Resource use response to subsidy removal in commercial agriculture

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Bradshaw, Benjamin E.

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University of Guelph

Abstract

This dissertation is concerned with the changing relationship between markets and states in advanced western economies, and the potential implications of this transformation for natural resource use and the environment. More specifically, the research aims to assess the impact of subsidy removal in commercial agriculture for farm-level resource use and, hence, environmental condition by: (1) describing recent changes to state regulation and support of Canadian agriculture; (2) conceptualizing the relationship between agricultural policy change, farm-level resource use and environmental condition within an agricultural systems model; and (3) empirically assessing and refining the model with respect to subsidy removal in commercial agriculture, based on cases in New Zealand and Canada. Owing to, among other things, constrained budgets and the stipulations of international trade agreements, government support of commercial agriculture in Canada has declined of late, as exemplified by general cutbacks in transfer payments and the termination of major subsidy programs such as the Western Grain Transportation Act. Policy changes of this kind are known to influence the condition of agricultural systems. While the impacts of subsidy implementation have been well researched, considerably less attention has been directed towards the impacts of subsidy removal, especially with respect to farm-level resource use. Based on a review of current scholarship, a conceptual model of agricultural decision-making is developed along with a series of hypothesized short and long term resource use responses to subsidy removal. The model suggests that the removal of (or reduction in) any subsidy directed towards a specific activity can be expected to result in a short term reduction in that activity, and this should generally produce gains in environmental condition. Over the long term, subsidy removal is hypothesized to promote a variety of strategic responses from farmers with mixed implications for environmental condition. Notwithstanding the likely adoption of certain strategic responses, it is also hypothesized that the increased risk of farming exclusively for the market will periodically cause farmers to shorten planning horizons, leading to exploitative resource use and/or reduced investment in on-farm resource conservation. Based on both aggregate and case study analyses of resource use changes in New Zealand pastoral agriculture, where large scale subsidy and regulatory reforms were undertaken in the post-1984 period, the short term response to subsidy removal generally indicates a decrease in farming intensity brought upon by reduced input use and production levels, thereby potentially improving environmental condition. In contrast, the longer term evidence raises concerns regarding the capacity of farmers to properly maintain and steward their operations, households and properties in the absence of state support. Based on the application of these findings to the Canadian scene, via the refined conceptual model, a number of insights are provided as to the likely farm-level resource use and environmental implications of current Canadian agricultural policy changes.

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Keywords

Commercial agriculture, Agricultural policy, Canada, Government subsidy cutbacks, New Zealand

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