Published on this site, September 25, 2007

 

Value Chains for Canadian Taxpayers
by
Pierre Lemieux

This piece started with a vague, repressed (and perhaps mistaken) feeling that the baguettes I have been buying for years at Première Moisson in Montréal were not quite what they used to be. Then, a few days ago, in one of their bakeries, I saw a notice to the effect that their bread is now baked with flour made from Québec wheat. De gustibus non est disputandum, of course. Yet, a free spirit could not help suspect the hidden hand of the state behind this Québec wheat affair. Meet the protagonists – and hear about Industry Canada’s invitation-only Global Value Chains Conference which opens today in Ottawa. Wheat production in Québec is tiny: some 21,000 tons in 2006, compared to 21,000,000 tons in Western Canada. Pardon the easy joke but, with global warming, all hopes are possible. Yet, according to professor Danny Le Roy, an agricultural economist at the University of Lethbridge, wheat production in Quebec “receives relatively less government support than supply-managed commodities.” Première Moisson looks like an interesting entrepreneurial venture. The artisanal bakery was created 15 years ago by Liliane Colpron-Fiset and family members. The company now operates 15 establishments in the Montréal area, in partnership with outside investors-operators. The typical Première Moisson store buzzes with swarms of polite, dedicated, efficient employees. The customer feels what the company’s website says: they are “so deeply committed to this trade that it is like a religion,” and they are “ready to sacrifice their life for the cause – of bread!” Their bread is baked on site. These nice shops also sell pastries, charcuterie, cheese, sandwiches, fresh salads, and other delicacies. Moulins de Soulanges is the milling company that produces the Québec-wheat flour for its partner, Première Moisson. In a pamphlet published last month, Moulins de Soulanges justifies the use of Québec wheat by environmental reasons (of course!), and by a “value chain” mantra – the expression comes 21 times in a three-page pamphlet. The company’s competitors, “the big flour mills,” are “now owned by American interests”, the pamphlet notes, not approvingly. What is a “value chain”? Interestingly, this management buzzword seems to be an American invention. And not surprisingly, the Canadian government has jumped on the bandwagon. “Global value chains (GVCs),” states Industry Canada’s definition, “include the full range of activities that are required to bring a product from its conception to its end use and beyond (e.g., design, production, distribution).” In one word, this is what we call “production” in economics. But they must use another name if they want to convey a new subliminal meaning. How would the problem of global value chains be solved without the feds? A section of Industry Canada’s website deals with the problem. “Firms are increasingly organizing their production into global value chains (GVCs),” the learned bureaucrats explain. “This poses challenges and opportunities for the Canadian economy and Canadian businesses. Therefore, government policy makers must develop a solid understanding of GVCs and their economic implications for Canada.” Hence, the second Global Value Chains Conference to address these deep and intractable problems. In its list of references on “global value chains,” Industry Canada cites, and links to, Joseph Stiglitz’s 2001 Nobel lecture on the economics of information. Although a believer in another religion, that of “social justice,” Stiglitz is a serious economist. Indeed, his cited lecture doesn’t even mention “value chains.” We are now in the bowels of the beast. The Fonds de développement de la transformation alimentaire (FDTA) is an arm of the federal government which subsidizes Québec agri-food businesses. With funding from Agriculture and Agri-Food Canada, FDTA’s currently spends $3.3 million per year in business assistance. Investissement Québec is the major business-subsidizing arm of the provincial government. It doles out more than $1 billion per year, albeit only $50 million in agriculture, fisheries, food and beverage. The front cover of its latest annual report says: “Imagine the possibilities”! Sure. In August 2006, FDTA gave Moulins de Soulanges a $300,000 loan at 0% interest for five years, and prime plus 2% for the following five years. Investissement Québec has just added a straight subsidy of $250,000. Flour from Québec wheat does not come cheap. As Adam Smith wrote more than two centuries ago, “By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expence for which at least equally good can be brought from foreign countries.” As for my preferred bakery… sigh! Not only is Première Moisson involved in all this as a partner of Moulins de Soulanges but, in 1997, it also got from FDTA a loan of $144,000 at 0% interest for three years (which has been reimbursed). Then, in 2002, FDTA gave the bakery a straight subsidy of $123,525. Just recently, Investissement Québec added another $305,000 subsidy. And the welfare-recipient company still owes $162,000 on a $750,000 “loan” from the same provincial agency. Government loans to businesses are disguised subsidies; otherwise, the banks would happily do them alone. The “loan” to Moulins de Soulanges, says a FDTA spokesman “makes possible the manufacturing of specialty flour from varieties of wheat grown in Québec … the result of a cooperation between different links [maillons], which provides a good example of a value chain in Québec.” Not content to sing the government’s value chain incantations, Québec food preachers also grab its subsidies. Granted that their cut is small compared to the few billions of dollars of annual government subsidies to businesses and farmers in Canada. Granted that they just egoistically reach for their slice of the cake. But the real value chains are the taxpayer’s chains.