US Farm Subsidies: Problem or Opportunity?

[smcgrath76]

At the very least it is interesting to watch the uproar and hopefully real concern over the massive new American farm subsidy program. The announcement of the multi-billion dollar package has already had tremendous impacts on the world grain prices and on Canadian producers.

Among cries that the entire program is contradictory to the spirit of WTO and NAFTA there have been calls for legal action that could take years to come to fruition. On US soil there appears to be a post 9/11 concern to ensure a safe, sustainable food supply to support the American people in the event they need to close their borders.

This has a huge impact on Canada. The US is our largest trading partner, and subsidies to their domestic production greatly impact the prices Canadians can obtain in the US market. To put it into perspective, Canada exported roughly 73% of its beef to the US in 2000 and when live cattle are figured in 84% of all exports are into the US market. While the percentage of beef and cattle exports traveling to the US has declined, the pounds have increased dramatically over the last 10 years.

It has been interesting to see American corn arriving in feedlot alley this winter, instead of prairie barley, as the largest percentage of many least cost rations.

This author is not convinced that we can compete with the American Juggernaut and their farm subsidy programs. This leads to the question, is the new American farm program simply another problem for Canadian producers to deal with, or does it provide some opportunities to enhance our Canadian industry.

Certainly depressed world grain prices are detrimental to an already overburdened grain industry. The new farm program will definitely make life difficult for many producers. As well, the subsidies may impact the relative cost of feeding cattle in Canada versus the US. However, it is also likely that the actual cost of finishing cattle will decline. If the American public has truly restored consumer confidence, then it is likely that the livestock industries will be a bright spot of this subsidy battle, as the public will maintain demand for high priced items and restaurant meals.

The other advantage to Canada is that we will be forced to become more competitive and more efficient in the way we operate. As well, we will be forced to explore other markets and add value to our products, thus diversifying our exposure in world markets. It is unfortunate that we will be under the gun when these advances take place, but the US programs will hopefully serve as some motivation. As an agricultural industry, we have to co-operate and find ways to add value to Canadian products and step outside the bounds of “the going price”.

The big “IF” is the problem. “IF” the US eliminates subsidy programs eventually, in the spirit of WTO and NAFTA, Canadian producers will be at a tremendous competitive advantage as they have had to adapt in a system with basically no subsidisation.

Unfortunately, I am not sure how many will be left to be competitive.

[Muttley]

I am one that believes we can not exist without some sort of subsidy for agriculture.
We as farmers are probably the only business that does not pass on our costs to the next level. If you own a gas station and the price is $X.00 you sell your gas for more or you don't sell at all, if the consumer whether it be at home or exported must pay us what we require or they do not get it.
I firmly believe we will never get a consistent price for our products without some sort of government help. We may see some high prices from time to time but quite often they are at somebody else's expense.

[smcgrath76]

This should work on a national level. How does this transfer to an international level? We are extremely export dependant, and therefore we must compete with other countries such as the UA and the EU when it comes to subsidies. Is Canada realistically capable of doing this without bankrupting the country?
Or, does not playing the subsidy game bankrupt the country in the end too?

[pandiana]

Sean. What do the words 'competitive' and 'efficient' mean to you.
"The other advantage to Canada is that we will be forced to become more competitive and more efficient in the way we operate". To me 'competitive' is means already selling produce for less than it costs to produce in a short season country where input costs are already higher than US and 'efficient' means you and your entire family working for nothing and supplementing farm receipts by holding down another job. 'Value-added' means adding additionals skills to your already well rounded portfolio of nutritiionist, forage expect, animals physiology, contractor, welder, plumber, electricitian, mechanic. You can become a advertiser, marketer, stock analyst, meat packer, cutter, etc.. in the hopes of becoming more efficient and adding value. But at what cost?

[cowman]

I think if most farmers sat down and figured out what they actually made they would be appalled. In one of the threads in Rural Issues it was stated that someone who has $250,000 in sales nets about $30,000. Frankly this just doesn't cut it anymore. What would be the asset base of an operation that had a gross income of $250,000? Maybe around 2.5 million? Now even at a 3% GIC that works out to $75,000. So basically you are paying $45,000/yr. for the priveledge of being "competitive and effecient"! And if you want to become moreso you pay even more to farm.
And in reality the bigger the farm the less sense it makes. The biggest hobby farmers in this country are the bigger farmers. Yes they can make a decent living but still a lot less than if they had their money in the bank. It's not too hard to make an income of $75,000 on assets worth $10 million. This is effecient? Why would we even want to compete?
Our government has no vision. They see only the bottom line from election to election. And after many years of neglect and bumbling we see an industry dominated by old men, who will retire over the next 5-15 years. How many young farmers in your area?

[smcgrath76]

Panidana: Perhaps my choice of words is incorrect.
By efficient, and competitive I mean that we need to find ways to inprove our margins. Perhaps we can not get any more efficient than we already are (although I know of several operations that are definitely not efficient). Perhaps we can't add any more value to our products. If this is the case then it appears the only solution to improve margins is to let the government provide the margin.
If we are as cowman suggests, not a profit motivated industry, do we deserve higher margins at taxpayer expense, or are we in an industry that just can't compete with other nation's programs and needs the support.
There was an interesting study of US ranchers in one of the recent journals of range managementthat suggests cowman is exactly right, even for big operations, that profit is not the primary motivator of cow/calf producer decisions.
My personal philosophy has a big problem with large scale government support programs, but maybe it is the only solution, or maybe it is the only solution for now.
Food for thought.

[cakadu]

For what it's worth, we're likely far too efficient at producing, hence we're overproducing what we're not going to be paid any premiums for. We're competing with countries whose inputs are far less than ours and we have the threat of countries like Brazil coming onstream with mega grain quantities and one day a huge supply of beef.

I too have a problem with relying on the government/taxpayers for support in that it doesn't have us changing how we're doing things. It will have us digging a deeper hole, that we will one day not be able to get out of. In other threads and discussion rooms, we've heard about how other industries have done things a certain way and are prospering today (whatever your definition of prosper might be). Bottom line is that they are not doing things the way they were 20, 30, 40 years ago. They have changed with technologies, demands and consumer wants. What is stopping agriculture and agri-business from going down this pathway?

Sean is right, there are plenty of opportunities out there and we should be taking a look at some of those instead of trying to "swallow elephants" like getting rid of subsidies etc.

What can we do differently in the marketplace? What can we learn from countries like Australia and New Zealand who are going after customers in a more market oriented approach.

What would have to happen in order for us/we/you to take a look at some of the emerging opportunities?

[ianben]

When we get dowm to farm level are we any different with or without subsidies.
Return for $/£ invested is very similar in most countries is very similar.
Is the apparent profitability of Oz and NZ farmers more to do with their weak currencies than producing what the customer wants?
Pandina your views on value added and diversification are very similar to mine. We run faster and faster to stand still if we are lucky!
The biggest subsidies in farming are the presonal ones we all pay to keep the lifestyle.
The real question is what are we as individuals prepared to sacrifice for the hobby.

[smcgrath76]

Both interesting and disturbing to see some of the comments, although I believe all are extremely valuable.
Throughout history it is interesting to note that the failure of nearly all major civilizations has stemmed from the failure of their agricultural industries.

[kato]

If you talked to an American farmer you would probably find he doesn't feel he's getting paid enough for his work either. The problem with subsidies is that whenever a cash inflow occurs, all the middlemen, and suppliers of inputs have their hands out first to pick up any extra cash the farmer may have, and it also gets capitalized into higher machinery, and land costs. After the dust settles, there is nothing left for the primary producer, and out goes the hand again.

Our problem is that our machinery, inputs, etc also goes up, since most of those corporations are based in the States, and we don't have the luxury of putting out our hands for help. It's the worst case scenario. The higher inputs caused by profit taking, and lower prices caused by overproduction. This is what makes Canada's case different from most other producing nations. What the answer is, I don't know.

My concern with the farm bill is the country of origin labelling. In the short term it is bound to cause problems, but wouldn't it be interesting if, once people found out just how good our beef is, they came asking for it? Personally, I feel there is no comparison between a corn fed longhorn, and a barley fed northern steer. My niece, who worked in Texas always wanted a barbeque when she came home for a visit so she could get some really good beef.

[ValueChainFX]

This has been a very interesting thread, we have talked about many issues that all focus on the bottom line. Believe it or not I feel that Canadians have a big opportunity here as we move into the future. The topic of the thread is US Farm Subsidies: Problem or Opportunity? I bet everyone of you has heard your dad (or maybe said it yourself) what doesn't kill ya, makes ya stronger!

Well in the case of beef production, I believe our product is a product the consumer would favor. Rather then try to hide the fact it is from Canada we should wave the flag a bit. However I guess that depends how you are marketing your product if you are putting it through IBP or Cargill then you get what they give. If you are raising a product that has those consistently high quality traits, then what are you doing selling it into the commodity pot?

Our real challenge here is to get out of the big rut we are all in, (remember a rut is just a grave with open ends.) Other groups of producers have been able to take their products and see higher returns for them. I do believe that we have plenty of room in our own back yard (The Canadian Market) to build what we should have in the first place .... A strong Canadian Foundation! Other markets such as the EU (a specialty market anyway) Asia (another specialty market) and the U.S. (a political market) are extras.

What can we do, it is my opinion that we can do lots, but the first step is get away from all the stinkin thinkin!!! I have been at more producer meetings that are just silly boy squawks and a total neglect of the real issues. Hey the real issues are straight forward and easy.
1.) The traditional supply chain is no longer acceptable.
2.) You the producer are responsible to make your business work, if it isn't working the way it is now then we need to change it so it does work.
3.) Our government is not going to give you the money, some where at some time,
we the producer is going to have to come up with the money to make it work.
4.) At some point you are going to have to work with someone else (oh my yes this means you can not fix Canada's problem yourself) It will take a collaborative effort.
5.) All the other issues are not as big as the issue of staying alive so go ahead and save them for later, but remember until you have your own house fixed, you can't be fixin someone else's.