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The carbon tax and how farmers can truly mitigate climate change

Take a deep breath. The real numbers don’t come close to justifying the anger of groups like APAS

“If the treatment doesn’t kill you, the disease will!” I can’t remember when I first heard this saying, or who said it but given the recent carbon tax costing by the Agricultural Producers Association of Saskatchewan (APAS), it seems an apt analogy.

First, some background. In 2017, APAS hosted the Prairie Agricultural Carbon Summit, where a key takeaway was that global warming is a serious problem.

In 2018, APAS told hearings about the Saskatchewan Climate Change Strategy: “Our members face increasing challenges from climate change impacts.”

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But somehow in February of 2020, the real danger, APAS says, is the carbon tax: “The evidence is stark; on average, Saskatchewan farmers can expect to lose eight per cent of their total net income in 2020 to the carbon tax.”

When I asked APAS vice-president Bill Prybylski if the carbon tax will put some farmers out of business, he responded “Absolutely!”

If both stances taken by APAS are valid, is there a future for agriculture in Canada? I mean, if climate change is truly a “serious problem” but the “treatment” — carbon tax — will put some farmers out of business, what hope is there?

One thing is certain, given such rhetoric, there is zero hope of having a civil discussion about climate change or the carbon tax.

I am sick and tired of the doom and gloom rhetoric about climate change and carbon taxes. I’m tired of unsubstantiated claims, such as that climate change is a UN hoax perpetuated by bought-off scientists, and that the carbon tax is just one more Liberal attack on Western Canada.

Make no mistake: I am not a fan of more taxes. I don’t know anyone who wants to pay more taxes. And taxes alone will not remediate climate change. But to claim that the carbon tax will put farmers out of business is simply feeding a political firefight. We need to step back and really analyze the economics of such claims.

History repeats

I am old enough to remember the same exaggerations, arguments and despair over the repeal of the Crow Rate and the WGTA. I remember how a Saskatchewan farmer stood before the Standing Committee on Agriculture and Agri-Food in 1999 and asked “What’s your vision for Canada? Is it everyone living in the cities, no small towns, corporate farms?”

The farmer said the WGTA would siphon $2.6 million a year out of a typical small Saskatchewan town with two elevators shipping a combined three million bushels a year, and it would raise transportation costs for the average farmer to $40,000 a year, up from a mere $5,000.

“You might come to the conclusion that farmers can survive with this change,” the farmer told the committee, “but we can’t.”

The farmer’s share of the cost of moving a bushel of wheat from the middle of Saskatchewan rose from about 15 cents per bushel prior to 1983 to a Crow rate of 36 cents per bushel just before the WGTA was repealed, and then more than doubled to 76 cents on August 1, 1995, when the WGTA was repealed.

Now compare that to the APAS calculation of last year’s carbon tax cost of $1.76/ac. in 2019.

Using the same assumptions as APAS with wheat at 65.2 bushels per acre, the carbon tax is adding roughly 2.7 cents per bushel for a Saskatchewan farmer.

Seriously, would 2.7 cents per bushel be a determining amount whether a wheat sale is made or not? How many of you can actually predict next year’s wheat price within 2.7 cents?

Even using the APAS projection of a carbon tax of $3.80 per acre, and assuming yields remain constant and that farmers will still be hot-air drying 60 per cent of the crop in 2022 (as the APAS report claims was done in 2019), the carbon tax will cost the average farmer under six cents per bushel.

That is just 10 per cent of the additional costs imposed on farmers by rail freight increases due to the change in government policy over freight rates.

Granted, farmers also received a one-time payment of $1.6 billion to help them adapt to the new rail freight environment, but how much of that money was set aside for transportation costs, and how much actually ended up being capitalized in farmland values and higher land rental rates?

The government has already rescinded the carbon tax on marked farm fuels. I am willing to bet if the government gave farmers a large lump sum payment, as they did with freight rates, to compensate for the carbon tax on grain drying, many farmers would look at using those funds to actually increase drying capacity or invest in other capital infrastructure.

Without question, some farmers quit because of the rail freight increases. Other farmers increased acreage. But all farmers adapted.

The report “Grain Transportation Policy and Transformation in Western Canadian Agriculture” by Darcie Doan, Brian Paddock and Jan Dyer, with Agriculture and Agri-Food Canada Crop Diversification, found farmers responded to the huge increase in freight rates by changing crops and diversifying into livestock. Prairie wheat acres declined from 47.4 per cent in 1990 to 31.3 per cent in 2000 while their acres of canola, pulses, tame hay and seeded pasture all grew, the study found.

The report continues: “Predictions for cattle production were reasonably accurate, with cattle breeding stock increasing by 10 per cent between 1995 and 2002 (Statistics Canada, 2002). Most of the increase in breeding stock was recorded in Alberta. On the other hand, predictions for hog production vastly underestimated the transformation that was to take place following WGTA repeal. Hog production on the Prairies, as measured by the number of breeding sows on farms, increased by 43 per cent between 1995 and 2002.”

Even more important was the creation of a value-added food industry on the Prairies. Between 1990 and 1999 prairie food manufacturing increased by 56 per cent.

Alternatives

I expect I will face a deluge of criticism for daring to challenge the perception that the carbon tax is all bad. But do these perceptions have any more truth than the idea the carbon tax will kill farming?

First, what the carbon tax is intended to do is to change behaviour. It is a sin tax, much like the tax on alcohol or cigarettes. The theory is that if you increase the price of products that create a high cost on society, people will reduce their use of them.

Such taxes are proven to work. As costs rise, discretionary spending declines.

Ah, but you will argue, the carbon tax on farming is not discretionary, and there are no alternatives to this spending. The exact same argument was made about the repeal of the WGTA. There are always alternatives, and smart farm managers will find them.

It could entail a complete change in the farm business, the crops you grow and the markets you serve. More likely it will be fine tuning of the business to minimize the tax.

The carbon tax will force growers to critically examine the last few years. Is the fall weather the new normal, so drying will be a necessity in the future, or were the last few falls abnormal? Is more aeration needed, or does a farmer need to make the large cash outlay for a hot-air drying system that will handle the entire crop? Or if you already have a drying system, could changes be made to make it more efficient, like a change in the fuel used for drying? Is increasing harvest capacity a better investment than hot-air drying?

Recent calculations by Alberta Agriculture found it costs 10 to 16 cents per bushel to achieve a percentage point drop in moisture. By comparison, the APAS calculation shows the carbon tax on drying grain will be 51 cents per acre, based on the Saskatchewan average of 65.2 bushels of wheat per acre in 2019 being dried five points. So is the carbon tax really at fault for falling farm income this past year, or is it a combination of low commodity prices and the wet fall which greatly increased production costs.

Instead of drying, are there ways to reduce the harvest risks due to wet falls such as planting shorter-season crops, for example?

If you, as a farm manager, are asking these questions you are doing exactly what the carbon tax was intended to do.

Mitigating climate change

To be truly effective, the carbon tax should not end up as government revenue, but be distributed to encourage activities that will actually reduce carbon or remediate climate change problems.

This is where prairie agriculture is really missing out. And it is not a federal Liberal created problem. All of the carbon tax collected federally in each province is returned to the province it was collected in. So the question should be asked of provincial politicians. Where is the carbon tax money, what is it being used for, and why is agriculture not getting a share of those funds for the work that farmers do in sequestering carbon?

In 2017, APAS released the report “Growing Sustainability: A Report on the APAS Prairie Agriculture Carbon Summit” (available on the APAS website). It has two takeaways with direct bearing on how the revenues from a carbon tax should be applied in agriculture:

“Agriculture has great potential to solve the Greenhouse Gas problem. International researchers have calculated that if all the world’s agricultural producers were able to increase the sequestration of carbon in soils by four parts per thousand, we would help halt the increase in atmospheric carbon. And we would also help increase soil productivity. All it takes is some bold thinking.”

As the report says, “Investment in zero tillage research and development have provided a 60:1 benefit-to-cost ratio without taking into account the value of the ecological goods and services it has provided to society. The sequestration from zero till is just the beginning of what is possible from investing in agricultural science including recent advancements in root mass, plant yield and photosynthesis research. Funding must also be allocated to projects working to help quantify sequestration in soils, like the upcoming Prairie Soil Carbon Balance Project 2, which will increase the measurability of verifiable offsets.”

Instead of fighting the carbon tax, or seeking exemptions, the better approach is for us to be paid for the real work farmers are already doing to mitigate climate change.

It is important to note APAS has called for incentive payments to mitigate climate change rather than taxes which penalize.

The carbon tax provides a source of funds that could flow to farmers for sequestration work. It makes a whole lot more sense to pay farmers who are actually doing something to prevent climate change than simply distributing the money back to the public regardless of their income or their actual impact on climate change.

There is only one real argument against the carbon tax — that climate change is not man-made and in fact is not happening. If you deny climate change there is absolutely no justification for a carbon tax. However, that is not the position of any federal party or any provincial government. Or the majority of Canadians. So your chances of a complete carbon tax repeal are slim, and as the old western saying goes, Slim has left town.

It is better to seek distribution of the revenues from the carbon tax to farmers for real actions than to wage a war with the public over climate change. It’s a war farmers will not win.

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Gerald Pilger

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