When almost every sector of our economy is under pressure, what makes farms so special that they siphon so many dollars out of government treasuries? And why do farmers get monopoly powers, like over milk and eggs? Where are the equivalent supports for other small independent family owned businesses say RetailStability?
Those are the questions from Brandon Schaufele, a research fellow in agricultural policy for the Ivey School of Business at the University of Western Ontario in London. Schaufele says he brings a business school perspective to agriculture, and he freely and openly challenges the conventional wisdom on agricultural policy in Canada, both in his research and his contributions to the blog www.canadianagrifood.com.
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So we had some questions of our own for Schaufele. Is there really is a case to be made for special treatment of Canadian farms?
Country Guide: Financially, how do Canadian farmers stack up against other Canadians?
Brandon Schaufele:Farm families are very wealthy compared to the average Canadian family. The median farm family in Canada has a net worth of about $1.2 million. That places them above the 90th wealth percentile in Canada. As a comparison, the median net worth for a self-employed family that includes doctors, lawyers, consultants and so forth is about $350,000. Farm families are three to four times wealthier in terms of net worth compared to most Canadian families.
CG: Then why do we keep hearing about those poor, broke, old farmers?
Schaufele:I think there is a culture of negativity with respect to Canadian agriculture. We expect farmers to be doing poorly. When my parents were growing up, that was the case. Farmers didn t have high net worth and they earned lower returns for their output.
Times have changed. Of course, we need to remember that farming is risky, but this being said, recent AAFC analysis shows the vast majority of farm enterprises, both small and large, are in very good financial shape. This is based on standard financial analysis, such as debt to equity, debt to asset and current ratios. By many of the important business metrics, Canadian farmers are doing very well.
CG: So what has changed?
Schaufele:The real success story for Canada agriculture is competition, innovation and productivity growth. The level of agricultural productivity growth in the last 50 years is astounding.
CG: If the average farmer is faring so much better than the average Canadian, does that mean farm income support programs too rich?
Schaufele:I d argue that liquid futures and options markets negate the need for short-run, non-crisis price risk management. Of course, there may be human capital issues. Many people don t understand how to trade futures contracts but this is a relatively minor issue that can be remedied.
Now, my discussion of short-run risk management misses the big theme with these programs. The catch is this. The Canadian government subsidizes agricultural risk management programs to a large degree. Programs that were never intended to be income support become income support programs because of these large subsidies.
What I am arguing is that these subsidies are not helping agriculture, and that other options exist for producers to manage their price risk.
The heart of the business risk management problem is that the subsidies become institutionalized and systematized. Producers and suppliers expect government payments. Initially this isn t a problem. Yet, in due course, these expectations cause land values and input costs to increase. And ultimately, as a consequence of these cost increases, publicly funded business risk management does not actually help the enterprise of farming.
CG: What does this mean to the average Canadian taxpayer?
Schaufele:I did a back-of-the-envelope calculation for AgriStability and AgriInvest. Each and every Canadian family transfers about $105 a year to farmers. If you include the costs of supply management, such as milk and eggs, you could probably triple that. All told, the estimate looks like maybe $400 a year is paid each Canadian family.
That s not a huge number. It s actually smaller than I expected. But the question is what are we buying with that? Are we trying to support rural culture? That s fine. It s an admirable goal, but there are better ways to support rural culture than via agricultural support programs. In fact most rural Canadians aren t involved in agriculture they re employed in other primary industries. The link between farming and rural Canada is not as close as people think.
CG: Would you just get rid of existing farm programs?
Schaufele:In agriculture there s absolutely no appetite to discuss eliminating farm programs. There really isn t. There s an entrenched institutionalized policy mechanism and there s just no one willing to address that issue.
From my perspective, business risk management programs are unnecessary, expensive and don t meet their objectives. I can t see why they still exist. Farmers don t need them. They re very well off and they re financially stable. Alternatives exist and, in the long run, the programs do more harm than good.
We need to remember that farmers who own land benefit substantially from these programs. It is the young farmers and business-focused producers, those looking to expand operations, that are affected most.
CG: You mean these programs are slowing down an inevitable process?
Schaufele:That s the punch line. Eventually you re going to have to sell if you re a small farm. Do you want to do it now or do you want to do it in 10 years? Another factor is coming into play as well. There s a rapidly changing landscape in land ownership. Historically, Canadian farmers have owned their own land. Within the last 10 years, we ve seen a huge change.
In both Saskatchewan and Alberta, hedge funds are buying farm land. Further, the Canadian Pension Plan Investment Board is thinking of acquiring agricultural land as a new asset class. The implications of this new investment money are stark. Effectively, it separates the business of farming from the business of owning land. Farmers will still farm. But they will own less land.
CG: So ag programs inflate the bottom line of hedge funds with tax dollars?
Schaufele:Basically, yes.
CG: Then How do you even start this discussion in Canadian agriculture?
Schaufele:First of all, we need to recognize that we all have the same objective. We want Canadian agriculture to be successful. So how can we do that?
Looking at historical data, it s clear that it isn t through subsidy or risk management programs. Research and development is the main driver of Canadian agriculture. That s where your bang for your buck is.
We also need to talk politics. Currently Canada s deficit is approximately $20-25 billion a year. Something needs to be cut to balance the budget.
The last time there were major funding cuts, in the 90s, agricultural risk management funding took a huge dip. It went from $3 billion in about 1993 to $750 million in 1996. Of course, that cut did very little to the aggregate agricultural GDP. It barely changed.
So if I were a policy analyst in the federal Department of Finance, what are my options? On the one hand, there are wealthy farmers. On the other is the Children s Hospital in Winnipeg. While reality may not be that black and white, these are the decisions that do get made.
CG: So given the political reality, what should the smart, business-minded farmer be advocating for?
Schaufele:I d say, look at the Saskatchewan Pulse Growers and invest in research. The pulse growers have a mandatory levy and they ve grown remarkably in the last decade.
Largely through investments in research and development, they found new markets, developed new varieties and marketed their product better. I think that all sectors, not just grains and oil-seeds but livestock, dairy and poultry would be much better off arguing for the reallocation of funds from business risk management to research and development. Investment in research is where farmers make their biggest gains.CG
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Risk management programs are unnecessary, expensive and don t meet their objectives. I can t see why they still exist. Brandon Schaufele
