For the past half hour Liz Lambrick has been content to let her husband describe how difficult it is to make a living from their 1,100-acre farm in Milton, Ont. But when the topic turns to how much they get for their crops, she pipes up. “Cite the prices of corn last year to grow it, against what we were actually receiving per tonne for it,” the middle-aged woman tells her partner inside their small kitchen. “Well, in the end, we got near to profit-margin prices,” Peter says, seemingly content with the outcome. “Near,” she stresses. “He’s still not saying we got into profit.”
Staying in the black is increasingly tough for the Lambricks. They’ve made money in only five of the past 10 years. “Every time we think we might get ahead, we’ve seen our input costs skyrocket,” Peter says. For example, fertilizer has jumped to $490 per tonne in the fall, from $440 per tonne in the spring. “Margins are getting tighter and tighter.” Indeed, most farmers across Canada are feeling the pinch. They’ve seen farming profitability drop to some of the lowest levels in history. Their annual net income during the past four years averages out to $5,592, according to the Canadian Federation of Agriculture, an Ottawa-based organization that represents more than 200,000 farm families through its various affiliations across the country. “Our industry is on its knees,” says Bob Friesen, the association’s president.
Yet we may need a vibrant agriculture industry more than ever. What farmers grow these days isn’t just for our dinner tables. Corn can be turned into fuel. Plant sterols — essential components of plant membranes — can reduce cholesterol. Nutraceuticals and functional foods could save Canada $30 billion per year in health-care costs. If a group of Canadian researchers can figure it out, we may even soon be growing car bumpers. “There’s never been a time in the ag-food sector when it can have as big an impact on society as right now,” says David Sparling, associate dean of research and graduate studies for the University of Guelph’s College of Management and Economics. Even if you put aside the fruits of biotechnology, farmers are a vital link in Canada’s agriculture and agri-food chain, a sector that employs 2.1 million people, generates $84.7 billion in sales and accounts for 8.1% of this country’s GDP. From wheat and beef to pork and frozen french fries, Canada exported $27.9 billion in food products last year.
But such hearty statistics come at a cost. When a farmer’s sales plummet from previous years, government assistance such as the Canadian Agricultural Income Stabilization Program kick in. These programs cost taxpayers $4.6 billion last year. Farmers pay premiums to participate in some of these programs, but their contribution was less than $500 million. Whether it’s switching to “no till” farming (which stirs up the soil less and requires less fuel), buying GPS-tracking systems to efficiently apply fertilizer or — as the Lambricks do — selling their products at a stand on the side of the road, many growers have already tried squeezing as much profit as they can from their operations. But there’s only so much they can do, and that means they have to change. “I don’t think you’ll ever see us return to the Old MacDonald farm with pigs and chickens and cows like I grew up on,” Gerry Ritz, the new federal minister of agriculture once said. And he’s right. Farmers don’t deliver their produce to the local market, and what happens in other countries affects Canada more and more every day.
Friesen, for one, blames U.S. farm policy for Canadian farming’s current financial woes. American subsidies have encouraged their farmers to produce too much in the past, depressing worldwide prices for crops, he says. The Bush administration is actually pushing for reforms in this area. Among other issues, it realizes support intended for struggling farmers actually ends up going to some of the richest ones. The next U.S. farm bill is currently in the Senate, but some reforms have already been watered down after going through the House of Representatives. For example, the proposal that farmers making more than US$200,000 wouldn’t qualify for subsidies has been changed to US$1 million. Given changes like that, Canada shouldn’t count on U.S. politicians to ease any of its farmers’ problems.
Canadians also shouldn’t bank on negotiations at the World Trade Organization to improve the situation. Agricultural subsidies and trade barriers are a highly contentious issue, even contributing to a breakdown in talks at the 2003 meeting in Cancún, Mexico, and, more recently, at the Potsdam, Germany, discussions in June. But Graham Barr, the director for Canada’s multilateral trade policy division, remains hopeful the WTO will eventually force meaningful reductions in subsidies and trade barriers. He points out that the organization’s members are currently looking at lowering the amount countries can spend on assisting their farmers. Yet, Barr doesn’t expect any real progress to be made for several years. A much better solution is sowing the seeds to the solutions at home.
For starters, Canada should tap into one of the hottest research topics among agricultural scientists: transforming annual crops, such as wheat, soybeans and corn, into perennial ones. If they can pull that off, farmers will only have to plant seeds every, say, four or five years, rather than at the start of each season. The savings could be huge. Peter Lambrick estimates his planting costs, which include seeds, diesel for his combine and fertilizer, are about 44% of his total expenses each year. Of all the crops grown in Canada, a perennial version of wheat makes the most sense, since the grain is Canada’s top agricultural export — $2.8 billion of wheat was sold to more than 70 countries last year. But government-funded programs alone likely won’t produce such a product. “When it comes to major genetic improvements in crops, those are done by multinationals investing huge amounts of money over long periods of time,” says Sparling. To attract private-sector investment, Canada has to offer tax incentives. But those should come with at least one string attached: the crop — or, at the very least, one variety of it — should be tailored to grow optimally in Canada.
Research also has to continue in biofuel, turning plants into energy. The Conservatives have proposed that at least 5% of gasoline should be made from renewable sources by 2010, while the level for diesel and heating will be 2% by 2012. Prime Minister Stephen Harper also unveiled $1.5 billion in subsidies for ethanol and biodiesel production this past summer. But in the rush to cash in on the bioeconomy, Canada shouldn’t forget that its industrial products from agricultural sources will likely be competing with those south of the border and around the world. If we can’t make them at a competitive price, there’s little point developing domestic industries for these markets. Sparling questions whether Canada can ever truly be a leader in biofuels. “We’re way behind the U.S. in building up capacity,” he says. Sparling also points out the U.S. has a much greater urgency to develop alternative fuel sources. “They’re net importers of oil, and they hate buying Middle Eastern oil. They view replacing oil with biofuels as a national security issue, so they don’t mind making the investment.” And Brazil, arguably the world leader in making ethanol from crops, has been turning sugar cane into fuel for nearly three decades — a process that is 30% cheaper than corn-based production in the U.S.
A better place to invest R&D dollars might be in turning crops, such as corn, wheat and soybeans, into headrests, door panels and other parts of cars. That’s exactly what Ontario’s $6-million BioCar Initiative — a joint project between four of the province’s universities — is trying to do. “Ontario’s No. 1 industry is the manufacturing of cars and car parts,” says Peter Purslow, the associate dean of research and innovation at the University of Guelph’s Agricultural College, one of the institutions involved with the project. “The marriage of the two is an obvious place to go.”
While forming partnerships between private and public organizations can create opportunities for agriculture, so, too, can fostering closers ties between farmers and food manufacturers. Annalisa King, senior vice-president of business transformation at Maple Leaf Foods Inc., says that while keeping costs low is crucial to the Toronto-based food processor’s survival, she can see a couple of situations where her company would be willing to pay more for raw goods. For example, developing innovative food. Maple Leaf would contribute the marketing and value-added product expertise, while farmers would grow the specialized key ingredients. With people increasingly strapped for time and concerned about nutrition, she says, “there are huge opportunities for us to provide products that consumers haven’t even thought of yet.”
Farmers could also earn more by supplying goods that work optimally with a food processor’s equipment. For example, a pig that’s the perfect size for bacon and ham, with ideal fat distribution, also reduces waste and costs. “It becomes a win-win, because the processor could pay the farmer more, save money and compete better on the world stage,” King says.
The government could help make these scenarios a reality by helping to facilitate talks between farmers and food processors, as well as retailers. The feds could also help finance the technology required for food processors to efficiently track the flow of goods from farmers. That way, companies such as Maple Leaf could reward suppliers for hitting certain specifications. To spur product innovation, a regulatory agency dedicated to assessing functional foods might be necessary. The approval time for products with health claims can be as along as three years in Canada, much slower than the FOSHU regulatory system in Japan or similar setups in Europe. “There’s a huge demand for functional foods in Europe, and they’re high-value markets,” Sparling says.
While there are opportunities for Canadian agriculture abroad, the domestic market shouldn’t be ignored. One of the CFA’s strategies to improve farming income is to brand homegrown products and label them as such in stores. But for that idea to work, the organization will need to tweak the concept. The CFA wants consumers to know the product was grown in Canada, our farmers follow high standards for food safety, and their practices are environmentally friendly. And, oh yeah, the product gives a fair return to the farmer. But getting one idea across — let alone three or four — to consumers can be a challenge. According to CFA research, freshness was the most important consideration when consumers shopped for produce and meats, so the message should focus on that.
There is, unfortunately, no getting around the fact that the government will need to spend even more money on farmers than it does today if it wants to save the industry, whether it’s for developing a perennial wheat, funding a home-grown advertising campaign or investing more into making car parts from plants. That could be a tough sell. With their average annual income hovering around $6,000, farmers aren’t a rich source of tax dollars. What’s more, investments in other industries appear to generate greater benefits to the overall economy. Agriculture’s GDP multiplier is just 77¢, according to Statistics Canada, which tracks the GDP multiplier of 22 sectors. In other words, for every dollar of output in agriculture, Canada’s GDP grows by 77¢. That figure means agriculture is tied with fishing for second-last place on GDP multipliers.
But farmers will have to do more, too. They could, for example, offer to share the costs of initiatives designed to increase their profitability. The fee could be based on a percentage of their gross farm receipts (the total of receipts from all agricultural products sold, government program payments and contract work done on other farms), with bigger farms shouldering more of the cost. Larger operations tend to have greater profitability, because of economies of scale, but, at the same time, these businesses would likely capitalize more than smaller ones from any innovations.
The Lambricks — and many others — will likely need government help to boost their income for this year. A summer drought stunted the growth of their soybeans and corn, so their yield will probably be half of last year’s harvest. They’re thankful for the government’s help but would much prefer to stand on their own. As Peter puts it, “I don’t know a farmer who wouldn’t be happier growing a very good crop, getting a decent price for it, and making his living that way.”
