December 12, 2011 - In an op-ed in today's Windsor Star, MLI author Larry Martin discusses why our agricultural future lies mostly with bigger efficient farms. His explanation is below.
The op-ed is based on MLI's recently released study, Canadian Agriculture and Food: A Growing Hunger for Change, by Larry Martin and Kate Stiefelmeyer.
By Larry Martin, The Windsor Star, December 12, 2011
There's a great opportunity available for Canada to create high-paying jobs, attract investment and create value-added business opportunities and it's not in high-tech or green energy or any other industrial policy du jour.
Rather, if we can get past our mental picture of granddad's farm, Canada possesses real opportunities in agriculture. But that is a big if, especially since governments and many Canadians still seem wedded to a romantic notion of small unprofitable farms as the backbone of rural life.
Our international competitors in agriculture show us clearly that the future is mostly with bigger efficient farms. And the more we fight against this trend, the more we undermine the strength of our rural economies and the more we forgo opportunities to feed an increasingly hungry world with high-quality Canadian food.
Governments in Canada are constantly bombarded by farm organizations with messages about the plight of the family farm. They have responded with programs that subsidize rural residents who are not commercial farmers and who produce very little income from farming.
Result: too many inefficient small farms that absorb scarce tax dollars, squandering our agricultural potential. This makes us uncompetitive.
These are strong statements, and I will be the first to acknowledge that many small acreage farms are extremely innovative and profitable: most likely have gross revenue above $100,000. But, in general, the statements are accurate. For example, in 2010 Al Mussel showed that from 2004-08 approximately 100,000 farms in Canada had sales of less than $100,000 per year.
Canadian farms in this range of size have operating earnings of 10-20 per cent of total sales, or $10,000-$20,000. From these operating earnings, people need to pay interest, depreciation (new capital investment), returns to their own investment and living expenses. To survive, these farmers must bring in outside income; in fact, average nonfarm income for this group is $42,000 per year.
These 100,000 farms (fully 55 per cent of the total of farm enterprises in Canada) had a total net operating income of a mere $359 million. This is 5.7 per cent of operating income for all Canadian farms. Yet these farms collected $523 million of taxpayer money under government subsidy programs (known bizarrely in Canada as business risk management programs).
Governments and farm organizations would have us believe that these policies exist because these farms face high business risks. Yet all of the operating income of smaller farms in Canada is a result of government payments and doesn't come from farming at all. On the other hand, these farmers enjoy about $4.2 billion in income from other sources. The agricultural potential of their farm enterprises is being squandered.
All this might make sense if the world agriculture sector was in decline, with falling demand and a glut of supply in areas of Canadian strength. But that's the exact opposite of the truth.
The combination of increasing global population and incomes, decreasing poverty and increased non-food use for many food staples (e.g., bio-fuels) has resulted in an explosion of food demand for the foreseeable future. Indeed, by almost every measure the world is entering an era of food shortages.
Despite this unprecedented opportunity for Canada to regain its status as a world food power, the Canadian agriculture and agri-food business is not keeping pace. Despite our vast tracts of arable land, abundant water, infrastructure and long experience in the sector, we have lost world market share, lost investment and productivity and lost influence in world trade talks. The result? Our rural communities are forgoing greater prosperity, our food processors are missing export opportunities and our economy is giving up potential growth.
Canadian taxpayers paid farmers about $3.5 billion per year during 2004-2008. Most of these income programs, un-like those of competitor countries, do not reward farmers for increasing productivity or innovation, or for enhancing environmental stewardship or management skills. Productivity and innovation are both flagging. And government policy spends millions to freeze this situation in subsidy amber.
With our abundance of natural resources, experience in agriculture and strong infrastructure, Canadian farmers ought to be able to scale up and fill the growing world demand for food. They already have to struggle against the vagaries of the weather and world markets. We shouldn't make them bear the burden of ill-conceived and counter-productive policies as well.
Larry Martin is the primary author of Hungry for Change, recently released by the Macdonald-Laurier Institute, macdonaldlaurier.ca.
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