Index
Ag Canada forecasts back-to-back Realized Net Farm Income losses
In its latest Farm Income Forecast (February 18), Agriculture and Agri-Food Canada in collaboration with the provincial governments and Statistics Canada finalized its farm income forecast for 2004 and 2005.
For Ontario, it is not a pretty picture:
In this new CAIS era, government program payments are projected to drop sharply across Canada in 2005 (down 19% nationally to $3.989 billion) even though Total Net Farm Income nationally plummets sharply to only $326 million in 2005, down 89% from 2004's $3.030 billion, and down 86% from the average for the period 1999-2003.
The drop in government program payments is felt especially hard in Ontario where payments of $591 million equate to only 7.3% of Total Market Receipts projected for 2005 versus payments in those provinces equating to 9.5% in Quebec, 10.9% in Manitoba, 22.8% in Saskatchewan, and 15.9% in Alberta.
In this era of "national programs"
where all farmers in all provinces are supposedly treated equally, government
program payments in 2005 are projected as only 3.8% of provincial agri-food
sector GDP in Ontario, 6.4% in Quebec, 12.2% in Manitoba, 30.5% in Saskatchewan,
and 18.8% in Alberta.
If you prefer to compare government program payments as a percentage of agriculture
GDP, for 2005 these are projected as 14% in Ontario, 17.6% in Quebec, 17.8%
in Manitoba, 34% in Saskatchewan, 32.8% in Alberta.
Farm groups joining forces to focus attention on low farm incomes and disastrous prices for 2005 and beyond is apparently not unique to Ontario. Reports from western farm newspapers in early February say "three prairie farm groups have joined forces to lobby the federal government over low farm income levels. Wild Rose Agricultural Producers in Alberta, Keystone Agricultural Producers in Manitoba, and Agricultural Producers Association of Saskatchewan believe statistics for 2004 will show another dismal year for farm incomes. In 2003, net farm incomes were negative for the First time in recent Canadian history."
"The groups say there are a number of issues at the heart of the economic squeeze including historically low commodity prices, the effects of BSE on the ruminant industry, a number of consecutively poor crop years and rising input costs. They also say farm debt has increased to an all-time high. These three groups say targeted and significant assistance is needed to address the hurt on Canada's farms."
"They claim CAIS, the Canadian Agricultural Income Stabilization program, is unable to address the need. Farmers who have experienced several years of financial difficulty due to lower prices and trade problems find that their eligibility to receive assistance declines when they need it most' says a joint news release from the groups. They also claim CAIS is too slow to address the immediate needs of producers. The three groups say they strongly believe that ad hoc assistance is imperative and plan to lobby in that regard."
Minister Mitchell rejects "trade injury compensation"
In a belated response (Grain Growers of Canada sent a letter October 21, 2004, Minister Mitchell s response was received February 8, 2005), federal agricultural Minister Andy Mitchell rejected using the CAIS program to offset injury inflicted through artificially low prices caused by U.S. and European ag subsidies.
"From your letter, I note your organization is in favour of a CAIS program
element that would offset trade injury. Over the past few years, many agricultural
groups, including your organization, have demanded that Canada institute a trade
injury program to compensate producers for losses attributable to foreign subsidies.
This request is largely motivated by declining margins in grain and oilseed
industries, and high crop subsidies that are provided to farmers in the U.S.
and the European Union.
"Implementing trade injury compensation would have Canada follow the same
course of action as the U.S., one that distorts market signals and encourages
producers to keep doing the same things they have done. It is widely recognized
that high subsidies lead to higher land prices, ultimately raising costs for
future farmers. Canada's decoupled programs have led to more diversification
and production of higher-valued products relative to the U.S. "Including foreign
subsidies in the CAIS reference margin, as proponents of trade injury compensation
have suggested, would create many practical problems. For example, it would
break the link between historic and current-year margins, which is integral
to the functioning of commodities, which in itself is an immense and difficult
task, involving a large degree of discretionary judgements."
"As well, increasing the reference
margin to compensate for low world prices due to foreign subsidies would be
inconsistent with the World Trade Organization (WTO) green box criteria requiring
that payments not be based on domestic or international prices. Given our current
expenditures, and our WTO commitments on trade-distorting domestic support,
Canada has very little room to provide additional domestic support that is not
classified in the green box."
Replacement Program for Market Revenue Insurance
The two joint OMAF/industry groups working on replacement programs for Self-Directed Risk Management (SDRM) and Market Revenue Insurance (MRI) concluded their draft reports late in February. OMAF officials reported directly to Minister Peters on Monday, February 28; industry participants will present their own recommendations to the Minister mid-March.
The MRI report contains no surprises. The constraints of "no new money, cannot be triggered by price, cannot be commodity specific, and must be national" made developing an effective replacement program essentially impossible.
Regardless, the report projects interesting findings for 2005 using a 500 acre theoretical grain and oilseed farm:
The MRI Working Group requested that another option be added to the analysis which would mimic Quebec's ASRA program (i.e., MRI at approximately 100% of MAP and LAY with only a 22% premium deduction). Results of that assessment were not available at print deadline.
Total cost to government is also an indicator of support provided. CAIS is projected to cost government $70 million in 2004, $73 million in 2005 for the grain and oilseed sector; MRI @ 90% (and some assumptions about prices) would cost $260 million in 2004, $267 million in 2005; Revenue Assurance about $187 million in 2004, perhaps $200 in 2005; enhanced CAIS about double total CAIS payments.
Of interest is the fact that over it's life (1991-2003) MRI paid out $970 million averaging $74.5 million/year. At the current 90% level, MRI would average about $109 million/year, some years much more depending on prices (as above). At the 100% level, which is approximately cost of production, MRI would average about $200 million/year including the 1/3 deduction in lieu of premium. "ASRA in Ontario" (based on cost of production approximating 100% MRI) would likely average about $240 million/year or more including the 22% deduction in lieu of premium.
Linkages between CAIS and the various options were also explored in no great detail, but most options were considered as an advance payment against CAIS program benefits.
The Minister will take both the SDRM
and MRI reports under advisement. There is no indication of when, or if any,
and decisions will be forthcoming.
USDA
Proposes 3% Cut in US Government Payments to Farmers
President Bush's administration proposed cutting United States Department of Agriculture expenditures in fiscal 2006 (October 1, 2005 - September 30, 2006) by $587 million (3% of overall USDA expenditures) as part of overall budgetary legislation put before Congress early in February. The cuts will require new legislation by Congress in order to be implemented. If enacted, annual USDA expenditures on farm programs would drop from $19.64 billion to $19.053 billion. It is no surprise the administration is proposing to cut farm spending as most observers had projected annual reductions in spending of between $1 billion - $1.5 billion. However, the directness of the cuts reflect the growing significance of the U.S. budgetary deficits.
The USDA anticipates achieving proposed cuts primarily by lowering the overall cap on payments to individual farmers to U.S.$250,000 from the current U.S.$360,000, reducing the amount of people who qualify for the payments, and cutting the amount of direct assistance provided. Proposed cuts to crop insurance benefits would not take effect until 2007. Direct payments to farmers, including counter cyclical program payments, would be reduced by 5%.
Current U.S. program criteria caps payments to individuals at U.S.$360,000 which encompasses a U.S.$180,000 limit on an individual plus a provision that allows the individual to accept payments worth another $180,000 from two other related entities, informally called the "three-entity rule." The USDA wants to abolish this three-entity rule which would reduce the individual cap to U.S.$ 180,000 which the USDA wants increased to U.S.$250,000. Eligibility to receive program payments would be further restricted based on "direct attribution" meaning active participation in farming operations.
These proposals are all controversial and mean that debate on the 2007 U.S. Farm Bill is beginning in earnest and earlier than expected. All these proposals have been floated before and all have attracted vigorous debate. They will again and likely even more vociferous opposition will emerge. The fact that the Bush Administration is floating them again this early shows the enormity of the U.S. budgetary crunch. U.S. agriculture is not immune.
But to be honest, a 3% cut is not a meaningful reduction, and will not have sufficient impact to mitigate the artificial distortion on grain and oilseed prices.
CAIS Can Pay On Negative Margins But...
A London based farm accounting consultant told farmers at a recent meeting that the Canadian Agricultural Stabilization (CAIS) program, in theory, could make payments based on a subscriber's crop disaster causing a negative margin. But there was a big proviso.
Peter Mantel of Famme and Company was responding to questions from his audience at Ridgetown College's SouthWest Agricultural Conference in January about the possibility of a cash crop farmer getting benefits from CAIS, if he/she had a crop failure. He said coverage from CAIS would not be automatic. "Negative margin coverage could be withheld in the event that it can be shown the farmers loss would have been mitigated through Crop Insurance." Basically, farmers must take reasonable steps to insure financial success before negative margin coverage will kick in," he said. Mantel said the question was not theoretical, it is happening with many of his clients in cattle country north of London, where both crop and livestock returns have been eroded beyond all forecasts, thanks to BSE and low prices in Chicago.
Mantel was commenting on the CAIS program after one year of its introduction. He encouraged growers to participate in the program, despite some of its liabilities. "Just like Crop Insurance stabilizes crop yields, CAIS stabilizes your income," he said. He showed several examples of how important it was to participate in Crop Insurance with CAIS, the big reason being it increases a grower's reference margin plus the premiums can be refunded.
Mantel agrees that the concept of producer's co-participating in the program is a good one, it does lead to a number of inherent costs. "Because money seems to be always moving from one account to another, racking up more fees, interest costs on borrowed money and administration cost, I like to call it 'musical money'." Some of these costs seem to be unnecessary but they do not overshadow the benefits of CAIS," he stated.
The U.S. dollar, since peaking in February 2002, is now worth about what it was in 1995. The U.S. dollar monthly index has now fallen 30% from 120.4 in December 2001 to 84.4 in February 2005. The long downhill slide is the longest sustained decline in the 30 years that currency exchange rates have been set by markets rather than government mandate. The U.S. trade imbalance is still growing (record trade deficit in November), but should begin to right itself as U.S. exports become less expensive and foreign imports more costly. A falling currency takes a while to take effect on trade. Some currency analysts say the U.S. dollar has to drop more, perhaps another 10%, to compensate for the six-year ride up. The most recent low prior to 1995 was 78.43 established in late August 1992.
Federal Kyoto Strategy: $2.4 billion over 5 years
The deadline came and went in early February for beginning implementation of the Kyoto Accord (which Canada signed in December 2002) to reduce Canada's greenhouse gas emissions in the 2008-2012 period 6% below their 1990 levels (we are 24% above, currently). A $2.4 billion, 5-year package is likely to be included in the upcoming Federal budget (as taken from Globe & Mail article):
Apparently, the federal government is also considering forcing auto-makers to make a 25% improvement in fuel efficiency by 2010, and forcing industrial and commercial emitters to meet greenhouse reduction targets. A $ 1 billion Green Economy Trust may be set up to finance such measures through grants, etc. to business and industry.
Saskatchewan Delays Ethanol Mandate, again
Saskatchewan has once again delayed implementation of its oft-delayed mandate on the use of ethanol. The legislation requiring fuel suppliers to sell ethanol blends at the pumps was to be phased in effective May 1, 2005. The plan was to start with a 2% blend and ratchet up to 7.5% by November 1, 2005. Those dates have been postponed.
This isn't the first delay or change in the
date of implementation. The original date for implementation of the province's
ethanol mandate was July 1, 2004. That was moved forward to April 1, 2004 in
anticipation of the Broe Companies Inc. construction of an 80-million litre
ethanol facility in Belle Plaine, Saskatchewan. When financing fell through,
the deadline was pushed back to May 1, 2005 when it was expected two other ethanol
production facilities would be operational. NorAmera BioEnergy Corps $20 million
conversion of an old distillery into a 25 million litre ethanol facility is
months behind schedule with completion now not expected until fall 2005. NorAmera
attracted a $3.5 million grant under the federal Ethanol Expansion Program Phase
1. Husky Oil Operations Ltd's 130 million litre ethanol facility being built
next to its heavy oil ungrader facility in Lloydminster will not be operational
until spring 2006. Husky attracted a $7.8 million grant under the federal EEP
Phase 1.
Major petroleum companies are reluctant to
participate because part of the Saskatchewan mandate stipulates that a minimum
30% of the ethanol sold in the province must come from small firms that produce
less than 25 million litres of ethanol.
New
Chair for AGRICORP Board of Directors
OCPA congratulates Mr. Liam McCreery on his appointment by Ontario's Minister of Agriculture Steve Peters as Chair of AGRICORP's Board of Directors. We have worked closely with Liam for many years in his capacities as Chair of the Canadian Agri-Food Trade Alliance (CAFTA) and as Chair of the Ontario Soybean Growers. Liam also served on the Board of the Guelph Food Technology Centre. We look forward to working closely with Liam in the future.
New Chair for SEAWAY GRAIN PROCESSORS
Effective January 18, 2005, Mr. Alain Leduc, a cash cropper from Moose Creek, Ontario, assumed the role and responsibilities of President of Seaway Grain Processors replacing longtime President Bud Atkins. Bud retired from both this position and as a Director on the Board of the Seaway Valley Farmers' Energy Cooperative, Inc. after many years of dedicated service. OCPA looks forward to working closely with Alain to get the Seaway project operational. OCPA wishes Bud, who was also a previous Director on our Board, a long and happy retirement.
P.E.I. Legislative Committee to make Recommendations on Modified Crops
In January, P.E.I, politicians were seeking public input as they decide whether or not there is a future for genetically modified organisms in the province's critical agriculture industry. The members of the legislature's standing committee on agriculture, forestry and environment met on January 10, 2005 to set the groundwork for hearings that could lead to a ban on modified crops. Genetically modified crops have been permitted by Health Canada since 1995, even though they have received a cool reception from some environmentalists and some consumers who have misgivings about their safety.
Committee chairman Wilbur MacDonald, is a P.E.I, farmer. He commented that the committee's goal is to get the broadest range of input before passing on a report with recommendations to the legislature in the spring. He states that once discussion starts, there will be many people wishing to come forward. The debate will be wide-ranging; there will be highly technical questions about the science behind these products, emotional appeals to traditional farming and speculation about whether P.E.I, could generate new business opportunities by declaring the island a genetically modified organism free zone.
The Department of Agriculture has
been asked to assign a researcher to their committee and an Internet presence
is being developed for their discussions.
Most Farmers Adhere to Insect Management Requirements
For the fifth year in a row, the National Corn Growers Association reported that most corn growers adhered to insect resistance management requirements designed for corn borer-resistant Bt corn. More than 9 of every 10 growers (91%) met the regulatory requirements for insect resistance management refuge size and 96% met the refuge distance requirements. This survey is performed as a requirement by the Environmental Protection Agency. An independent research firm for the Agricultural Biotechnology Stewardship Technical Committee conducted this survey and interviewed some 550 Bt corn growers in the Corn Belt and the Cotton Belt during the 2004 growing season.
The National Corn Growers' Association President Leon Corzine is encouraged by the results; it shows that corn growers are committed to being good stewards of Bt technology. Product stewardship is everyone's responsibility. Corzine also said that growers understand the economic and environmental benefits that Bt technology provides, and want to do what they can to make sure Bt corn remains effective against pests and is a tool that is readily available for all.
The number of acres planted to biotech varieties such as Bt corn, has grown from 4% of the total U.S. corn acreage in 1996 to 45% of the crop in 2004. Nebraska planted 60% of the state's nearly 5 million acres to biotech varieties in 2004.
Drugs Made in Plants May Be On the Market by 2011
A recently released report by Frost & Sullivan (a consultancy firm) suggested that growing drugs inside plants instead of making them in factories could soon be big business in the U.S. market. The firm pegged the value of this market to potentially reach $2.2 billion by 2011. There are currently a number of companies looking for ways to make complex drugs such as antibodies and vaccines via genetically modified corn and other farm crops. Phil Webster, an analyst for Frost & Sullivan said that there is currently a shortfall in biopharmaceutical manufacturing facilities which would open up a great market opportunity for biopharmaceuticals produced from plants. Keep in mind, however, that this so-called 'biopharming' faces significant challenges, a major one being the overcoming of public fears that creating new crops engineered to make medicines could jeopardize the food supply.
Monsanto Buying Leader in Fruit and Vegetable Seeds
In what has been said to be a temporary shift away from genetically modified crops, Monsanto was cited as agreeing to pay about $1 billion to acquire Seminis. They are the world's largest producer of fruit and vegetable seeds. Monsanto's initial plans would be the development new vegetable varieties using conventional breeding, and growth of the fruit and vegetable seed business, for now without the use of biotechnology.
Hugh Grant, Monsanto's chief executive said that it is nice to dream about biotech fruits and vegetables, but you have to decide what you are going to do tomorrow morning. In the long term, he sees that there may be opportunities in biotech. This purchase not only makes Monsanto the largest supplier of vegetable seeds in the world, but also could make them the largest seed and biotech company over all. It would surpass DuPont, which owns the corn seed giant Pioneer Hi-Bred, in terms of revenues derived from seeds and biotech traits.
Seminis is based in Oxnard, California and had sales last year of $526 million. Its leading products include tomato, cucumber, beans and pepper seeds. Its main brands are Seminis, Asgrow, Petoseed and Royal Sluis and its main clients are farmers. With the addition of partners, it has recently started to develop some consumer items like the Bambino miniature watermelon and Lettuce Jammers, which is lettuce in the shape of a taco shell. Its main rivals in fruit and vegetable seeds are Syngenta of Switzerland and Limagrain of France. Less than 1% of Seminis's sales were derived from genetically modified seeds.
NK Brand Increases Breeding Program for Canadian Corn, Soybeans
NK Brand announced that they are increasing their research testing to develop products specifically adapted to Canadian maturity zones. The recent Syngenta Seeds acquisition of Garst and Golden Harvest in North America provided the foundation for this research expansion. Canadian growers will have access to the united breeding efforts of the three companies across the Northern Tier and Corn Belt States, in addition to the corn and soybean program at the Arva, Ontario research farm. These efforts will include new technology traits such as GT hybrids that are resistant to glyphosate herbicides.
Adrian de Dreu, corn development scientist, was cited as saying that there is now 8 full time breeders at 5 research stations developing corn hybrids for Canadian maturities. This is a major win for Canadian growers as there will also be a bigger germplasm base for the breeders to work with. This, in combination with intensive regional testing, will allow in-field sales and agronomy teams to tell growers exactly where products will fit in their farm management. NK's objective is to provide more choices and more value for Canadian growers.
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