Canadian agriculture factor retention under different policy regimes

Abstract

The study explores the implications different Canadian policy regimes have for agriculture resource markets. Particular attention is focused on agriculture labor retention. Two markedly different policy regimes are analyzed: a continuation of the current commodity specific policy setting and a decoupled policy setting which is composed purely of lump sum transfers to farm operator labor. The amount of income transferred to agriculture producers in the decoupled policy setting is set equal to the compensating variation associated with current policies. The compensating variation is determined as the difference between Canadian producers net income when all countries, inclusive of Canada, continue with their status quo policy courses and when all countries stop all government intervention;The analysis is conducted in the empirical setting of the CAM and the BLS. Preparatory to doing the analysis, the input block of the CAM was revised to make it a better vehicle for the study. One of the key and novel revisions was to use the efficiency wage hypothesis along with Okun's Law to explain the existence of unemployment at equilibrium;This study finds that the decoupled policy regime: (1) is more conducive to preserving the traditional family farm than status quo policies; (2) leads to a greater diversification in agriculture output than status quo policies; (3) has similar directional effects on agriculture labor force size and composition as a multilateral move to agriculture trade liberalization would have, but opposite directional effects on capital usage; and (4) has a smaller negative influence on commodity world prices than the current policy course has.