another i s very g r e a t .  from one  te the  output  E r r o r s i n the estimate o f the average  l e v e l of farm p r i c e s which r e s u l t i n l a r g e income t r a n s f e r s to farmers are not c o n s i s t e n t w i t h the b e s t use  of a l l r e s o u r c e s .  I n a d d i t i o n they are l i k e l y to generate p o l i t i c a l storms i n Canada s u f f i c i e n t l y g r e a t to p a r a l y z e (l)  Forecasting The  the program.  the P r i c e of Wheat  g r e a t e s t s i n g l e f o r e c a s t i n g problem which the p r i c i n g  agency would f a c e i s t h a t of p r e d i c t i n g the world p r i c e of wheat one p r o d u c t i o n  p e r i o d i n advance.  of the world demand and (i)  supply  An examination of the nature  of wheat emphasizes t h i s p o i n t .  The E l a s t i c i t y o f Demand.  Three c a l c u l a t i o n s of the e l a s t i c i t y o f demand f o r wheat have r e c e i v e d c o n s i d e r a b l e  attention.  These may  be  summarized i n  terms of the c o e f f i c i e n t s of e l a s t i c i t y of demand s t a t e d by authors i n t h e i r c a l c u l a t i o n s or i m p l i c i t i n t h e i r Gregory K i n g (1899) e -.36 R.A. L e h f e l t (1914) e -.61 G.E. Warren & E.A. P e a r s o n (1928)  the  assumptions.  1  B  a  The no  e = -.71  to  1.23.  e l a s t i c i t y of demand f o r a c t u a l consumption i s so s m a l l trustworthy  measurements have been o b t a i n a b l e .  2  The  that  following  1 Working, H., "The E l a s t i c i t i e s of Demand f o r Wheat", read b e f o r e the meeting of the Econometric S o c i e t y h e l d i n Chicago, I l l i n o i s , Dec. 28, 1936, and summarized i n Econometrica, V. Bb. (1937), pp. 185-86. 2Loc* c i t .  2  102 are estimates o f upper l i m i t s by Holbrook Working. For the p e r i o d 1921-35, f o r which Working used the p e r c a p i t a u t i l i z a t i o n , l e s s seed and l e s s changes i n s t o c k s , he obt a i n e d an e l a s t i c i t y o f demand o f H = 0.24 - 0.09.  This i s very  c l o s e t o t h a t o f S c h u l t z H • 0.21 - 0.04 f o r the p e r i o d 1921-34. The  f a c t t h a t the world demand f o r wheat i s v e r y  1  inelastic  i s of paramount importance i n the c o n s i d e r a t i o n o f p r i c e p o l i c y . An i n e l a s t i c demand means t h a t w i t h a g i v e n demand f u n c t i o n a l a r g e world crop means a s m a l l world (ii)  price.  Elements i n the Demand f o r Wheat F o r Use.  The use of a s i n g l e f i g u r e as a measure o f the e l a s t i c i t y o f demand f o r wheat assumes a constant e l a s t i c i t y throughout whole range o f the demand c u r v e . f o r wheat.  the  T h i s assumption i s not v a l i d  Joseph S. D a v i s has d e f i n e d s i x main elements i n the  demand f o r wheat f o r u s e , which d i f f e r w i t h r e s p e c t t o importance, stratum o r l e v e l , and degree o f e l a s t i c ! t y .  2  (a) The demand f o r seed, s l i g h t l y v a r i a b l e but somewhat • Inversly elastic; (b) a f a i r l y constant and h i g h l y i n e l a s t i c demand f o r food use; (c) a v a r i a b l e but somewhat e l a s t i c demand f o r food u s e ; (d) a h i g h l y e l a s t i c demand f o r food use i n a l o w - p r i c e stratum; (e) the demand f o r feed use, i n c l u d i n g another h i g h l y e l a s t i c demand element f o r a l o w - p r i c e stratum; ( f ) a demand f o r i n d u s t r i a l use, t h e o r e t i c a l l y h i g h l y e l a s t i c , but of a p r i c e stratum so low t h a t i t i s of almost n e g l i g i b l e p r a c t i c a l importance. 1 S c h u l t z , H., The Theory & Measurement of Demand, The U n i v e r s i t y o f Chicago P r e s s , Chicago, I l l i n o i s o , 1 9 3 8 , p . 400. 2 D a v i s , J . S., "The World Wheat Problem", Wheat S t u d i e s , V o l . 8, Nov. 1931-Sept. 1932, of the Food R e s e a r c h I n s t i t u t e , S t a n f o r d U n i v e r s i t y , C a l i f om i a , pp. 409-444.  103 Of these s i x elements,the  most important  to consider i n  p r i c e f o r e c a s t i n g are (b) and ( c ) ; (b)  There i s a h i g h l y i n e l a s t i c demand f o r wheat f o r food  i n c o u n t r i e s where wheat f l o u r and bread a r e among the cheapest s t a p l e s o f the customary d i e t , and are bought and consumed i n a l most the same p e r c a p i t a q u a n t i t i e s from y e a r t o y e a r , c a l l y r e g a r d l e s s of whether p r i c e s are h i g h or low*  practi-  Such  c o u n t r i e s i n c l u d e the U n i t e d S t a t e s , Prance, Canada, A u s t r a l i a , Great B r i t a i n and p r o b a b l y s e v e r a l o t h e r s * are l i m i t e d c l a s s e s of people i n almost bute a p o r t i o n of t h i s demand*  In a d d i t i o n , there .  every country who  contri-  At present w e l l over a t h i r d ,  and p o s s i b l y over h a l f of the world wheat p r o d u c t i o n , goes t o supply t h i s most i n e l a s t i e element i n the demand* (c)  The t h i r d element i s a demand f o r wheat f o r food i n  c o u n t r i e s , or among c l a s s e s , where i t i s a s t a p l e o f the d i e t , but not the cheapest  c e r e a l f o o d i n common u s e , and where more  wheat or l e s s of other c e r e a l s w i l l be used i f wheat can be a f f o r ded* T h i s demand f o r wheat i s o f s u b s t a n t i a l q u a n t i t a t i v e importance - second only t o the constant element mentioned above*  It  r e p r e s e n t s perhaps a f o u r t h t o a t h i r d of t o t a l consumption nowadays, i f R u s s i a be i n c l u d e d *  T h i s demand i s moderately  The more expensive wheat i s , the l e s s o f i t these people the cheaper wheat i s the more they eat of i t *  elastics consume;  To a c o n s i d e r a b l e  e x t e n t , however, i t i s n o t t h e absolute p r i c e of wheat which determines  consumption, but r a t h e r the p r i c e r e l a t i v e t o other  cereals. The f i r s t t h r e e elements l i s t e d i n the demand f o r wheat  account f o r almost a l l the world's wheat consumption  i n years of  s c a r c i t y , and somewhat l a r g e r a b s o l u t e q u a n t i t i e s i n y e a r s o f abundance.  The remaining t h r e e p r o b a b l y have not absorbed  as  much as 1 0 per cent of the world's crop i n any peacetime y e a r , and the average over any such f i v e - y e a r p e r i o d has p r o b a b l y not exceeded  5 per cent*  (iii)  S p e c u l a t i v e Demand.  I n a d d i t i o n to these v a r i o u s c l a s s e s of demand f o r wheat f o r d i f f e r e n t uses, there i s a s p e c u l a t i v e demand t h a t v a r i e s g r e a t l y i n i n t e n s i t y w i t h a n t i c i p a t i o n s of p r i c e advances clines*  or p r i c e de-  Farmers, d e a l e r s and m i l l e r s , as w e l l as s p e c u l a t o r s  proper, c o n t r i b u t e t o t h i s element  o f demand*  The burden o f a  s u r p l u s i s l e s s e n e d i f the d i s p o s i t i o n to h o l d wheat i s s t r o n g and widespread, and i n c r e a s e d i f t h i s d i s p o s i t i o n i s weak o r limited*  Moreover,  through e f f e c t s on p r i c e s , e l a s t i c  elements  i n d i s p o s i t i o n , and acreage and p r o d u c t i o n , the c o n d i t i o n o f t h i s s p e c u l a t i v e demand may  a f f e c t even the volume o f the s u r p l u s or  shortage* (iv)  The World Market Supply o f Wheat.  The world market supply of wheat i s o r d i n a r i l y v e r y i n e l a s tic*  Most e x p o r t i n g c o u n t r i e s u s u a l l y p l a c e almost t h e i r  entire  s u r p l u s over domestic requirements on the market, r e g a r d l e s s o f price* C e r t a i n wheat marketing p o l i c i e s have a t times c o n t r i b u t e d t o the accumulation o f wheat c a r r y o v e r s even i n the absence s p e c i f i c i n t e n t i o n s t o w i t h h o l d wheat from the market*  of  Accumu-  l a t i o n has o c c u r r e d i n the hands o f such marketing o r g a n i z a t i o n s  as the Canadian Wheat P o o l .  Government i n t e r v e n t i o n by the  F e d e r a l Farm Board i n the U n i t e d S t a t e s i s worth n o t i n g . such measures succeeded i n m a i n t a i n i n g domestic  price*  105  While  they  probably had v e r y l i t t l e e f f e c t on the world market. I n c o n t r a s t t o the constant nature o f the world market demand f o r wheat the market supply i s s u b j e c t t o c o n s i d e r a b l e change annually* TABLE 20 APPROXIMATE WORLD WHEAT SUPPLIES AND DISAPPEARANCE ANNUALLY FROM 1934-35 TO 1944-45 World Ex - U.S.S.R. (Million Year AugustJulv 1934-35 1935-36 1936-37 1937-38 1939-40 1940-41 1941-42 1942-43 1943-44 1944-45  Initial Stocks 1,187 938 750 512 594 1,150 1,400 1,550 1,785 2,000 1,425  Crop 3,491 3,561 3,515 3,802 4,564 4,197 3,915 3,943 4,079 3,925 3,982  bushels) USSR Exports  Total Supplies  Disappearance  2 29 5 43 34 -b 8 -b -b -b -b  4,680 4,528 4,270 4,357 5,192 5,347 5 , 323 5,493 5,864 5,925 5,407  3,742 3,778 3,758 3,763 4,042 3,947 3,773 3,708 3,864 4,500 —  b - n e t imports Source: World G r a i n Review & Outlook, 1945. Farnsworth, Helen C , and Timoshenko, V. P., Food R e s e a r c h I n s t i t u t e , S t a n f o r d U n i v e r s i t y , p . 275. I t can be seen from Table 21 t h a t world y i e l d p e r a c r e i s remarkably  constant.  T h i s i s n o t t r u e of the y i e l d s p e r acre i n  the f o u r major e x p o r t i n g c o u n t r i e s , U n i t e d S t a t e s , Canada, Aust r a l i a and A r g e n t i n a .  The l a t t e r v a r i a t i o n s are the more s i g -  n i f i c a n t due t o t h e i r g r e a t e r e f f e c t on world  price.  106 TABLE 21 WHEAT PRODUCTION, ACREAGE AND YIELD PER ACRE IN THE WORLD, AND YIELD PER ACRE OF FOUR.CHIEF EXPORTERS FROM 1928-1944 PRODUCTION ( M i l l i o n Bushels) • • World  I  Ex : USSR.  Year 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944  _  mm  Source: (v)  4,040 3,593 3,886 3,881 3,878 3,813 3,491 3,561 3,515 3,802 4,564 4,197 3,915 3,943 4,079 3,925 3,982  Chief Exporters 1,990 1,419 1,753 1,674 1,654 1,297 1,176 1,196 1,250 1,449 1,815 1,603 1,735 1,663 1,922 1,485 1,720  ACREAGE (Millions) Four : World Chief : Ex : USSR. E x p o r t e r s 266.2 259.7 267.7 264.7 268.1 271.5 265.0 267.3 276.2 284.6 287.8 270.1 264.4 261.6 242.1 243.8 257.0  132.9 127.9 131.9 124.9 129.0 129.6 119.4 119.9 131.1 140.8 140.6 120.7 120.5 114.5 100.1 96.7 112.0  YIELD (Bushels p e r Acre) Four : World Chief : Ex : USSR. Exportei 15.2 13.8 14.5 14.7 14.5 14.0 13.2 13.3 12.7 13.4 15.9 15.5 14.8 15.1 16.8 16.1 15.5  15.0 11.1 13.3 13.4 12.8 10.0 9.8 10.0 9.5 10.3 12.9 13.3 14.4 19.2 15.4 15.4  -  World G r a i n Review and Outlook, p . 276. The E f f e c t o f N a t i o n a l P o l i c i e s on Demand, Supply and P r i c e .  The t h i r d element i n the demand f o r wheat mentioned above i s moderately e l a s t i c .  1  On the whole, i t i s t h i s element i n the de-  mand f o r wheat t h a t , i f allowed f r e e p l a y , would a f f o r d the g r e a t e s t c o n t r i b u t i o n t o wheat p r i c e s t a b i l i t y by l e a d i n g t o enl a r g e d consumption when wheat i s abundant and cheap, and t o cont r a c t i o n when wheat i s r e l a t i v e l y s c a r c e and d e a r .  I t i s this  1 There i s a demand f o r wheat f o r food i n c o u n t r i e s , o r among c l a s s e s , where i t i s a s t a p l e of the d i e t , but not the cheapest f o o d i n common u s e .  107 element which i s p a r t i c u l a r l y r e s t r i c t e d by government p o l i c i e s i n many c o u n t r i e s i n times of s u r p l u s . N a t i o n a l p o l i c i e s w i l l l i k e l y p l a y an ever g r e a t e r p a r t i n d e t e r m i n i n g the e f f e c t i v e world supply and demand o f wheat. p o l i c i e s are not o n l y extremely d i f f i c u l t to p r e d i c t , but  Such  their  r e s u l t s even i n h i n d s i g h t present f o r m i d a b l e problems of a p p r a i s a l . ' C o n f l i c t i n g views on the p r i c e e f f e c t o f the U.S.A. export s u b s i d i e s of 1938-39 g i v e some i n d i c a t i o n of the  diffi-  culty. The U n i t e d S t a t e s Department of A g r i c u l t u r e Bureau of Economics p u b l i c a t i o n , "The Wheat S i t u a t i o n " , s t a t e d t h a t no n o t i c e a b l e d e c l i n e i n world wheat p r i c e s o c c u r r e d because o f subs i d i e s i n 1938-39.  I t was  estimated t h a t i n the p r e v i o u s f o u r -  t e e n years, an i n c r e a s e o f 60 m i l l i o n b u s h e l s t o the world had been connected Liverpool.  The  w i t h a r e d u c t i o n of 5 eents i n the p r i c e a t  a r t i c l e went on to say t h a t the s u b s i d i e s d i d n o t  change the world supply o f wheat. was  supply  The q u a n t i t y o f wheat which  s o l d i n i n t e r n a t i o n a l trade would p r o b a b l y have been about  the same w i t h or without the U n i t e d S t a t e s s u b s i d y . criticized  the assumption  and contended  1  Timoshenko  that, on the c o n t r a r y , the  s u b s i d i e s had the e f f e c t of l o w e r i n g the world p r i c e by a t l e a s t 10 c e n t s per b u s h e l . argued  2  Nelson has i n t u r n a t t a c k e d Timoshenko and  t h a t the a c t u a l p r i c e f o r the y e a r was  than 10 c e n t s l e s s than the most probable The y e a r 1931-32 was  3.4  price.  cents, rather 3  a d m i t t e d l y a v e r y unusual one f o r the  1 Quoted i n Nelson, R.S., "Export S u b s i d i e s and Income", J J E , V o l . X X I I I , Aug. 1941, pp. 619-631. 2 Wheat S t u d i e s , October 1940, p. 83. 3 Nelson, R. S., op. c i t . , p. 624.  Agricultural  world'wheat t r a d e .  Estimates  108  o f the e f f e c t of some n a t i o n a l  p o l i c i e s d u r i n g the p e r i o d g i v e an i n d i c a t i o n o f what can happen however.  Combining the e f f e c t s o f i n t e r n a t i o n a l t r a d e and  other  wheat market r e s t r i c t i o n i n I t a l y , France and Germany, i t has been estimated  t h a t consumption was  reduced i n 1931-32 by  135 m i l l i o n b u s h e l s , w h i l e p r o d u c t i o n was million.  1  I t has been estimated  i n c r e a s e d by  million  Under normal c o n d i t i o n s , and i f the g e n e r a l l e v e l  p r i c e s were about the same as 1932, f o r world  105  t h a t i f no r e s t r i c t i o n s had been  i n e f f e c t the c a r r y o v e r might have been reduced by 400 bushels.  fully  of  a change i n t o t a l accounted-  s u p p l i e s of 400 m i l l i o n bushels may  be expected to r e -  s u l t i n a change of between 15 and 20 cents per b u s h e l i n the 2 p r i c e of wheat at L i v e r p o o l . (vi)  How  A c c u r a t e l y Can  the P r i c e of Wheat be  Forecast?  The problem of f o r e c a s t i n g the world market p r i c e of wheat one y e a r i n advance i s at once s t a t i s t i c a l , p o l i t i c a l and b i o logical.  The problem i s made even more d i f f i c u l t by the  i n e l a s t i c nature how  of the demand curve f o r wheat f o r u s e .  very As f o r  a c c u r a t e l y the p r i c e of wheat c o u l d be p r e d i c t e d , we  simply  do not know. Given comparable s t a t i s t i c s prediction,/f^rmulae, such as t h a t developed by Bosland B o s l a n d s formula, 1  probably would not be v e r y s u c c e s s f u l .  i n any ease, was  based on i n f o r m a t i o n  able i n October and p r e d i c t e d only f o r the crop y e a r .  3  avail-  E . W.Pjettee  1 World Trade B a r r i e r s i n R e l a t i o n to American A g r i c u l t u r e , U n i t e d S t a t e s Government P r i n t i n g O f f i c e , Washington: 1933,p. 167. 2 I b i d , p . 170. 3 Bosland, C. C«» " F o r e c a s t i n g the P r i c e o f Wheat", J o u r n a l o f the American S t a t i s t i c a l A s s o c i a t i o n , June, 1926, pp. 149-161•  has  a p p r a i s e d the s h o r t term f o r e c a s t i n g  the U n i t e d S t a t e s  f o r the p e r i o d  109 of commodity p r i c e s i n  1920-29.  Only those p r e d i c -  1  t i o n s made w i t h i n some s i x months o f each c y c l i c a l t u r n i n g were i n c l u d e d . 1920,  1922,  The  1923,  t u r n i n g p o i n t s were c o n s i d e r e d to he  1924,  1925-26, 1927,  1929.  His  a f t e r examining the p r o f e s s i o n a l f o r e c a s t s , was  Assuming t h a t the f o r e c a s t i n g agency could  the  conclusion,  t h a t the  c a s t e r s hare been m o s t l y r i g h t l e s s than h a l f the  point  fore-  time.  remove any  cause  of c o n s i s t e n t h i a s , t h e i r e r r o r s should he d i s t r i b u t e d evenly among p l u s and minus m i s t a k e s .  The  n e g a t i v e e r r o r s may  p r o d u c t i o n of too much coarse g r a i n .  result i n  Positive errors, i f large  enough, w i l l r e s u l t i n s u b s t a n t i a l income t r a n s f e r s to f a r m e r s . I t cannot be distributed. may  assumed, however, t h a t the e r r o r s w i l l be Crop f a i l u r e and  go hand i n hand.  export s u b s i d i e s  increases  normally  i n s p e c u l a t i v e demand  I n c r e a s e d t a r i f f s , quotas, mixing r u l e s  a r ^ the world's answer to l a r g e c r o p s .  Wheat  p r i c e f o r e c a s t s might w e l l be l i k e the l i t t l e g i r l w i t h the When she was  good she was  v e r y good, and  when she was  bad  and  curl.  she  was  horrid. I f forward p r i c e s f o r wheat are to be t o be  announced i n February  e f f e c t i v e J u l y to June i n c l u s i v e , the d a t a must be  ted i n January.  By t h a t date world c a r r y o v e r  should be f a i r l y d e f i n i t e , and showing up.  the  trend  collec-  (ex-Russia) f i g u r e s  of b u s i n e s s should  be  There w i l l be no i n d i c a t i o n of y i e l d s , or even  1 P e t t e e , E . W., F o r e c a s t i n g the Commodity P r i c e L e v e l , 1850-1930. An a p p r a i s a l of 150 P r e d i c t i o n s ; A P a r t of a D i s s e r t a t i o n submitted to The F a c u l t y of The D i v i s i o n of The S o c i a l S c i e n c e s f o r Ph.D. P r i v a t e E d i t i o n , d i s t r i b u t e d by The U n i v e r s i t y of Chicago L i b r a r i e s , Chicago, I l l i n o i s .  i n t e n t i o n to p l a n t . w i l l be a v a i l a b l e .  Very l i t t l e  110 evidence as t o n a t i o n a l p o l i c i e s  Under these circumstances, e r r o r s i n supply  estimates w i l l p r o b a b l y f r e q u e n t l y be i n the neighborhood  of  one  to two m i l l i o n b u s h e l s , and o c c a s i o n a l l y as h i g h as f o u r m i l l i o n or more. In  the p o s t World War  I I e r a c o n d i t i o n s o f t r a d e are  such  t h a t an i n c r e a s e i n supply of 400 m i l l i o n bushels might r e s u l t i n a change i n p r i c e of say 20 c e n t s .  1  I f the f o r e c a s t p r i c e were 2  $1.00, the Government would then pay farmers 10 c e n t s per bushel. The c o s t under these circumstances would be i n the of  $40 m i l l i o n .  average  Supposing  neighborhood  t h a t such an e r r o r o c c u r r e d on the  every f i v e y e a r s , the average c o s t per y e a r would be  $8  million. Even i f the a c t u a l c o s t would be c o n s i d e r a b l y h i g h e r t h i s , i t p r o b a b l y would be p o l i t i c a l l y  acceptable.  than  Judged b e s i d e  the annual expenditure o f $200 m i l l i o n allowed the A g r i c u l t u r a l P r i c e s Support Board, the f i g u r e i s s m a l l i n d e e d .  I t seems t h a t  a forward p r i c e f o r Canadian wheat i s a p r a c t i c a l and workable concept.  The t a s k of f o r e c a s t i n g p r i c e i s an e x c e e d i n g l y complex  one, however, and hot t o be entered i n t o l i g h t l y . t h a t d e s p i t e the d i f f i c u l t i e s  I t would appear  and i n a c c u r a c i e s the g a i n s from  a program would outweigh the c o s t .  These g a i n s would r e s u l t  such from  the i n c r e a s e d l a b o r e f f i c i e n c y and b e t t e r a l l o c a t i o n of f a c t o r s 1 T h i s i s n o t h i n g more than a"guesstimate". I n 1927 Eolbrook Working estimated t h a t i n a y e a r o f s h o r t supply, a d i f f e r e n c e o f 3 per cent i n the amount of wheat a v a i l a b l e would make a d i f f e r ence of 15 or 20 p e r cent i n the p r i c e . Working, H., "Forec a s t i n g the P r i c e of Wteat", V o l . X I , Wheat S t u d i e s , J u l y , 1929, p. 273-287. ' ~ 2 Johnson's s u g g e s t i o n i s t h a t payments be based on the d i f f e r e n c e between market p r i c e and 90 per cent of the forward p r i c e .  of p r o d u c t i o n among p r o d u c t s made p o s s i b l e by the program. (vii)  Ill  A s s u r i n g Forward P r i c e s by C o n t r a c t .  At the c l o s e o f World War I I the Canadian Government entered i n t o n e g o t i a t i o n s w i t h the U n i t e d Kingdom f o r a c o n t r a c t t o supp l y wheat.  The c o n t r a c t announced on J u l y 25, 1946,  the crop y e a r s 1946-47 t o 1949-50 i n c l u s i v e .  1  was t o cover  Such c o n t r a c t s as  the p r e s e n t one are l i k e l y t o p r o v i d e a p r i c e c e r t a i n t y which i s v e r y expensive f o r Canadian farmers.  I t i s i m p o s s i b l e t o prepare  accurate e s t i m a t e s o f what the wheat agreement c o s t Canadian farmers.  There i s evidence, however, t h a t from 1946-47 t o  1948-49 the sum would be i n the neighborhood  o f $500 m i l l i o n .  E s t i m a t e s prepared by the Sanford Evans S t a t i s t i c a l S e r v i c e were based upon p r i c e per b u s h e l a t an average Saskatchewan p o i n t , compared w i t h the farm p r i c e i n the U n i t e d S t a t e s .  The e s t i m a t e s  i n d i c a t e a d i f f e r e n c e i n v a l u e o f Canadian wheat from t h a t d e t e r mined by the world market as shown i n Table 22. TABLE 22 DIFFERENCE IN VALUE OF CANADIAN WHEAT FROM THAT _ DETERMINED BY THE WORLD MARKET 1946-47 TO 1948-49  2  Crop Y e a r  D i f f e r e n c e i n v a l u e based on U.S. P r i c e  1946-47 1947-48 1948-49  126,322,686 233,580,351 140,705,941  $  Total -  500,608,978  1 See Chapter 6, Shepherd has r e f e r r e d t o t h i s c o n t r a c t as a s o r t of forward p r i c e . Shepherd, G. S., A g r i c u l t u r a l P r i c e P o l i c y p. 289. 2 Average P r i c e s Received by Farmers i n Canada and the U n i t e d S t a t e s i n the Crop Y e a r s 1945-46, 1946-47, 1947-48 and 1948-49. P r e p a r e d by the Sanford Evans S t a t i s t i c a l S e r v i c e , d i s t r i b u t e d by the Winnipeg G r a i n Exchange.  112 F o r e c a s t i n g the P r i c e o f L i v e s t o c k and L i v e s t o c k P r o d u c t s  (2)  The w r i t e r has searched the Canadian l i t e r a t u r e of a g r i c u l t u r a l economics i n v a i n f o r an a n a l y s i s o f the f a c t o r s u n d e r l y i n g the supply and demand f o r Canadian farm products other than wheat*  Even i n the absence o f such an a n a l y s i s , some comments  can be made* (l)  The Demand f o r Farm P r o d u c t s Other Than Wheat* (a) There i s a h i g h c o r r e l a t i o n between the p r i c e of wheat and t h a t o f other farm p r o d u c t s * (b) The aggregate demand f o r domestic i s l i k e l y very i n e l a s t i c .  consumption  (c) The aggregate export demand i s e l a s t i c * b u t s u b j e c t t o l a r g e and u n p r e d i c t a b l e s h i f t s . 1  (d) Demand f o r any i n d i v i d u a l product i s l i k e l y to be v e r y e l a s t i c because o f the easie o f substitution. (ii)  The Supply o f Farm P r o d u c t s Other Than Wheat. (a) The aggregate s h o r t - r u n supply beyond one p r o d u c t i o n p e r i o d o f farm p r o d u c t s , o t h e r than wheat* i s e l a s t i c * (b) Some of these products, such as hogs, may have a backward s l o p i n g s h o r t - r u n supply curve.  These hypotheses data.  P r i c e s of f i e l d  may be t e s t e d a g a i n s t some o f the p r e v i o u s crops and animal p r o d u c t s would be expec-  t e d t o na i n t a i n about the same g e n e r a l r e l a t i o n s h i p * 9 and 11.  See F i g u r e s  There would not l i k e l y be l a r g e d i s p a r i t i e s between  r e l a t i v e p r i c e s o f v a r i o u s products over a p e r i o d .  See F i g u r e s  4 and 12 a, b and c. 1 Among the most s e r i o u s and u n p r e d i c t a b l e o f these changes i n demand are those a t t r i b u t a b l e t o U n i t e d S t a t e s t r a d e p o l i c i e s * See Rothwell* G. B., "Beef C a t t l e P r o d u c t i o n a Problem", S c i e n t i f i c A g r i c u l t u r e , O c t . 1936, pp. 74-82.  113 F o r any product which can he absorbed e n t i r e l y i n the domest i c market, the domestic market w i l l s e t the p r i c e *  As soon as  the q u a n t i t y a v a i l a b l e becomes l a r g e enough r e l a t i v e to demand t o make e x p o r t i n g worthwhile, the p r i c e t o the producer w i l l f a l l t o the world market p r i c e , l e s s c o s t s o f t r a n s p o r t a t i o n .  1  The  i n e l a s t i c i t y o f domestic demand and f l u c t u a t i o n s i n e x p o r t s and imports o f meats are i n d i c a t e d by F i g u r e 16 and T a b l e 23. TABLE 23 TOTAL SUPPLY AND EXPORTS OF MEAT ANIMALS AND CONSUMPTION MEATS 1935-42 (Revised) ( I n m i l l i o n s o f pounds) 1935 Beef Supply Beef E x p o r t s 0 olv© 0 V© QJL Supply Calves-Veal Exports  1936  1937  1938  1939  1940  1941  1942  643.2 667.7 672.5 686.9 667.5 696.1 759.7 779.9 13.8 12.7 17.7 5.8 4.5 3.9 7.9 16.0  —  Sheep & LambsMutton & Lambs Supply Mutton & Lambs Exports  117.4 125.9 145.4 128.9 131.0 137*5 143.4 129.3 -  -  -  -  -  -  70.7  68.3  67.5  66.3  67.3  59.7  66.5  66.6  .3  .2  .3  .2  .2  .2  *3  .6  Hogs Pork Supply 591.6 667.9 721.2 666 733 992.8 1088.9 1165.1 Hogs Pork E x p o r t s 30.3 49.6 37.3 27.2 44.9 61.0 71.6 55.6 T o t a l s u p p l y i s t o t a l d r e s s e d weight of n e t s l a u g h t e r i n Canada, p l u s f i r s t o f year s t o c k s , p l u s i m p o r t s . (3)  The Accuracy o f F o r e c a s t s E s t i m a t e s o f the p o s s i b i l i t i e s o f s u c c e s s f u l g e n e r a l farm  p r i c e f o r e c a s t i n g must, o f n e c e s s i t y , be based upon the r e s u l t s 1 See The d i s c u s s i o n o f problems of an export i n d u s t r y i n D a v i d s o n , C. B., " A g r i c u l t u r a l P o l i c y i n Canada", S c i e n t i f i c A g r i c u l t u r e , S e p t . 1939, pp. 1-19.  FIGURE 1 5  .T ANIM4LS AND MEATS; INDEX NUMBERS OF OUTPUT, EXPORTS, IMPORTS AND CONSUMPTION 1920-1939  240 220  (1926-30 = 100)  1920  J  Source t  I L  1925  J  I  I L 1930  J  I L  I  I  I  1935  Estimates of Production, Slaughter and Export of Meat Animals i n Canada, 1939, Dominion Bureau of Statistics,  1940  o f the l a t e 1920's.  During that period  of A g r i c u l t u r a l Economics, and  the U n i t e d S t a t e s  Bureau  a number of s t a t e a g e n c i e s , under-  took to f o r e c a s t f o r y e a r l y and monthly p e r i o d s the p r i c e s farm p r o d u c t s .  The  f o r e c a s t s v a r i e d i n s p e c i f i c i t y from  of  an  a c t u a l statement of expected p r i c e to a s u g g e s t i o n t h a t the  price  might he h i g h e r , or l o v e r , than t h a t of the p r e v i o u s p e r i o d . u n f o r t u n a t e r e s u l t of the c o r r e c t f o r e c a s t o f a d e c l i n e i n p r i c e s i n 1927  was  the f o r e c a s t had of c o t t o n - p r i c e  t h a t many people jumped to the  caused the d e c l i n e . f o r e c a s t i n g by  any  The  cotton  conclusion  that  T h i s l e d to the p r o h i b i t i o n  employee of the f e d e r a l govern-  ment. There i s a wide d i v e r s i t y of o p i n i o n as to the accuracy of p r i c e f o r e c a s t s .  Johnson was  of the o p i n i o n  reasonable success o f the outlook programs d u r i n g t i e s i n d i c a t e s that p r i c e forecasts 10-15  p e r cent - are p o s s i b l e .  son's e s t i m a t e was and  supply.  1  the l a t e twenof  I t should be noted t h a t Johnconditions  I n t h a t c o u n t r y a much l a r g e r p r o p o r t i o n  t o t a l a g r i c u l t u r a l output i s d o m e s t i c a l l y  consumed.  making f o r c e s , t h e r e f o r e ,  tend to be l a r g e l y the  p l y and demand w i t h i n  country.  p r o d u c t s depend p a r t o f the  the  - accurate w i t h i n an e r r o r  based on U n i t e d S t a t e s  the  possible  The  o f demand of The  the price  f a c t o r s of sup-  p r i c e s of many Canadian  time on the domestic n a r k e t , and  part  on the world market. A survey of the American l i t e r a t u r e on f o r e c a s t i n g the  price  of farm p r o d u c t s i n the l a t e twenties would i n d i c a t e t h a t Johnson's e s t i m a t e ' o f 10-15 1  Johnson, D.  <S.,  per  cent i s somewhat o p t i m i s t i c .  Forward P r i c e s f o r A g r i c u l t u r e , p.  In 199.  1927  E z e k i e l p o i n t e d out t h a t the "determination mate postwar trend i s rendered available.  1 , 1  Nevertheless,  115 o f even an a p p r o x i -  d i f f i c u l t by the s h o r t p e r i o d  f o r the y e a r 1925, the average d i f -  f e r e n c e between the a c t u a l average p r i c e each month f o r hogs and the p r i c e s f o r e c a s t e d was only about 50 c e n t s , o r 4 per cent on the p r e v a i l i n g l e v e l .  On the other hand, comparison o f f o r e -  c a s t e d p r i c e s from J u l y 1925, to June 1926, w i t h the a c t u a l p r i c e s , i n d i c a t e t h a t from August to December the f o r e c a s t missed by a c o n s i d e r a b l e margin, the a c t u a l p r i c e running  $2.50 t o  #3.50 below the lower l i m i t s o f t h e f o r e c a s t - an e r r o r o f about 20 per c e n t . A study o f f a t c a t t l e p r i c e f o r e c a s t s made s i x months i n advance has been done by John A. Hopkins, J r . t i o n s of h i s study,  Under the c o n d i -  the average d i f f e r e n c e between t h e a c t u a l  p r i c e s and the f o r e c a s t s was 3.8 per cent of the o r d i n a t e s o f secular trend.  The d i f f e r e n c e s exceeded 5 p e r cent i n 11 months  out o f 47, and of these, two d i f f e r e n c e s were g r e a t e r than 8 p e r cent.  2  There has a p p a r e n t l y been very l i t t l e work done on the f o r e c a s t i n g o f a g r i c u l t u r a l p r i c e s f o r p e r i o d s as l o n g as those r e q u i r e d by a forward p r i c e program. two  y e a r s may be p o s s i b l e .  F o r e c a s t i n g f o r p e r i o d s up t o  The a v a i l a b i l i t y and c h a r a c t e r o f the  d a t a w i l l l i k e l y be the l i m i t i n g f a c t o r . The  3  s h o r t time which has e l a p s e d s i n c e World War I I ; the  1 E z e k i e l , Mordeeai, "Two Methods o f F o r e c a s t i n g Hog P r i c e s , " J o u r n a l o f the American S t a t i s t i c a l A s s o c i a t i o n , V o l . XXII, Mar. 1927, pp. 22-30. 2 Hopkins, J . A. J r . , " F o r e c a s t i n g C a t t l e P r i c e s " , JFE, V IX, Oct. 1927, pp. 433-46. 3 See S t i n e , 0. C , "Data Needed f o r P r i c e F o r e c a s t i n g " , J F E , V o l . 12, 1930, pp. 107-118.  116 l a c k of world supply and demand d a t a and the l i m i t a t i o n s of the a v a i l a b l e techniques w i l l p r e j u d i c e the success of any g e n e r a l farm p r i c e f o r e c a s t i n g program.  I n view of these  difficulties,  i t would appear t h a t a g r i c u l t u r a l p r i c e f o r e c a s t s backed by  price  guarantees, would a t p r e s e n t be a p o l i c y f r a u g h t w i t h g r e a t danger.  Such a forward p r i c e program, i f adopted  immediately  in  Canada, might l e a d t o unwarranted s h i f t s between p r o d u c t s and  to  l a r g e s u b s i d i e s to f a r m e r s . B.  S u b s i d i e s To A g r i c u l t u r e A r i s i n g From a Forward P r i c e Program  The major income t r a n s f e r s t o a g r i c u l t u r e which would a r i s e from a forward p r i c e program are the proposed ments" f o r d e p r e s s i o n p e r i o d s .  "compensatory pay-  Johnson has proposed  t h a t farm  p r i c e s be maintained d u r i n g p e r i o d s of d e p r e s s i o n a t 80 per c e n t of the average  of the t h r e e p r e - d e p r e s s i o n y e a r s .  25 are an attempt  T a b l e s 24  and  t o estimate the c o s t of m a i n t a i n i n g p r i c e s o f  a g r i c u l t u r a l p r o d u c t s d u r i n g the p e r i o d 1930-41 a t v a r i o u s p e r centages  of pre-depression l e v e l s .  the assumption period.  T h i s i l l u s t r a t i o n i s based  o f c o n s t a n t y i e l d s equal t o 1926  Government of Canada grand  throughout  on  the  t o t a l e x p e n d i t u r e s f o r the  p e r i o d 1930-39 are a l s o shown. E s t i m a t e s of expenditures r e q u i r e d t o m a i n t a i n p r i c e s to farmers a t the e i g h t y p e r cent l e v e l are o b v i o u s l y i n c o n s i s t e n t w i t h the grand t o t a l government e x p e n d i t u r e s .  Canada would be  h a r d l y l i k e l y t o accept an a g r i c u l t u r a l p o l i c y which r e q u i r e d the a l l o c a t i o n of h a l f t o t w o - f i f t h s of a l l government expenditure t o agriculture.  Maintenance of the 70 per cent l e v e l would c o s t  c o n s i d e r a b l y l e s s , but would s t i l l be h i g h r e l a t i v e to t o t a l  117 expenditures. TABLE 24 COMPUTATION OP CASH FARM INCOME PROM SALE OP FARM PRODUCTS, ASSUMING CONSTANT YIELD • TO 1926, F o r Y e a r s 1926-41. (3)  (4)  wholesale P r i c e Index Numbers of Canadian Farm P r o d u c t s 1935-39 « 100  Cash IncomeA Assuming Constant Y i e l d a 1926, and Unit E l a s t i c i t y of Demand $000,000  (2)  <1>  A c t u a l Cash I n come From S a l e o f Farm P r o d u c t s $000,000  Year 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941  963.4 940.9 1072.5 936.3 640.5 450.4 388.5 402.0 491.6 519.5 580.1 640.0 660.8 717.0 748.2 896.4  144.4 138.6 136.3 140.8 119.5 78.9 65.5 69.3 83.5 89.2 97.9 117.4 102.9 92.6 96.1 106.6  963.4 924.9 911.4 939.3 797.7 526.0 437.4 462.4 556.8 595.4 653.2 783.3 686.9 617.5 641.6 711.0  A Column (4) was computed by s h i f t i n g the wholesale p r i c e index Column (3) t o base 1926 * 100 and m u l t i p l y i n g the new index number f o r each y e a r by $963.4 m i l l i o n . The  farmers' d i f f i c u l t y i n d e p r e s s i o n p e r i o d s stems l a r g e l y  from h i s changing  cost-price relationship.  I n the f o l l o w i n g  t a b l e s an attempt i s made t o estimate t h e , c o s t s o f m a i n t a i n i n g d u r i n g d e p r e s s i o n v a r i o u s percentages of t h r e e p r e - d e p r e s s i o n y e a r s .  o f average d e f l a t e d income  Tables 26 and 27 show e s t i m a t e s  of the c o s t s , had such a p o l i c y been i n e f f e c t d u r i n g the p e r i o d 1930-41.  The estimated c o s t s (shown i n Column ( 5 ) , Table 27)  118  TABLE 25 COST OP MAINTAINING PRICE INDEX AT VARIOUS PERCENTAGES OP 1927-29 AVERAGE*, AND GRAND TOTAL EXPENDITURES OP THE GOVERNMENT OP CANADA PGR SELECTED YEARS C o s t o f M a i n t a i n i n g P r i c e Index at V a r i o u s Percentages o f 1927-29 Average Year  $000,000  1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941  $000,000  34.7 306.4 395.0 370.0 275.6 237.0 179.2 49.1 145.5 214.9 190.8 121.4  $000,000  213.9 302.5 277.5 183.1 154.5 86.7 53.0 122.4 98.3 28.9  Government of Canada Grand T o t a l Expend! t u r e s $000,000 440.0 448.0 531.8 458.2 478.1 532.6 532.0 534.4 553.0 680.8  121.4 210.0 185.0 90.6 52.0  29.9 5.8  A Average p r i c e index 1927-29, (base 1926 = 100) « 96. T h i s corresponds t o an average annual c a s h income assuming 1926 y i e l d of .96 x $963.4 m i l l i o n $924.9 m i l l i o n . 90%, 80% and 70% o f t h i s • $832.4, $759.9, $647.4 m i l l i o n s r e s p e c t i v e l y . A  of m a i n t a i n i n g d e f l a t e d income a t the 70 p e r cent l e v e l a r e $4.4,  $57.2, and $17.6 m i l l i o n f o r 1931, 1932 and 1933 r e s p e c -  tively.  Such expenditures would have been c o n s i d e r e d l a r g e a t  that time.  They would n o t , however, have been i n c o n s i s t e n t w i t h  an a n t i - c y c l i c a l p o l i c y , had one been i n e f f e c t a t t h a t time. I n T a b l e 28 an attempt i s made t o estimate c o s t s o f maint a i n i n g d e f l a t e d income d u r i n g a p e r i o d o f d e p r e s s i o n a t v a r i o u s percentages  o f average 1945-47 d e f l a t e d income.  The a c t u a l i n -  come d a t a used as a b a s i s f o r c a l c u l a t i o n i s t h a t developed i n Table 26.  The h i g h e s t expenditure a t the 70 per cent  (Column 4) would be $352.2 m i l l i o n .  level  The c o s t would exceed $250  m i l l i o n i n f i r e of the e l e v e n y e a r s .  I t would appear t h a t  119 this  l e v e l o f income t r a n s f e r s t o a g r i c u l t u r e would he c o n s i s t e n t w i t h an a n t i - c y c l i c a l p o l i c y . TABLE 26 COMPUTATION OF DEFLATED CASE INCOME FROM SALE OF FARM PRODUCTS, ASSUMING CONSTANT YIELD = TO 1926 F o r Y e a r s 1926-1941. (1)  Year 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941  (2)  A c t u a l Cash Income From S a l e o f Farm Products $000,000 963.4 940.9 1072.5 936.3 640.5 450.4 388.5 402.0 491.6 519.5 580.1 640.0 660.8 717.0 748.2 896.4  (3)  (4)*  Wholesale P r i c e Index Numbers o f Canadian Farm Products 1935-39 * 100  Cash Income Assuming Constant Y i e l d = to 1926, and Unit E l a s t i c i t y o f Demand $000,000  144.4 138.6 136.3 140.8 119.5 78.9 65.5 69.3 83.5 89.2 97.9 117.4 102.9 92.6 96.1 106.6  963.4 924.9 911.4 939.3 797.7 526.0 437.4 462.4 556.8 595.4 653.2 783.3 686.9 617.5 641.6 711.0  (5) D e f l a t e d Cash Income C o l . ( 4 ) D e f l a t e d by D.B.S. P r i c e Index Numbers of Commodities and S e r v i c e s Used by Farmers 1935-39 = 100 $000,000 765.2 734.6 733.2 760.6 691.8 515.7 459.9 500.9 575.8 615.7 665.9 750.3 675.4 621.9 599.6 607.2  A Column (4) was computed by s h i f t i n g the wholesale p r i c e index i n Column (3) t o base 1926 100, and m u l t i p l y i n g the new i n d e x number f o r each y e a r by $963.4 m i l l i o n . a  I t has been shown t h a t d u r i n g a d e p r e s s i o n , p r a i r i e farmers tend t o s h i f t from the p r o d u c t i o n o f wheat t o the temp o r a r i l y more p r o f i t a b l e coarse g r a i n s and l i v e s t o c k .  The s m a l l  r e d u c t i o n of wheat supply r e s u l t s i n l i t t l e \  worid p r i c e o f wheat.  The  120 or no change i n the  r e l a t i v e l y l a r g e i n c r e a s e of coarse  g r a i n s and l i v e s t o c k products l e a d s to a s e r i o u s p r i c e f a l l i n the domestic  market.  T h i s i s because the domestic  demand f o r  these commodities i s s m a l l e r and l e s s e l a s t i c than the world  de-  mand f o r Canadian wheat. TABLE 27 COSTS OP MAINTAINING VARIOUS PERCENTAGES OP AVERAGE DEFLATED INCOME OF THREE PRE-DEPRESSION YEARS, ASSUMING CONSTANT YIELD * 1926, FOR PERIOD 1930-41. (1)  (2)  (3)  (4) (5) (6) (7) | of Main-* \ o f M a i n t a i n i n g Cost i n D e f l a t e d i Cost i n i t a i n i n g V a r i o u s % of P r e V a r i o u s ?» of P r e - d e p r e s s i o n D e p r e s s i o n D e f l a t e d Income D e f l a t e d Income $000,000 $000,000 10% 80% 90% 70% 80# 90# x  Year 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941  mm  4.3 60.1 19.1  -  -  mm  mm mm  mm  78.6 134.4 93.4 18.4  mm  mm  152.9 208.7 167.7 92.7 52.8 2.6  -  46.6 68.9 61.3  mm  4.4 57.2 17.6  -  -  80.2 127.8 86.2 17.8  -  -  -  —  —  mm  mm  156.0 198.5 154.8 89.6 51.1 2.6  mm  46.3 73.7 71.8  A Average d e f l a t e d income of t h r e e p r e - d e p r e s s i o n y e a r s * $742.8 m i l l i o n ; 90%, 80% and 70% equal $668.5, $594.2 and $520.0 million respectively. x Columns ( 5 ) , (6) and (7) are d e r i v e d f r o m ( 2 ) , (3) and (4) by i n f l a t i n g by the D.B.S. Index of Commodities and S e r v i c e s used by Farmers.  121  TABLE 23 COMPUTATION OF A HYPOTHETICAL FARM INCOME SERIES FOR A FUTURE DEPRESSION PERIOD BASED ON ADJUSTED DATA FROM 1931-41 0  (1) Year 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941  (2) D e f l a t e d Cash Income From C o l . ( 5 ) , Table 24 |000,000 691.8 515.7 459.9 500.9 ° 575.8 615.7 665.9 750.3 675.4 621.9 599.6 607.2  (3) D e f l a t e d Cash Income C o l . (2) M u l t i p l i e d by Adjusting Factor A $000,000 1,106.9 825.1 735.8 801.4 921.3 985.1 1,065.4 1,200.5 1,080.6 995.0 959.4 971.5  A The a d j u s t i n g f a c t o r i s used t o c r e a t e a new h y p o t h e t i c a l d e f l a t e d income s e r i e s which bears the same y e a r l y r e l a t i o n s h i p to the s e r i e s i n Column ( 5 ) , T a b l e 26, as the average d e f l a t e d income 1945-47 b e a r s t o average d e f l a t e d income 1927-29. The a d j u s t i n g f a c t o r » 1.6.  I n Table 29 the long-time r a t i o s o f wheat, oat and b a r l e y p r i c e s are taken as a norm.  F o r each year the p r i c e o f wheat  which would have r e s u l t e d i n a "normal" r a t i o to the p r i c e s o f each of oats and b a r l e y are then c a l c u l a t e d . of wheat are a l s o shown.  The a c t u a l p r i c e s  I t i s found t h a t w i t h minor e x c e p t i o n s  wheat was u n d e r p r i c e d i n the p e r i o d s 1931-34 and 1939-43, and o v e r p r i c e d i n 1935-38 and 1944-46. I f the Canadian Government d e c i d e s t o support farm income d u r i n g a f u t u r e d e p r e s s i o n , the most economical program might be one based on p r a i r i e wheat.  Compensatory payments t o wheat f a r -  mers would encourage them to s t a y i n wheat, r a t h e r than s h i f t i n g  to coarse g r a i n s and l i v e s t o c k .  122 P r i c e s of these o t h e r p r o d u c t s  would not then he f o r c e d t o such low l e v e l s .  I n T a b l e 29 e s t i -  mates have been made of the c o s t s o f m a i n t a i n i n g the "normal" r a t i o f o r oat and wheat p r i c e s d u r i n g 1931-34. evidence i s f a r from c o n c l u s i v e .  This" b i t o f  I t does suggest, however, t h a t  had $90-$100 m i l l i o n been spent i n 1931-34 i n encouraging wheat farmers t o s t a y i n wheat, i t might have done a b e t t e r j o b o f m a i n t a i n i n g farm income than $300 m i l l i o n d i s t r i b u t e d between a l l farmers could have done i n 1931-38. TABLE 29 COSTS OP MAINTAINING VARIOUS PERCENTAGES OP AVERAGE 1945-47 DEFLATED INCOME*, OVER A PERIOD OP ELEVEN YEARS, ASSUMING ADJUSTED DEFLATED INCOME AS SHOWN IN COL.(3), TABLE 28 (1) Year 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941  (2) (3) Cost i n D e f l a t e d $ of Maint a i n i n g V a r i o u s % o f Average 1945-47 D e f l a t e d Income 80# _  3.6 92.9 27.3  -  -  -  mm  (4) (5) Cost i n $ o f M a i n t a i n i n g V a r i o u s % of Average 1945-47 D e f l a t e d Income* 10%  Q0%  _  122.0 211.3 145.7 25.7  mm  —  3.7 88.3 25 . 2  —  mm  — — —  124.4 200.9 134.5 24.9  _ mm  m,  _  -  A 1945-47 c a s h income from s a l e of farm p r o d u c t s , d e f l a t e d by D.B.S. composite index o f p r i c e of commodities and s e r v i c e s used by farmers then averaged. 1945-47 average = $1,183.8 m i l l i o n , 80% and 70% - $947.0 and $828.7 m i l l i o n r e s p e c t i v e l y . x Columns (2) and (3) i n f l a t e d by D.B.S. index numbers of comm o d i t i e s and s e r v i c e s used by farmers, August 17, 1944.  123 TABLE 30 ACTUAL PRICE OP WHEAT AND PRICES WHICH WOULD HAVE BEEN REQUIRED TO MAINTAIN PRICE RATIOS AT LONG TIME AVERAGES** 1931-40. (1)  Year  (2)  Actual Wheat Price  t  (3) Price Required t o Equate t o Long Time Oat Wheat Ratio  $  (4) Price Required t o Equate t o Long Time B a r l e y Wheat Ratio  *  .38 .35 .49 .61  .51 .40 .55 .68  .45 .40 .51 .81  1935 1936 1937 1938  .61 .94 1.02 .59  .51 .91 .91 .51  .50 1.19 .87 .48  1939 1940 1941 1942 1943  .54 .52 .55 .77 1.13  .64 .59 .87 .83 1.23  .57 .55 .74 .79 1.14  1944 1945 1946  1.21 1.15 1.14  1.15 1.13 1.13  1.30 1.15 1.14  1931 1932 1933 1934  C o l . (3) - C o l . (2)  #  X Cost o f Equating Oat t o Wheal Price Ratio #000,000  .13 .05 .06 .07  40.3 15.5 18.5 21.3  .10 .07 .32 .06 .10  31.0 21.3 99.2 18.5 31.0 •  A Long Time P r i c e R a t i o s a r e Oat P r i c e -. 4 7 •D „ T -nWheat P r i c e Barley Price - . 5 3 Wheat P r i c e Source: Canada Y e a r Book, 1941-48 x Assuming y i e l d equal to long time average o f 310 m i l l i o n bushels.  124 C.  Political  A c c e p t a b i l i t y o f a Forward P r i c e Program  Forward p r i c i n g f o r normal p e r i o d s , i f i n t r o d u c e d a f t e r few y e a r s  a  of s u c c e s s f u l f o r e c a s t i n g , would not f a c e s e r i o u s  political difficulties.  The g r e a t danger once the scheme were i n  o p e r a t i o n would be t h a t of l a r g e p o s i t i v e e r r o r s .  Such e r r o r s  might be r e a l f o r e c a s t i n g e r r o r s , or might a r i s e from p o l i t i c a l expediency.  The r e s u l t would be u n j u s t i f i e d l a r g e income t r a n s -  f e r s to farmers and p o s s i b l y p o l i t i c a l storms.  Such storms c o u l d  e a s i l y l e a d to abandonment or p a r a l y s i s of the program. The  o p i n i o n p r e v a i l s , among many non-farm people,  impact of d e p r e s s i o n i s l e s s s e r i o u s on farm p e o p l e .  that  the  They p o i n t  out that you can " s t i c k i t out" and get your "three square meals \ a day"  on the farm d u r i n g a d e p r e s s i o n .  Without e n t e r i n g i n t o  the c o n t r o v e r s y , i t i s c l e a r t h a t t h i s f e e l i n g would m i l i t a t e a g a i n s t d e p r e s s i o n p r i c e guarantees f o r farmers. man  may  say,  "Why  the farmer who forward  The urban work-  should I f a v o r d e p r e s s i o n p r i c e guarantees f o r  i s more secure  than I am now?"  I t i s clear that  p r i c e s d u r i n g d e p r e s s i o n p e r i o d s , i n the absence o f a  g e n e r a l a n t i - d e p r e s s i o n p o l i c y , would be n e i t h e r j u s t i f i a b l e politically  nor  acceptable.  I f the Canadian Government adopted an economy-wide program to m a i n t a i n  employment and enhance p u r c h a s i n g power d u r i n g d e p r e s -  s i o n , i t i s d o u b t f u l t h a t the e l e c t o r a t e would begrudge some a s s i s t a n c e to a g r i c u l t u r e .  1  The Canadian Government has  en  o o c a s i o n i n d i c a t e d i t s a t t i t u d e toward a n t i - c y c l i c a l p o l i c y .  In  1 T h i s i s the i m p r e s s i o n gained from debates on farm p r i c e s , Canada, House of Commons Debates, 1944, pp« 5573-5634.  125 1945, the Government announced, " u n e q u i v o c a l l y i t s a d o p t i o n o f a h i g h and s t a b l e l e v e l  o f employment and income, and thereby  h i g h e r standards of l i v i n g , as a major aim o f Government policy".  1  I n the same y e a r , Hon. J . L . I l s l e y  (Minister of  Finance) s a i d , "In c a r r y i n g out i t s employment p o l i c y i t w i l l a t times be n e c e s s a r y f o r l a r g e d e f i c i t s t o be i n c u r r e d w h i l e a t the same time expenditures a r e b e i n g i n c r e a s e d or t a x a t i o n reduced i n 2 order t o a i d employment." 1 Employment and Income, K i n g ' s P r i n t e r , Ottawa, 1945, p . 23. 2 D o m i n i o n - P r o v i n c i a l Conference 1945, Dominion and P r o v i n c i a l Submissions. Ottawa, K i n g ' s P r i n t e r , 1946, p . 113.  126  CHAPTER 9  CONCLUSION P r i c e p o l i c y should not he  regarded as a c u r e - a l l f o r  problems of Canadian a g r i c u l t u r e . c o n t r i b u t i o n by  I t can make i t s g r e a t e s t  a s s i s t i n g the p r i c e system i n i t s f u n c t i o n  a l l o c a t i n g f a c t o r s of p r o d u c t i o n w i t h i n a g r i c u l t u r e and price forecasts,  the r e s t of the one  d e p r e s s i o n s of 70 per  the farm and  economy.  production period  p r i c e guarantees, would h e l p .  the  The  of  between  Reasonably a c c u r a t e  i n advance, backed  by  assurance to farmers d u r i n g  cent of p r e - d e p r e s s i o n income from s a l e  farm p r o d u c t s would s u b s t a n t i a l l y reduce r i s k a v e r s i o n c a p i t a l r a t i o n i n g , and  l e a d to i n c r e a s e d  labor  of  and  efficiency i n agri-  culture. I n the  absence of any  comprehensive a n t i - d e p r e s s i o n  policy,  d e p r e s s i o n forward p r i c e s would merely r e s u l t i n l a r g e income t r a n s f e r s to farmers. politically  acceptable.  T h i s would be n e i t h e r  justifiable  I n the presence of a s u c c e s s f u l  nor anti-  d e p r e s s i o n p o l i c y , payments to a g r i c u l t u r e under a forward p r i c e program would l i k e l y -be much The  smaller.  economic l i t e r a t u r e of Canadian a g r i c u l t u r a l p r i c e p o l i c y  i s a f i e l d which i s f e r t i l e , but  as y e t has., produced, l i t t l e *  Canadian Government a u t h o r i z e s the  spending of up  The  to $200 m i l l i o n  per y e a r to support p r i c e s of farm products other than wheat, .and has  entered i n t o an i n t e r n a t i o n a l wheat agreement, y e t there i s  127 p r a c t i c a l l y no p u b l i s h e d a n a l y s i s o f the p r i c e e l a s t i c i t i e s o f demand and supply of Canadian farm p r o d u c t s .  With r e g a r d t o  a l l o c a t i o n o f f a c t o r s o f p r o d u c t i o n , estimates of the d i s p a r i t y between the marginal p r o d u c t i v i t y o f c a p i t a l i n a g r i c u l t u r e and the i n t e r e s t r a t e , are o b t a i n a b l e o n l y i n a g e n e r a l way by observ a t i o n and by i n f e r e n c e from s c a t t e r e d p r o d u c t i o n f u n c t i o n studies* (l)  P o l i c y Recommendations (i)  F o r Normal P e r i o d s * (a) Canada should b e g i n now t o develop  c u l t u r a l p r i c e outlook program*  a strong  agri-  Such a s e r v i c e c o u l d make a  worthwhile c o n t r i b u t i o n t o the r e d u c t i o n o f y e a r t o y e a r  price  uncertainty. (b) As soon as, but n o t b e f o r e , the suggested  outlook  program proves i t s worth, the Government should c o n s i d e r  backing  i t s p r i c e f o r e c a s t s w i t h cash guarantees.  The f u r t h e r r e d u c t i o n  i n u n c e r t a i n t y which such guarantees would g i v e would appear t o be worth the c o s t . (c) The adjustment o f c e r t a i n commodities which have s u f f e r e d , or may s u f f e r a c o n s i d e r a b l e permanent d e c l i n e i n demand, i s a separate problem.  Some compromise has to be made be-  tween r a p i d r e - a l l o c a t i o n of the f a c t o r s o f p r o d u c t i o n and minimum l e v e l s of l i v i n g i n the a f f e c t e d segment of the i n d u s t r y . The p r e s e n t A g r i c u l t u r a l P r i c e s Support A c t has t o date successfully i n this (ii)  sphere.  For Depression  I n t h e event  Periods.  o f another  d e p r e s s i o n , i f the Canadian  operated  Government adopts an a n t i - c y c l i c a l p o l i c y , a forward p r i c e gram c o u l d f i t i n .  I t would operate e f f e c t i v e l y to m a i n t a i n  income and purchasing The  128 profarm  power.  c o s t s o f such a program would he h i g h , hut the g a i n s  correspondingly great.  The  assurance  of a farm income from s a l e  of farm products d u r i n g depression, of 70 per cent o f the p r e d e p r e s s i o n l e v e l , would c o n t r i b u t e a g r e a t d e a l to the r e d u c t i o n of c a p i t a l r a t i o n i n g and r i s k a v e r s i o n i n a g r i c u l t u r e .  The r e -  s u l t would be a g r e a t e r l a b o r e f f i c i e n c y i n a g r i c u l t u r e and l a r g e r net product  from Canadian r e s o u r c e s as a whole.  a d d i t i o n t o the improvement i n the combination  a  In  of f a c t o r s ,  the  maintenance of 70 per cent of p r e - d e p r e s s i o n farm income would a l l o w a d d i t i o n a l investments  i n people.  l a b o r f o r c e would thus be i n c r e a s e d .  The p r o d u c t i v i t y of the  C o n s i d e r a t i o n should  be  g i v e n to the p o s s i b i l i t y of m a i n t a i n i n g Canadian farm income by means of s m a l l p r i c e payments to p r a i r i e wheat growers which would d i s c o u r a g e d i v e r s i f i c a t i o n d u r i n g a d e p r e s s i o n .  129  Appendix i  THE SWINGS IN FARM INCOME So f a r as the author knows t h e r e i s no p u b l i s h e d a n a l y s i s of the e l a s t i c i t y of demand f o r aggregate farm products produced i n Canada*  The f o l l o w i n g c h a r t and a n a l y s i s are l a r g e l y an  adapta-  t i o n by John D. B l a c k of the o r i g i n a l a n a l y s i s by W i l l a r d Cochrane.  1  Curve DED shows the q u a n t i t i e s t h a t the buyers o f the U n i t e d S t a t e s f o o d s , i n the p e r i o d b e f o r e the war, were i n the h a b i t o f buying at d i f f e r e n t l e v e l s of wholesale p r i c e s of farm p r o d u c t s . The q u a n t i t i e s and the p r i c e s are expressed as percentages o f the averages. amount 140. p r i c e 300.  Thus a t p r i c e 200, they took amount 113; a t p r i c e  100,  At the upper end of the s c a l e , they took o n l y 83 a t T h i s i s what an i n e l a s t i c demand curve i s l i k e —  a  s m a l l change i n the amount bought accompanying l a r g e change i n price.  I n the chart, the r a t i o of p r i c e changes to changes i n  amount taken, i s r o u g h l y 3 t o 1. Given such a demand curve, what happens i f war s h i f t s the demand t o the r i g h t — The  a l l the way  comes and  t o D}Di,  l e t us say.  amount t h a t the buyers stand ready t o take a t d i f f e r e n t  p r i c e s are a l l i n c r e a s e d s h a r p l y . curve SS remains  I f the supply i n d i c a t e d by  the same, p r i c e s w i l l r i s e from X t o X]_.  It  may  be, however, t h a t the farmers have unused c a p a c i t y t o produce, 1 Cochrane, W i l l a r d , Farm P r i c e G y r a t i o n s — Hypothesis", JFE, June, 1947.  "An  Aggregative  as they d i d i n 1941, and w i l l s t e p up t h e i r p r o d u c t i o n q u i c k l y to  SxSi*  Then the p r i c e w i l l tend t o s e t t l e down around Xg.  war demand then r i s e s s t i l l more to  D2D2*  a  n  a  I f the  the farmers have no  more l a n d , man power and equipment, as happened i n 1944 and 1945, p r i c e s w i l l s t a r t up a g a i n to Xs*  400  300  9  o  £  200.  1iw  100  1 S 8  \ \  100 „ _ , 200 Supply  300  F i g u r e 16 - V a r i a t i o n s i n demand o f a l l food and supply o f a l l food a t d i f f e r e n t l e v e l s o f wholesale p r i c e , the U n i t e d S t a t e s , 1922 t o 1940. 1  The l o c a t i o n of the p o i n t s X, X i , X 2 » X 3 and X 4 , a l s o depend on the s l o p e of the supply curve SS.  As drawn, i t i s h i g h l y i n -  e l a s t i c and r e a l l y r e p r e s e n t s the way i n which the t o t a l supply o f farm p r o d u c t s behave when farm p r i c e s go down i n the s h o r t r u n . I t i s a w e l l known f a c t t h a t the t o t a l a g r i c u l t u r a l p r o d u c t i o n o f 1 B l a c k , J . D., P o l i c y , p . 88.  and K i e f e r , M. E., Future Food and A g r i c u l t u r e "  the U n i t e d States* and most other c o u n t r i e s * c o n t r a c t s v e r y with d e c l i n i n g p r i c e s *  Thus when a b u s i n e s s  little  recession sets i n  and demand f o r farm p r o d u c t s f a l l s o f f , as t o p r i c e s have no p l a c e t o go except down t o X4«  D3D3  i n the c h a r t ,  132 Appendix i i BASIS AND CALCULATIONS OP PRICE COST RELATIONSHIPS OP THREE HYPOTHETICAL FARMS (1)  Index Numbers Used (i)  D.B.S. A l l Canada P r i c e Index of Commodities S e r v i c e s Used by Farmers, 1935-1939 100.  and  s  T h i s i s a composite i n d e x which i n c l u d e s equipment and m a t e r i a l s , t a x and i n t e r e s t r a t e s , farm wage r a t e s and f a r m family l i v i n g costs. (ii)  D.B.S. Wholesale P r i e e Index Numbers o f Canadian Farm P r o d u c t s , 1935-1939 100. a  (iii) (iv)  (2)  D.B.S. Index of Farm F a m i l y L i v i n g C o s t s , 1935-1939 = 100. Index o f v a l u e o f B r i t i s h Columbia apples a t „ s h i p p i n g p o i n t , computed f r o m p r i c e d a t a i n The Quarterly B u l l e t i n of A g r i c u l t u r a l S t a t i s t i c s , 1935-1939 = 100.  Choice o f Farms The t h r e e h y p o t h e t i c a l farms were chosen as f o l l o w s : (i)  A Saskatchewan Wheat Farm. The income r e c o r d f o r 1946 was assumed to be as follows: T o t a l Income Cash Operating Expense  $4,404 $1,441  Cash C o s t s o f F a m i l y L i v i n g I n t e r e s t on C a p i t a l @ 5%  799 1,050  Depreciation T o t a l Expense  590 3,880  Net Income  524  Cash C o s t s of F a m i l y L i v i n g  799  Operator's Labor Income  $1,323  (ii)  A F r a s e r V a l l e y D a i r y Farm. The Income Record f o r 1946 was assumed t o he as follows. T o t a l Income Gash O p e r a t i n g Expenses  #5,654 $3,442  Gash C o s t s o f F a m i l y L i v i n g Interest  on C a p i t a l @ 5%  799 1,000  Depreciation  400  T o t a l Expenses  5,641  Net Income  13  Cash C o s t s o f F a m i l y L i v i n g  799  Operator's Labor Income (iii)  $  812  A B r i t i s h Columbia Apple Producer. The Income Record f o r 1946 was assumed t o be as follows: T o t a l Income Cash O p e r a t i n g Expenses  $4,294 $2,292  Cash C o s t s of F a m i l y L i v i n g  799  Interest  650  on C a p i t a l @ 5%  D epr e c i a t i on  500  T o t a l Expenses  4,041  l e t Income  253  Cash C o s t s o f F a m i l y L i v i n g  799  Operator's Labor Income  (3)  133  $1,052  Assumptions Constant y i e l d s were assumed f o r the e n t i r e p e r i o d .  q u a l i t y and q u a n t i t y o f commodities and s e r v i c e s were a l s o assumed to be c o n s t a n t .  The  each farm used  134 Appendix  iii  THE RELATION OF SIZE OF FARM BUSINESS TO OPERATORS' LABOR INCOME There i s u s u a l l y a p o s i t i v e c o r r e l a t i o n between s i z e of farm and o p e r a t o r ' s l a b o r income.  The f o l l o w i n g d a t a are taken from  v a r i o u s farm management s t u d i e s . TABLE 31 THE EFFECT OF SIZE AS MEASURED BY CROP ACRES, 1941-42 Crop Acres P e r Farm  Number of Farms  Average L a b o r Earnings  Edmonton Whole M i l k Shippers: L e s s than 140 140 or more  19 23  816 1,418  Edmonton Inspected Cream S h i p p e r s : L e s s than 270 270 or more  24 19  1,105 1,308  C a l g a r y Whole M i l k Shippers: L e s s than 200 200 or more  18 17  2,077 2,752  Source:  D a i r y Farm B u s i n e s s i n A l b e r t a 1939-43. M a r k e t i n g S e r v i c e - Economics D i v i s i o n , Dominion Department of A g r i c u l t u r e , T e c h n i c a l B u l l e t i n No. 67.  135  TABLE 32 RELATION OP SIZE OP FARM AND YIELDS TO SURPLUS GADSBY - DRUMHELLER - INNSFAIL AREA OF ALBERTA, 1943-44. S i z e Group, Acres  Source:  Number o f Farms  Surplus  0-199  34 15 13 23 85  - 70 •••256 80 510 80  200-399  52 8 25 35 120  130 600 940 1,000 860  400-699  26 15 7 17 65  70 1,400 1,640 2,680 1,230  700+  12 7 6 7 32  1,370 3,400 3,940 4,960 3,080  Farm B u s i n e s s i n C e n t r a l A l b e r t a , Marketing S e r v i c e , Economics D i v i s i o n , Dominion Department o f A g r i c u l t u r e , p. 23. B i b . P u b l i c a t i o n 823, T e c h n i c a l B u l l e t i n 73, J u l y 1949.  FIGURE 17 TEE RELATIONSHIP  OP SIZE OP RANCH TO RANCH INCOME  1938-39, 1939-40, 1940-41.  9.00  RANCH  7.00  INCOME PER  5.00  RANCH UNIT  3.00  1.00 .75  1  1.5  2  3  4  5  6 7 8910  15  RANCH UNITS ( i n hundreds)  Notei Sourcei  Lower s o l i d l i n e shows 1938-39; middle d o t t e d 1939-40; upper broken l i n e , 1940-41.  line,  C a t t l e Ranching i n Western Canada, Marketing S e r v i c e , Economics D i v i s i o n , Dominion Department o f A g r i c u l t u r e . B u l l e t i n No. 55, p . 62.  136  TABLE 33 THE EFFECT OH LABOUR EARNINGS OF INCREASING THE SIZE OF FARM . AT HIGH, MEDIUM AND LOV LEVELS OF P.M.W.U. PER MAN, 200 FRASER VALLEY DAIRY FARMS, 1946. P.M.W.U. P e r Man ( l ) Low 50-149  (2) Medium 150-249  (3) High 250-349  S i z e of Farm (P.M.W.U.)  125-149 150-399 400-699 125-149 150-399 400-699  No. o f Farms  11 29  1 2  1 2  125-149 150-3991 400-699 700 and o v e r 2  1 2 3  3  Labour Earnings  -4  634 296 XX  92 25  XX 833 1,093  22 13 8  XX 1,166 1,944 2,784  One-man farms approximately. Two-man farms approximately. L a r g e r than two-man farms.  Source: Anderson, ¥. J . , Farm O r g a n i z a t i o n and Labour E a r n i n g s of Whole M i l k Producers o f Lower F r a s e r V a l l e y , 1946.  137  BIBLIOGRAPHY  Anderson, ¥. 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