OGEMA, Sask. - For Ross David, this is the worst year his family has faced since his grandfather homesteaded here, in this southern Saskatchewan town, almost 100 years ago.

About two-thirds of the province has been decimated by the harshest drought conditions recorded on the Prairies, while almost 15 years of debilitating U.S. farm subsidies have made growing wheat largely unsustainable.

Still, Mr. Ross has held on to a grain of hope.

Like many Saskatchewan farmers, he has spent the past decade switching from wheat farming into other crops -- like lentils, chick peas and peas -- which are not subsidized by the United States, and hence are at least twice as profitable as wheat.

But last month, Mr. Ross's failsafe fell through. The U.S. government passed a massive new farm bill that not only increases subsidies by an estimated 70%-80% over 1996 levels, but broadens them out to cover a swath of new crops, including lentils and peas, known as pulse crops.

"Wheat was our bread and butter but now it's not worth growing," says Mr. Ross. "We grew pulse crops instead and now we're taking a hit on those too. Where do we go now?"

Many Canadian farmers are asking themselves the same question. Industry experts say the 10-year, US $190-billion farm bill is not only broader and more generous than past efforts, but introduces new trade distorting subsidies that threaten to further destabilize world markets.

In an about face from a 1996 U.S. bill, the new legislation reinstates previously phased out minimum prices for commodities and introduces "counter-cyclical" payments, direct cash pay-outs triggered by low prices. For the first time it also demands country of origin labeling on all perishable products, including beef and pork.

"It's the straw that broke the camel's back," says Evans Thordarson, vice-president of the Agricultural Producers Association of Saskatchewan ( APAS).

Says Rosann Wowchuck, Manitoba's Minister for Agriculture and Food: "We know the affects are going to be devastating."

For Canada, which sends 62% of its agricultural exports to the United States, it's particularly egregious. After 13 years of free trade that has encouraged ever higher levels of market integration with the United States, Canada is now more vulnerable as it competes on an increasingly skewed playing field.

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Canadian farmers are expected to be among the first to feel the distorting effects of the bill, which analysts believe will encourage U.S. farmers to overproduce, flooding the market and in turn pushing down world commodity prices.

"It represents a turn to political management of production and artificial oversupply and can only spill across the U.S. border to the detriment of all three Nafta (North American Free Trade Agreement) countries," said Daniel Griswold, trade expert with the Cato Institute, a Washington think-tank.

The bill has already had massive repercussions for worldwide efforts to liberalize agricultural trade. Europe, which is also locked in a trade battle with the U.S. over steel tariffs, has delayed talks to reform its agricultural support program, considered the most generous in the world.

Europeans, and others feel misled since it was the United States that led the charge to dismantle agricultural subsidies, aggressively pushing for and clinching a new round of trade talks at the World Trade Organization meeting in Doha last year. The new trade round is crucial for developing countries that cannot afford subsidies as well as countries like Canada, which has embraced freer trade by cutting its own agricultural supports in half since 1986.

The viability of the trade talks are in doubt however, as many WTO members charge the U.S. farm bill not only destroyed the country's credibility as a free trade advocate, but means it could overshoot its own WTO limits of US$19.1-billion in annual subsidies.

"(The bill) mocks and flouts the spirit of the WTO and everything the U.S. government is saying about the need for trade liberalization," said Mr. Griswold. "The biggest casualty is U.S. credibility. (Their) words now sound very hollow."

In response, Canada plans to step up efforts to ensure the WTO trade talks move forward. In the meantime, the federal government is putting in place its own farm aid package.

However, Saskatchewan is already charging that federal plans to pay out $800-million in trade injury support as part of that package falls woefully short of the $1.3-billion - equivalent to one year of trade injury caused by the previous U.S. farm bill - that farmers have been demanding for more than a year.

In any case, say critics, the extra funding is a band-aid approach that fails to address the fundamental market imbalances caused by U.S. protectionist measures; Alberta alone expects to lose at least half of its $1.3-billion in annual beef exports to the United States as a result of country of origin labeling.

Both beef and pork exports have skyrocketed in recent years and are largely behind Canada's $27-billion agricultural trade surplus with the U.S since 1995. Among the most integrated with U.S. markets, they have flourished under free trade as farmers sought refuge from U.S. grain subsidies.

Onerous regulations, however, which would force U.S. feedlots, meat packers and retailers to separately identify Canadian-born livestock fed, slaughtered and processed in the United States as of 2004 have already cast a pall over the otherwise booming industry.

Larry Friesen, a Manitoba hog farmer, knows of three U.S. packers that have decided to stop importing Canadian pigs until there are "clear business as usual signals." He says plans to build another six to 10 hog barns in the province have been put on hold.

Since live pigs can only be transported as far as the U.S, "the question is, where in the world are we going to sell all this pork?" asked Mr. Friesen.

In Saskatchewan, wheat acreages, which have dropped by 28% in the last decade due to low prices, have been increasingly replaced with pulse crops. However under the U.S. bill, the floor price for lentils is nearly 19¢ a pound, significantly above the going rate of 10-15¢ in Saskatchewan.

"If the floor price (for lentils) gets U.S. farmers to produce more, we're washed up," said Cecilia Olver, APAS vice-president.

Says Phil Lewis, a farmer from outside Moose Jaw who has invested $250,000 in recent years to convert a quarter of his land to lentil production: "I'm doing a lot of praying."

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Perhaps the most ominous implications, however, are for value-added industries. The U.S. subsidies on grains and oilseeds assure a supply of cheap raw materials that lower costs and enhance the competitiveness of U.S. industries ranging from beer to cold cuts.

The effect naturally draws value-added industries to the United States while weakening Canada's ability to compete. As an example, analysts point to the increasing numbers of Canadian livestock that are exported live to be fattened by cheaper U.S. feed.

"This is what looms in the future for wealth creating value-added agriculture," said Mr. Thordarson. "Nobody in their right mind would invest in the value-added industry in Canada with this situation existing in the United States."

As a result, Canadian companies have been financially weakened and are more vulnerable to U.S. buy-outs, say observers. Canada's malting and milling industries are now largely American controlled while the recently merged grain handler, Agricore United, is 19% owned by U.S. multinational, Archer Daniels Midland.

For Marvin Wiens, president and chairman of Saskatchewan Wheat Pool, it has meant the grain handler has been at a competitive disadvantage to U.S. rivals. In the past year, the indebted Pool has been forced to cut jobs, downsize and sell off non-core assets.

"Can Canadian companies survive? No," said Mr. Wiens. "Canadian companies are disappearing and some argue it will continue to happen."

For the industry to be viable, many western farmers believe Canada has no choice but to match U.S. subsidies. But while Ottawa says it cannot afford the same level of support, westerners argue they merely want the same protection afforded farmers in Quebec and Ontario.

They note that while Ottawa has largely dismantled grain subsidies, it has refused to remove high tariffs which protect dairy and poultry products, produced almost exclusively in Canada's two largest, vote-rich provinces.

"We're not crying for subsidies, just an equal playing field with the rest of Canadian farmers," said Dave Brown, a farmer from Kyle, Saskatchewan. "People say this is just the way it has to be but it's not that way in Quebec."

Many farmers are not angry with the U.S government as much as they blame Ottawa for not being more assertive in defending western interests. According to APAS, it warned Ottawa a year ago, to no avail, that pulse crops would be included in the new U.S. farm bill.

"The Americans are doing what is in their interests. Our government is not sticking up for us," said Iver Johnson, a farmer from Dundurn, Saskatchewan. "We're going to be the good guys and get the shit kicked out of us again."

For many its time to shed the nice guy image. With the sting of the softwood lumber dispute still fresh, even veteran trade negotiators agree it is time Ottawa signals its willingness to do battle when it comes to blatant protectionism.

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While Canada has the most to lose in a trade war, it has a number of options ranging from pulling out of the U.S.-led war on terrorism and stopping natural gas exports to erecting tariffs on U.S. imports, said Gordon Ritchie, a former deputy trade minister.

Canada could also play tough at the WTO by threatening to block the next round of trade talks until the United States "cleans up its act," he said. "Whether it has the gumption to do so is another thing."

"The U.S. is the school-yard bully, but even if it's irrational and painful there comes a time when you have to take him on," said Mr. Ritchie. "That way he'll be more reluctant to carry on that way in the future."

The federal government has said little so far as it meticulously reviews "every word" of the farm bill. According to Donald Boulanger, press secretary to Lyle Vanclief, federal Agriculture Minister, "the minister is not happy at all and if he finds something we can challenge, there will be a challenge."

For trade analysts, the most likely challenge, either before a Nafta or WTO panel, would be against the country of origin labeling. According to well-placed industry sources, "there is no slam-dunk case yet" as much will depend on how the new regulation will be enforced.

In the meantime, Canada could be doing more at home, say some, to improve competitiveness and combat the fallout from the farm bill. In particular, a growing number of farmers are calling for the elimination of the Canadian Wheat Board.

While supporters say the state marketing agency, which holds the monopoly for selling Canadian wheat abroad, allows farmers to garner premium prices, opponents charge it is a socialist throwback that lacks transparency and inhibits value-added investment.

Many believe they could get better prices on their own while an 18-month delay in receiving full payment has prompted many cash-starved farmers to switch to pulse crops that pay immediate returns.

"We need to look at ourselves before we look at other sovereign countries," said Ron Hierath, a farmer from Milk River, Alta. "If we allowed free trade and let farmers be efficient that would be a good start in being able to survive the U.S. farm bill."

Others point to the virtual monopolies enjoyed by railroad giants CN and CP that have kept freight prices artificially high. A handful of independent rail companies have gone to court for the right to provide service on their tracks, but have been blocked.

For Michael Detlefsen, a vice-president at Maple Leaf Foods Inc., the processed meat producer, Canada may have lost its competitive cost advantage to the United States, but it can corner the market on high-quality products. For Maple Leaf that means leveraging Canada's reputation as a premium pork producer.

Despite the U.S. farm bill, the company is going ahead with plans to double production at its Brandon, Man., plant, and it expects much of the new sales to be in the U.S. "We see this as an opportunity," said Mr. Detlefsen.

Back in Ogema, Mr. Ross is not so optimistic. "I used to love farming, but lots of days I wonder why I'm here."