By selling $41.3 billion worth of crops, livestock and related products last year, Canada s farmers generated 2.6 per cent of this country s $1.57 trillion gross domestic product.
In its turn, Canada s GDP accounted for 2.5 per cent of the world economy, which means that our farmers who do more than their share of feeding the world generated 0.07 per cent of global GDP.
Considering the scale and the importance of the job that farmers are asked to do, these numbers make it untenable to argue that agriculture is inefficient, or that it is in any way poorly managed or a bad investment. In fact, it s hard to imagine a better deal for humankind.
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At this particular moment, too, the market looks astonishingly rational by efficiently allocating tight supplies and sending incentives to farmers to continue to invest in their businesses and to produce even more in future.
Of course, the market isn t trying to be rational. If you simply look at fundamentals, actual prices in 2011 make no more sense than they did a decade ago when they consistently lingered below farmers cost of production.
Free-market food isn t priced according to the grand vision of some all-knowing, all-seeing demigod in a United Nations office. Despite the imperfections and inequalities in the system, it s priced by and large by the billions of producers and consumers who make self-interested decisions every day.
In this month s issue, associate editor Gord Gilmour asks whether the boom in commodity prices can continue, or whether there is a bust around the corner. To a certain extent, the answer has to be, how far away is this corner you re talking about?
If prices are to stay up and never ever cycle down into extended lows, it would be the first (and last) time in history. But then, history isn t a useful time scale. A better perspective is, if prices were at or below cost of production for the 20 years leading up to 2008, is it possible that they can stay significantly above cost of production for the next 20?
Last year, I said that it can t happen, because politicians won t sit on the sidelines. The fact that those politicians domestic and overseas haven t intervened to cut food prices in the last 12 months is amazing, and encouraging.
Still, the question is a real one, with wise heads on both sides.
I m banking that over a reasonable five-year outlook, prices will generally be strong. A business plan that puts you in a healthy financial position with competitive production capacity and aggressive marketing will get you to 2016 in good shape.
I m also betting that if you want to be in business beyond 10 years, a strategy of growth is essential because margins will get cyclically tight.
In case you re wondering, yes, I see the conflict. Let me know what you think. Reach me at 519-674-1449, or email me at [email protected].
