RESOLVING FARM INCOME CHALLENGES

At the end of January, Mr. Wayne Easter, Parliamentary Secretary for Agriculture and Agri-Food, concluded a cross-country consultation tour aimed at gathering producer input on what to do to resolve the farm income challenge. In 2003, the Ontario agriculture sector as a whole lost money for the first time in over 80 years. That means an entire sector generating $8.65 billion in farm-gate value, worth about $24 billion in further processing and value-added initiatives employing 650,000 people, lost money!!

Mr. Easter said analysis will be undertaken on the issues identified in the consultations, and an action plan will be developed with industry and provincial input in the summer of 2005. The action plan will be reviewed by federal, provincial, and territorial ministers of agriculture at their annual meeting this July. Will this study make any difference? Likely not. There have been a mind-boggling number of previous studies, reports, commissions, special panels etc. dealing with the same question going back decades. Mr. Easter himself, served on the committee of perhaps the best study ever produced at the national level just 3 years ago, the Speller Report. Here's a thought; rather than conduct yet another study, why not just implement the recommendations of the Speller Report which this very same government commissioned but never acted upon?

Solutions offered by participants at the consultations ranged through regulatory changes, venture capital investment funds, investment tax credits, more research, less research, biotechnology, elimination of biotechnology, and many other options. Organic agriculture was held out as a pin-point of light by some. A prominent organic soybean processor says he needs 20,000 acres of production. Are organic or other niche opportunities a way out? Perhaps for a minor few, but we have 5 million acres of field crops in Ontario each penciling a huge loss at prices offered for delivery this harvest and next. What would you propose be produced on the other 4.98 million acres?

Before recommending solutions, time would best be spent on identifying the fundamental problems. Here's a hint. The average Canadian consumer leaves a tip for their server for the average restaurant meal which is more than the money paid to all the farmers who produced the food for that meal. Between 1997 and 2003, the price Canadian consumers paid for food increased by 13.8% while the average price received by farmers for their produce increased by only 2.1%. Over the same time period, the proportion of disposable income spent on food by Canadians dropped by over 15% from 12.5% of annual disposable income to 10.6%, second lowest only to the U.S. Put it another way. Food Freedom Day, February 8, is the calendar date representing when the average Canadian has earned enough income to pay his or her individual grocery bill for the entire year. In that same year, the average Canadian farm produces enough food for 120 people, but the average farmer who produced that food cannot support himself. Off-farm income of the farmer, spouse, and family is the single largest supplement to net farm income, larger by far than all government support combined.

Only continuing improvements in efficiency could sustain such inequity ... produce more for less. In fact, Canadian agriculture has improved efficiency at a rate 2.5 times faster than any other Canadian business sector. But who benefits? In 1998, George Weston Ltd., the prominent food distributor, generated total profits of $773 million and a return on equity of 37.3%. In that year, the entire Canadian farm sector had a combined profit of $367 million and a return on equity of only 0.3%. This one company's profits were double that of all Canadian farmers combined. By 2003, the food distributor was still making a lot of money, but the entire Canadian farm sector lost $312 million!

There are only two fundamental reasons for the systemic farm income problem.

1) The imbalance in market power between farmers and processors/distributors;

The market power and concentration hinted at above is summed up in testimony before the U.S. Senate Ag Committee in 1999 by C. Robert Taylor, Professor of Ag and Public Policy, Auburn University.

"Since 1984, the real price of a market basket of food has increased by 2.8%, while the farm value of that food has fallen by 35.7%. Why? Recent studies show that 37 out of 40 subsectors of the U.S. food industry exercised statistically significant market power in setting output prices ... and that all of the 47 subsectors of the U.S. food industry ... had some degree of market power in both the input and output markets. In other words, the farmgate-to-dinner plate market power of the ag giants is so concentrated today that these dominating corporations can take their profit from the farmer side of the food equation, not the consumer side."

2) The unequal business environment between farmers, especially grain and oilseed farmers, in Ontario and farmers in adjacent jurisdictions.

Supply management redresses market power imbalance for some commodities which exhibit none of the income crisis symptoms characteristic of more exposed commodities. But for other commodities and unlike other business sectors, farmers cannot control supply and thereby manage price for their output. In 1985, U.S. farm policy changed from managing supply (thereby supporting prices and encouraging production in other countries) to supporting U.S. farmers directly without controlling supply (thereby freeing production while insulating U.S. producers). Since that time, production has expanded, prices have declined, U.S. producers have been protected by huge subsidies, but Ontario grain and oilseed producers (without the same insulation) have been hammered.

Mr. Easter, the business environment is unlevel, market power is unequal.