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Minister Vanclief's Letter to Secretary Veneman

June 20, 2002

The Honourable Ann Veneman
Secretary of Agriculture
United States Department of Agriculture
14th Street and Independence Avenue SW
Washington, D.C. 20250
U.S.A.

Dear Secretary Veneman:

I am pleased to inform you that, today, the Government of Canada announced its formal commitment towards a forward looking set of initiatives for the Canadian agriculture and agri-food sector and, indeed, for all Canadians. I would like to take this opportunity to provide you with the broad direction that the Agricultural Policy Framework (APF) will take, as well as some of the elements that we will be incorporating into our approach. further, I wish to respond to your comments in Rome concerning the relative level of subsidation between our two countries.

The APF is an integrated approach which recognizes and responds to the powerful forces that are shaping the future of agriculture: growing consumer demands for safe and high-quality food; agriculture's role in the environmental health of the country; risks emerging from new threats to the security of the food system; the skills requirements in a knowledge-based economy; and the opportunities emerging from the bio-economy. Underpinning these elements is an approach to risk management programming that is premised upon preserving production, market and trade neutrality and, moreover, will actually provide incentives for Canadian farmers to manage risk and maximize their overall profitability and return from the marketplace.

As such, the Government of Canada announced today that an annual commitment of $680 million per year for five years to develop the APF. This funding is to commence on April 1, 2003. Further, due to severe weather problems and the state of international markets, we are also announcing a bridging package to the APF to ensure that Canadian farmers are in a position to capitalize on the opportunities that the APF will provide. This package consists of a combination of income assistance and programming to accelerate the APF. The programming includes a strong environmental component which will see the Government of Canada further invest in such areas as the development of safer and more environmentally friendly pesticides, the stimulation of biomass energy development, a green cover program to protect environmentally sensitive land, and assistance to our farmers to develop environmental farm plans for their operations. We will also be investing in innovation, market development and rural development. Finally, due to severe drought conditions that have seriously affected many producers, we will be introducing measures to assist producers in expanding their ability to access water. In total, this bridging package amounts to $1.8 billion.

I am confident that the measures that we have announced today provide a strategic direction for Canadian agriculture that will lead to greater diversification and value-added growth, new investments and employment, improved land use, and the highest standards of environmental stewardship and food safety. It is important to note that we will achieve these goals and do so in a way that does not distort international markets.

In Rome, you stated that you thought that the Canadian farm assistance package might be proportionately more generous to Canadian farmers than the U.S. Farm Bill provisions are to U.S. farmers. This statement troubles me greatly, and I feel it is important to clarify the issue.

I draw two points to your attention. First, the U.S. is already at a higher level of support than Canada, based on recently released OECD data for 2001. The average Producer Support Estimate (PSE) as a percentage of the value of production is 21% in the U.S. versus 17% in Canada. Second, the majority of additional spending in the Farm Bill is committed to commodity-based, price support subsidy programs that will distort production decisions and trade. In contrast, Canada's APF focuses on market success for producers instead of subsidies.

Let me expand on these themes. The overall PSE is 21% of the value of production in the U.S., compared with 17% in Canada. The gap in support is much greater in grains and oilseeds. For example, in 2001, the PSE for wheat in the U.S. was 40% compared to only 18% in Canada. For corn, the PSEs are 26% and 16% respectively; for barley/sorghum, 36% and 13%; for oilseeds, 25% and 20%; for milk 51% and 50%. There was previously no U.S. support to pulse crop producers and these pulse commodities traded fairly in international markets. I expect to see a significant price drop for pulses as a result of overproduction in the U.S. brought about by support to American pulse producers. Farmers in Canada and developing countries will be hit hard by this measure, and their trade negotiators will surely register these concerns at the World Trade Organization.

I cite these figures since they are the most widely accepted basis for international comparisons of support, used regularly by the United States and other countries. Other methodologies are not supported by internationally recognized organizations, such as the OECD.

I feel strongly that the Canadian approach is consistent with the Doha Declaration, as it moves in the direction of a more market-oriented agriculture. Our approach ensures that Canadian farmers will plant what the market needs and will pay for. Our farmers will adapt to market forces through science, innovation, and renewal and will do in environmentally responsible ways. Governments and producers will share risk management in a sound manner which does not distort production and trade. Our industry supports us in this approach, realizing that this is the way to increase competitiveness.

I look forward to meeting with you and our colleagues at the July Quint meeting in Japan.

Yours sincerely,
Lyle Vanclief