The Rural Voice, 1979-04, Page 24Feds plan changes
in stabilization
BY SHEILA GUNBY
An OFA sponsored Stabilization Seminar
in Toronto got producer reaction to
proposed changes in the Federal govern-
ment's stabilization program.
Changes were made necessary because
some producers felt that the support levels
were too low. Also, as the support price
could not be announced in advance of the
production period, many producers felt
that the effectiveness of the program in
reducing uncertainty was greatly reduced.
The fact that cow -calf producers did not
have a mandatory program was another
reason change was wanted.
Many hog and cattle producers stated
that the annual program does not provide
adequate protection and that shorter or
quarterly periods were necessary.
Although the Act provided for producer
financing of support above the minimum
level, no procedure was developed for such
financing.
Over the years, a number of provinces
introduced their own stabilization pro-
grams. The introduction of rather diverse
stabilization programs across Canada
causes problems when there are different
support levels for producers in different
provinces.
Producers in provinces with the highest
support levels would be given an
advantage over producers in other pro-
vinces; provinces could become involved in
a competitive escalation of support levels if
each province tried to protect the position
of it's own, perhaps resulting in a shift in
production to provinces with highest
support levels. This in turn could cause
problems in Canada's international trading
partners as they reacted to what they saw
as "unfair subsidies" on Canadian
products.
MAJOR CHANGES
The federal proposal involves four major
changes to the Agricultural Act.
The first would be to change the basis for
the calculation of support prices to a
guaranteed margin approach with support
at the 100% level.
The difference between the price a
farmer receives for a commodity and his
cash production costs represents his
margin over cash costs and is the return to
his labour, management and capital.
Under the guaranteed margin approach,
PG. 22 THE RURAL VOICEIAPRIL 1979
the support price would equal cash costs in
the support year plus some percentage of
the average margin over cash costs in the
immediately preceding five years. The
proposal is to include 100% of the five year
average margin in the support price.
In Summary: Support price = Cash costs
in the support year. + Average margin
between market prices and cash costs in
the preceding five years.
As an example of the method of
calculating support prices under the
guaranteed margin approach, assume that
the market prices and cash costs for a
commodity are as follows:
Market Cash Margin Over
Price Costs Cash Costs
($/unit)
35 21 14
40 23 17
45 25 20
50 29 21
50 32 18
1973
1974
1975
1976
1977
5 year
average 44
1978 45
26 18
33 12
The support price for 1978 would be:
Current cash costs + 5 year average
margin = 33 + 18
= $51
The payment to producers in 1978 would
then equal: Support price - Market Price
= 51 - 45
_ $6 per unit.
The feds cite three major advantages to
the guaranteed margin approach over the
approach currently followed under the
Agricultural Stabilization Act. There is a
clearer connection between current cash
costs and the support price. The margin to
be guaranteed can be announced at the
beginning of the support period - and
producers would be guaranteed that in any
year, they would receive a return to their
labour, management and capital that was
no less than their average return in the
preceding five years.
VOLUNTARY PARTICIPATION AND
COST SHARING
Under the proposal, producers would
voluntarily join stabilization plans for the
commodities they produce. The program
cost would be shared, '/a by the federal
government and 1/3 by producers: the
federal government would cover all
administration costs.
MANDATORY PROGRAM FOR BEEF
COW -CALF
_ Under the current Agricultural
Stabilization Act, programs are mandatory
at all times for slaughter cattle, hogs,
sheep, industrial milk and industrial
cream, corn, soybeans and oats and barley
not prcZucEa in the designated areas of the
Canadian Wheat Board. This proposal
would add beef cow -calf to this list.
QUARTERLY PROGRAM FOR HOGS
AND SLAUGHTER CATTLE
Many hog and slaughter cattle producers
feel that annual stabilization programs do
not provide them with adequate protection,
given that market prices can vary sub-
stantially in a year and these animals must
be marketed when they are ready. These:
producers market most of their annual
'output in a short period. To alleviate this
problem, it is proposed that quarterly
rather than annual programs be
established for hogs and slaughter cattle.
PRODUCER REACTION
Producer reaction is needed on this
proposal as several concerns come to mind.
Should stabilization programs be only
national in scope or also provincial? What
about regional commodities? How should
support levels be determined --historical
market prices, costs of production or a
combination of these factors. How much
involvement should there be on the federal
provincial or producer level? Should the
plan be voluntary? Will income stabiliza-
tion programs lead to complications in
international trade matters?
The Huron Federation will be holding an
information meeting on these proposed
changes in the Federal Stablilization
program. ( See P. 55 ).
PLETCH
ELECTRIC
WINGHAM
• Residential
• Farm
• Industrial
• Commercial
Phone Collect
357-1583