Under the Agridome

Subsidies Are Investments, Not a Dirty Word

Philip Shaw
By  Philip Shaw , DTN Columnist
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It was a dusty week for finishing up planting in southwest Ontario. It's just another risk farmers measure. That brings up the question of subsidy, notes DTN Contributing Analyst Philip Shaw, who hopes the rain comes soon. (DTN photo by Philip Shaw)

It has certainly been a dusty week as most of Ontario finds itself in a pretty committed drought. In fact, in my area some farmers have actually stopped planting because of a lack of moisture. I would like to believe that you "plant in the dust and your bins will bust", but of course we never really know. What I do know is the drought will end when the rain comes. I've seen this movie before, have been down that trail and eventually everything will change. It is just another risk we measure in our day-to-day tasks on the farm.

Measuring that risk has certainly been a bit uneven this spring as we've seen new crop corn drop about $1.10 a bushel from its January levels and new crop soybeans dropping about $2.50 from their January levels. This translates a little bit differently with cash prices but clearly the grain markets turned a little bit ugly as 2023 grew older. Yes, I'm still waiting for that spring rally and El Nino represents opportunity, but just this morning somebody at the local gas station asked me if I could do anything about these grain markets. I gave my standard answered and said, "nobody knows!"

That is certainly the truth, and it is indicative of the price environment that we operate in as Canadian farmers. Our production environment is unknown especially in these droughty times, but also our price environment. In many ways it is so different than other parts of our economy. It's in times like these that occasionally farmers can be forgiven for looking across the fence to greener pastures.

One such place that there's been much comment on lately has been the role of Canadian governments in subsidizing electrical vehicle infrastructure production. It makes the proverbial asks to government by our grain farming producer organizations so paltry in comparison.

Case in point are the investments being made by the Ontario and Canadian government in the Volkswagen plant near St. Thomas, Ontario, as well as the Stellantis electric-vehicle battery plant proposed for Windsor, Ontario. Between the two, we're talking about huge subsidies by government with the Volkswagen plant set to be subsidized between $8 billion and $13.2 billion from the federal government.

The Stellantis Battery plant in Windsor could ultimately be receiving even greater subsidies depending on the outcome of talks between the two level of governments this past week.

Earlier, Stellantis had halted production of the Windsor plant stating the lack of actual funding from the federal government. With billion-dollar investments on the line, government officials have been scrambling to shore up the commitment from these big companies.

The numbers that we are talking about with regards to subsidies here are mind boggling. Keep in mind it is also true that there is no political stripe to this, as both Conservatives and Liberals are involved with regards to these Ontario plants. Part of the inclination from government is to compete from similar subsidies in the United States because of its Inflation Reduction Act. It's a huge investment or subsidy from government betting on a successful transition to the EV economy. It also draws exasperating comparisons to the state of business risk management within our Canadian agricultural policy.

Simply put, there is so much emphasis on the transition to EV automobiles and very little emphasis on the simple asks from Canadian farm organizations. For instance, grain farmers of Ontario, as well as representatives in Quebec, have been trying to get back the $34 million in tariffs charge to eastern Canadian farmers last year. It's been a solid no for a long time now, even though that kind of money would fall through the cracks on this EV transition subsidy world that we are into now. Ditto for the many other needs within the business risk management portfolio of the greater Canadian agricultural policy.

Who is right with this? To be fair, Canadian agriculture and Canadian farmers have seen a fair amount of subsidization in the Canadian context. The small Canadian ethanol complex is purely a child of that. However, it pales compared to the American farmer subsidy theme park we see south of the border. For instance, the money American farmers received for unfair Chinese trade practices as well as COVID-19 was north of $30 billion. So, when it comes to subsidy and agriculture, nobody's hands are clean.

The greater truth may be that the economic reality of subsidization we see now is just the latest example of Canada being a truly mixed economy, where government takes such a leading role. Some farmers might pride themselves as being independent and maybe even libertarian in their nature, but without the long hand of government intervening with subsidy and even tariff protections, we would be a lot poorer. Canadian supply management is a good example of that.

Of course, this all gets very messy. Some people might say that these large corporations wanting subsidies for electric vehicles are just engaging in corporate welfare. There might be others that say the same thing for business risk management within Canadian agriculture policy. Add politics into the mix and you get the picture. It is a long and winding road to economic Nirvana.

As it is for this coming week, a solution to all this would be some rain. However, without rain we might ultimately be looking at a crop insurance solution to buffer our production and in some cases possibly even some provincial revenue insurance to cushion our grain prices declining. Ditto for the other side of the border and surely it will also involve some kind of subsidy.

It's not like that is some kind of dirty word; in fact, some people in our greater society like to refer to subsidy as investment. It sounds so much better. However, at the end of the day, it is what it is. I will let you be the judge.


The views expressed are those of the individual author and not necessarily those of DTN, its management or employees.

Philip Shaw can be reached at philip@philipshaw.ca

Follow him on Twitter @Agridome