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Prairie crossroads

How far can consolidation go? Is it inevitable someday a handful of operations will farm virtually all of Canada?

They stir Canada’s soul. Under a western sky, those sweeping, wide fields of Saskatchewan feel like home even to Canadians who have never set foot west of Ontario or east of British Columbia. They are the breadbasket of the nation and of the world. They are our Prairies and, in the words used to market the region to prospective immigrants in the early part of the 20th century, they are the Last Best West.

Saskatchewan farm country is the grit in our national identity; it is stalwart families, and fields of golden grain. It is elevators, threshing crews and mile-long trains hauling the harvest to port.

That’s what Saskatchewan means today.

That question is, what will it mean tomorrow? If Saskatchewan is the foundation of our national agriculture, what can its evolution over the last few years tell us about where we’re all heading next?

Today the threshing crews are replaced by custom combiners. The elevators at the edge of every village have become a handful of far-flung concrete titans. Farms have gotten bigger. Grain companies have gotten bigger. The yellow flowers of canola fields battle for supremacy with waving amber wheat.

They are changes that underline a very real truth. Saskatchewan may be one of the great grain export economies of the world, but it is also very fluid. It is a very young economy, and one that has been in constant flux since the first plow first cut into the sod, exposing a rich soil that had been 10,000 years in the making beneath the Prairie grasses.

Since then the story of the Saskatchewan economy has pretty much been, for better or worse, the story of the ups and downs of the commodity cycle. Even today, 108 years after the province first entered Confederation, the provincial government estimates that 95 per cent of all goods produced in the province are directly dependent on the basic resources produced by the province, including grains, livestock, oil and gas, potash, uranium and wood, and the related refined products.

It’s definitely been a roller-coaster ride.

Today Saskatchewan finds itself at one of its periodic peaks, with a strong, healthy economy, booming commodity sector and dynamic farm sector. It’s a very encouraging picture, and naturally, it gets a lot of people thinking about the future.

Among the people Country Guide spoke to is Gerrid Gust, a grain grower from near Davidson, in the central part of the province. Gust, 37, is a self-described “father, husband, full-time grain farmer and part-time ag policy nerd.”

We wanted to ask Gust, as a farmer on the ground in the region, does it feel like the grain economy of Saskatchewan is at another of its periodic peaks, or does it feel like things are at a crossroads, and we’re entering fresh new territory?

In other words, should we be hoarding our resources against a down cycle, or should we be investing in a future that is going to just keep getting better?

“Yes, I think it is at a crossroads in many ways,” Gust tells me. “I think the industry is in a really positive place right now. Generally prices are higher, interest rates are down, and farmers have some opportunity to lock in a profit margin.”

It’s a night-and-day difference from the reality his family farm — and every other grain farm in the region — faced from the 1980s through to 2007. During that run prices sank towards the bottom of the established price range and languished there for years on end, with only an intermittent blip or two upwards back into profitable territory.

Interest rates, in the meantime, climbed sharply as the U.S. federal reserve attempted to choke off inflation that was edging into the danger territory. For a time the prime rate was a nosebleed 21 per cent, though more typical but still crippling rates in the mid- to high teens lingered for years.

For Gust, however, there’s still a feeling that agriculture is in transition, and that the key word is “crossroads.”

University of Saskatchewan agriculture economist Murray Fulton isn’t expecting a re-creation of the 1980s any time soon — he says there’s little evidence of inflation pressure to drive interest rates up, for example. He also notes — so far, at least — food demand is rising in emerging economies, and political support for biofuel mandates continues to underpin global grain demand.

However, Fulton also cautions that the prices of the past few years aren’t likely to prove durable, as investments are made through the global grain industry to grow productivity. He’s not expecting a return to the bad old days of 1980s prices, but he just as strongly asserts there will be an inevitable price retrenchment as the basic, cyclical nature of a commodity-based economy reasserts itself. And when that happens, Fulton says, there will be unfortunate — and entirely predictable — results.

“This is one time where I think the past can tell us a fair bit about how the future will play out,” Fulton says. “In the last iteration of this cycle, it was the people who got in late, and maybe paid a bit too much for land that got hurt worst, and I strongly suspect that’s what we will see this time.”

Gerrid Gust echoes that sentiment, and says that anecdotally he’s hearing some of the investment funds that have garnered a lot of headlines in recent years investing in Saskatchewan farmland aren’t quite so enthusiastic about making new investments these days, and might even be contemplating selling.

“Those people, who got in five years ago, there’s no question their crystal ball worked,” Gust says. “But I don’t see or hear of them bidding up land today, at least not in this area.”

Outside investment represents dollars captured for investment in agriculture from other areas of the economy. Five years ago, the stock markets were still finding their post-global financial crisis lows, making surging agriculture commodities and farmland a more attractive investment. Saskatchewan, along with other major grain-producing regions, benefited from this.

And while some operations — particularly those that expand too much at once or too late in the cycle — may feel some pain, many farms will continue to do just fine, Fulton says. There will be farms that struggle when prices fall back to a more normal range, and others that will remain profitable and will likely continue to expand.

Today the 5,000-acre mark for a grain operation in parts of the province is seen as being at the low end, and in the future that number will likely continue to rise.

“The norm may soon be 10,000 or 15,000 acres — that seems like a reasonable possibility,” Fulton says.

In no small way, technology has become a driving force behind this move to larger operations, as farms are very quickly upgrading. The best-managed operations are not just incorporating GPS and precision agriculture equipment. They’re taking advantage of the low cost, small size and dependability of modern information technology and using it to better manage information on their farms.

“This is serving to increase the number of acres that can be managed by a single farm manager in a single operation,” Fulton says.

Today’s farms are beyond the scope of anything that could have been dreamed of just a generation ago. So will they grow that much bigger again in the next handful of years?

Here both Fulton and Gust say the crystal ball is a fair bit hazier.

“I’m not seeing it right now,” Gust says. “In my area virtually all the farms are family-owned and -operated.” Some might be corporate structures, but they’re still family-controlled farms, with the corporate business structure being adopted for tax purposes and for ease of farm transfer.

Nor are the new entrants he’s met from offshore likely to become the absentee landlords that many forecasters predicted.

“There are a few foreign investors around Davidson, but they want to learn to farm,” Gust says. “There’s an East Indian fellow and a Chinese guy north of town. I can’t predict how successful they’ll be, but those appear to be their plans. And other than that, it’s multi-generational family farms picking up land here and there.”

So at least for now, the majority of Saskatchewan grainland doesn’t seem to be facing a bogeyman of external corporate ownership, though Gust said he’s not yet prepared to say never.

“That model is out there, in other parts of the world,” Gust says. “I think there is still a chance that, sooner or later, someone will figure out how to make it work in this part of the world.”

There are a handful of organizations taking on the challenge of building a successful corporate farm model for the Prairies, but Fulton agrees at least for now the future appears to still belong to the family farm in the region.

“Will we eventually see the business dominated by a number of large, large, large operations? We don’t know yet,” Fulton says.

One thing there’s a growing appreciation of in the grain industry is that farmers will need to be better organized, Gust says. In the wake of substantial deregulation in recent years, and less willingness on the part of government to provide leadership, he believes farmers themselves must take the lead.

“How this plays out will determine how farmers pay for some of the work that needs to be done,” Gust says.

There might be provincial grain commissions, commodity groups, or one larger organization, as is being proposed by one Manitoba farmer, Gust says. Basically the industry needs to find a cost-effective way of being its own best advocate and to look out for its own interests, although Gust says that funding such a group would be no small task, and mandatory checkoffs are largely anathema to independent-minded Prairie grain growers.

However, Gust also says a group of grain growers on the other side of the globe seems to have figured it out. In Australia they fund crop research with a mandatory checkoff that approaches one per cent of gross receipts, which is then matched to a certain dollar figure by their government.

“I happen to know a lot of Australians,” Gust says. “I have yet to hear one of them say they think Australia is headed down the wrong road with their checkoff.”

Fulton agrees that the structure of the industry and how it funds research is going to be a crucial question heading forward, especially for breeding crops like wheat that don’t lend themselves to hybridization, so farm-saved seed quickly cuts into the returns on variety development.

“There are essentially two models — patents or plant breeders’ rights,” Fulton says. “The U.S. has gone down the patent road, the EU has chosen plant breeders’ rights. For something to happen, we have to choose and adopt one of these systems, only then will we see companies and organizations moving in and doing work for this market.”

— Gord Gilmour is an associate editor for Country Guide in Winnipeg. This article appears in the May/June 2013 issue.

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