Editorials: The price of protectionism

The trouble with biofuels; and Ontario's Tories are wrong on religious schools.

On Sept. 12, oil spiked to US$80 a barrel, even as credit markets were in crisis and the American economy was shedding jobs. No matter. Demand for energy continues to soar—raising critical questions of how best to accommodate it.

Many politicians, including President George W. Bush and Ontario Premier Dalton McGuinty, tout biofuels as an answer. The logic goes something like this: Encourage farmers to grow corn, through a combination of public subsidies, price supports and protectionist tariffs. Legislate a home market for allegedly clean-burning ethanol, by insisting all gasoline sold in that market must contain the fuel. Turn corn into ethanol (through an energy-intensive process), blend it with gasoline, and voila! The government secures the agricultural and the easy environmental vote, and Canadian and U.S. farmers chalk up profits on a stable source of “green” energy.

Yet a new report charting the 10-year outlook on agriculture from the Organization for Economic Co-operation and Development argues that increased demand for biofuels is artificially inflating the price of corn. Meanwhile, tariffs on biofuel imports are keeping cheaper, more efficiently produced biofuels—such as Brazilian ethanol—out of mature markets.

The price inflation is a global phenomenon. Robert Fox, executive director of Oxfam Canada, which provides disaster relief to countries in crisis, was in Zimbabwe this summer. “A USAID official told me that this year, Zimbabweans don’t have to worry about subsidized U.S. corn getting dumped in their market—it’s being sold for US$6.50 a bushel to make ethanol,” he says. “Formerly, USAID was buying corn for US$2 a bushel. But right now, even if USAID wanted to send U.S. corn here, it couldn’t.”

It’s probably good that farmers in Zimbabwe won’t have to compete with surplus foodstuffs from overseas. But this story also shows how the dominant thinking on biofuels in Canada and the United States is playing havoc with food prices.

Two points to take away here: First, if prices are rising on demand, what is the rationale for continued handouts to grain farmers here? Second, biofuels raise hope for developing-world farmers as well—but only if they can compete on a level playing field with their North American counterparts.

Subsidizing developed-world farmers to grow corn for ethanol production just doesn’t make sense. Canadian and U.S. governments should drop market-distorting agricultural policies (tariffs, supply management, price supports) and instead promote renewed multilateral trade talks. The bestroute to food-price stability and affordable biofuel is liberalized trade in agriculture.

Most people would agree Canada should be an inclusive country that supports citizens of all backgrounds. Yet Ontario Conservative Leader John Tory’s $400-million election promise to fund all religious schools in the province seems to many to be plain wrong-headed. Fairer than the current support of only two school systems, the public and the Catholic? Of course. But while we see the principle (and the governing Liberals support merely the status quo), we question the prescription. The principled act for government would be to not fund any faith-based schools, including Catholic ones. That might not be politically expedient, but funding one system, accessible to all, is the right thing to do.

More worrisome to us, however, is that the ensuing, heated debate is obscuring more important issues. The province’s infrastructure is crumbling. The health-care system is getting worse. Manufacturing, Ontario’s economic engine, is losing steam. Its cities are cracking up financially. And no party has come up with a coherent energy plan to ensure that Ontarians will have enough power to keep the lights on in the next decade or two.

There are solutions to these important problems, but you wouldn’t know it from the campaign rhetoric. For one, more public-private partnerships could help solve the province’s infrastructure and health-care woes. That will annoy the unions who have worked so hard to ensure their members can do so little, but both infrastructure and health care need a cash and talent infusion to bring them up to code.

Both leading parties promise lavish spending increases, but if there’s so much money in the kitty, then the province should start taking back social services it downloaded onto the municipalities back in the 1990s as a way to pay for tax cuts. Social welfare policies are a provincial responsibility, and should be treated and paid for as such. That would alleviate the cash crunch cities such as Toronto—which needs its own political shake-up—are facing.

Finally, we might not be able to protect the manufacturing sector from the forces of globalization. But there is plenty of economic legwork needed—developing new sectors, attracting businesses and retraining older workers to be competitive in the global marketplace—to ensure that Ontario does not continue down the path toward have-not status.