What is "normal" now

[farmers_son]

Grassfarmer: Your remarks about sustainability pointed out to me a very unfortunate truth. The sustainable farm is not the one that looks after its grass and resources, the sustainable farm is the one that cashes the most subsidy cheques.

While I put together my spreadsheet numbers on how many years it would take to own the provinces cow herd if a producer were actually making money as a joke those figures brought home to me the ugly fact that there are a number of large operations in this province that have been backstopped to the tune of millions of dollars through various BSE programs, set-asides and CAIS. While you are trying to make a living and take care of your cows and land these mega players are now positioned to take over even more of the primary cattle industry.

While expansion to huge numbers on an ever increasing landbase leads one into the bigger numbers / smaller margins game which doesn't attract you at all, there are people that are attracted to that very thing.

The sustainable producer is not the one who is most diversified or who looks after his farm the best. The sustainable producer is the one who is cashing those $10 million subsidy cheques. The province and the federal government has already decided you are expendable, the best you can do is manage to hang on until the mega farms buy you out.

Unless government returns to a reasonable cap on subsidies paid to mega farms, the average producer is only 10 years away from his farm sale. Whether you are making $50 a cow or $350 a cow, it will not matter when the mega producer with townships of land, thousands of cows, tens of thousands of calves steamrolls over your farm.

[grassfarmer]

I wouldn't agree with that analysis f_s. One thing that will stop "mega farms" ever taking over the cow/calf and purebred beef herds completely is the fact that with huge numbers you cannot pay the attention to detail necessary in a successful longterm calving/ breeding and management policy. If it has ever been done successfully somewhere in the world I'd like to study the information.

I agree with you regarding the ridiculous rules that govern setting caps on subsidy cheques paid out to mega operations. I've said it before - that's why primary producers should back the NFU - the only commodity group in Canada to consistantly lobby Government not to increase the CAIS cap to the crazy level it sits at now. The NFU realises that the family farm is the backbone not only of agriculture but of rural Canada.

[cowman]

Well grassfarmer I hope you are getting a "fair" return on your investment in land! And I suspect, being in Alberta, you probably are doing alright in relation to apprceciation?
I find it almost embarassing to quote what my people paid for land here! Or for that matter even myself! Literally a pittance compared to todays values!
Even what the boy bought the 320 acres for last winter...a mere pittance! But then again we invested fairly heavily in this darned country and have a few bodies to attest to that!
But still we all deal in facts and dollars? That old Scottish nature never leaves us!
If I own land I expect, at the very least, a 5% return? Is that feasible? well actually it is very tough? $3,000 at 5% is $150...net? fairly hard to ahieve?
Of course, being a "money grubber", I can look at the whole thing from a diffent perspective and write it off as a tax break! But it still bugs me! I have a really hard time NOT GETTING PAID FOR MY TIME AND ASSETS!
Sorry for the rant...I just got a crappy deal from an oil company!

[cowman]

Farmers:son.: so sad but so true! We are seeing the result of "globalization"! Just the way it is?
I really mourn the life we all had and the fact it is coming to an end?
I can just imagine how the Indians felt when the buffalo culture ceased to exist? Not pretty?
But the world goes on and we need to survive? The good old days of the cow businness are gone.

[farmers_son]

Grassfarmer: Whatever view you have of Alberta agriculture that view was formed prior to the development of the federal governments Ag Policy Framework and the five pillars of support. The government was very aware of the reference margins the mega farms had when they removed the caps on payouts. Not only do the mega farms enjoy economies of scale you could not even imagine, their risk is now completely backstopped by the government. The removal of those subsidy caps was the single most profound change to happen to Canadian agriculture since the depression. The average farm simply cannot compete with these mega operations now that the mega farms are subsidized in amounts all to often exceeding a million dollars, sometimes amounts in the tens of millions of dollars. Whether it is buying land, machinery, cattle or even building producer packing plants the average producer is sidelined as Canadian agriculture is taken over by a handful of mega operators.

Research done in the United States showed that there was no diseconomy of scale when it came to mega farms. Bigger was always more profitable, and any problems with production was more than offset by savings of scale. The only restriction on the rapid expansion of the mega farms was removed with the elimination of the subsidy cap.

I think you are missing the point, the mega farm does not have to do as good as job as you do. You do not have to be a good producer if the government will keep sending you multi-million dollar subsidy cheques.

Cowman: you said “But the world goes on and we need to survive.” Exactly. The average producer needs to realize that the mega farms are a threat to the family farm and lobby government for policies that recognize the importance of the average sized farm to rural sustainability.

[grassfarmer]

Cowman, I'm unclear - do you expect a 5% return on capital invested in land on an annual basis in addition to capital appreciation on the asset? I think that is rather ambitious longterm given that farmland is a relatively low risk investment (ie the land's not going anywhere and they aren't making any more of it)
In any case I only paid a little over $1000 an acre for land so a 5% annual return would only require a $50/ acre net. If I can run a cow on 2.5 acres and net anywhere like $300 a calf that is easily over $100 an acre return.

farmers_son, I'm pleased to see you wholeheartedly backing the NFU policy on subsidising mega farms - you even managed to do it without mentioning their name ;o)
I'd still be interested to have examples of mega farms - Western Feedlots and Cor Van Raay Farms would presumably qualify in the feedlot category but who does in the cow/calf sector?
I'm thinking back to a 1950s operation in Scotland "Great Glen Cattle Company" and the big collective farms of Eastern Europe all of which were spectacular failures in their day.

The question arises also of the relative worthieness of subsidising a sucessful family farm and a larger operation that might be deemed a mega farm. From my experience in Scotland I firmly believe that subsidy (if it is needed at all) should be tied to labour units rather than head of livestock or acreage. I don't think a large producer employing 2 workers to run 300 cows is any less deserving of support than a producer with 100 cows. By tying subsidy to workers and families it ensures the continuation of rural employment and hence the rural community.
This would apply to Hutterite colonies particularily - are they a mega farm?They certainly are a huge business but I would argue that with the number of people supported per section of land on a typical colony far exceeding the non Hutterite farms round about they should equally deserving of subsidy to a cow/calf operator with 60 cows.
I suppose most will see the Hutterites as an example of mega farming at it's worst - buying up more land than anyone else, having economies of scale and having almost market domination in some sectors.

[kpb]

grassfarmer, I'm not sure what your definition of a mega-farm is when it comes to cow-calf production but, for sake of argument,if you said 1,000 brood cows or more there are numerous examples of highly successful ranches of that size in North America.

I know that you are a reader of Allan Nation so I would refer you to any of his books written on cattle management where he quite often quotes ranch managers who run in excess of 1,000 cows and are very successful. I think you are a thoughtful person so you must realize that it is quite possible to run a large ranching operation successfully just as it is possible to run a large factory successfully--it's all in the management. Saying that a large operation cannot take care of the details that a small operation can is, I think, indicative of a too much "hands on" approach to ranch management.

I agree with farmers_son that the trend is towards the mega farms. But I also think there will be a large number of small, part-time ranchers with small herds where profit is not a motive. I do, however, think that the middle-sized ranchers with the mid-sized herds are, like the hog farmers, headed for extinction.

Because of the mixed type of operation that I run (cows, feeders, grassers) I have been the beneficiary of lots of government money in the last two years. Without that money I likely wouldn't be talking with you fellows. I do not begrudge the money that anybody in this industry got since BSE with the exception of the packers.

kpb

[farmers_son]

Grassfarmer:

My comments are my own and I am not a supporter of the NFU. I would point out that I personally know a number of this provinces larger farmers and I respect their ability and recognize that a lot of hard work went into building up their operations. My concern is the future of agriculture and the viability of farms such as ours and likewise the majority of farms in this country. The mega farms including the Hutterites are more than capable of lobbying government for policies that support their preferred vision of the future of agriculture.

I would point out that the agriculture we see today has evolved under a system that saw a cap on subsidies such as FIDP. That system evolved to a mixed agriculture with average farms side by side with mega farms. Under the old FIDP rules there was a payment cap of $100,000 per shareholder to a maximum of five shareholders. That has been changed to today where there is a $3 million cap on CAIS payments and no cap direct cap on program payments. It does not take a crystal ball to see that this will cause a shift in the mix of mega farms versus the typical farm that built prairie agriculture from nothing only a 100 years ago. The majority of government assistance is now going to mega farms instead of the average sized farm. One would be naïve to believe this is not going to have a dramatic affect on which operations prosper and which ones sell out.

It is governments money and they will spend it as they see best. I am merely pointing out the effect of government policy as it is presently designed.

Kpb: I am the recipient of government handouts myself and yes the money helped. I do not begrudge anyone the money they received. However I am concerned that the removal of the caps on subsidies will result in a shift towards mega farms, obviously defined as farms with reference margins in excess of the old FIPD caps of $100,000 per shareholder to a maximum of five shareholders.

If those mega farms are what government wants to see take over agriculture then they are certainly on track to see it happen.

[kpb]

farmers_son, yes but the whole point is that the mega farm IS what the government wants to see take over agriculture. The mega farm, generally run by an MBA who is both politically and commercially astute, is easier to deal with then a bunch of cranky farmers. Not only that but the packers also find them easier to deal with--those they don't alreay own that is--because they then get to deal with one company that controls a lot of cattle rather than many ranchers with the same number of cattle.

The government would also prefer to see most of us working in the city where they wouldn't have to worry about things like rural schools or hospitals. And besides hasn't anyone told you that us farmers are the biggest welfare bums around--we've taken more government money in the last 30 years than any other group in this country. How much easier for the government to deal with one corporate guy than 200 farmers.

So, yeah, mega farms are just what the government would like to see. It's just so arkward with all of us still kicking around.

kpb

[grassfarmer]

kpb and f_s, I don't know of any 1000 cow plus operation that has lasted a generation let alone last more than one generation. Regardless my point was that beef cows are less vunerable to "mega farming" than are intensive poultry, hogs and grain farming for example. If someone was able to tell me that Cargill or Taiwan Sugar Corp. owned or was buying multi thousand cow herds I could see the risk of a mega farm take over of the cow/calf sector.

I certainly agree that the $3 million CAIS margin cap is crazy and puts taxpayer money into the hands of outfits that are not deserving. I would definately not categorise Hutterite colonies in that light for the reasons I mentioned above.

[cowman]

grassfarmer: you are right. I didn't take appreciation into account and that of course is neccessary when calculating a return.
Land is a secure asset and without a doubt the "appreciation" is going up every year in Alberta...however it is also a tied up assett that might not pay enough to continue to operate on?
In regards to Hutterites: An example? A local colony has 59 people living on it and 6,000 acres or about 100 acres/person? If they were on their own they would have about 400 acres/family? They survive because they live very cheap? Think how cheap you might be able to live if you didn't spend any money on any type of luxury? If you could spread the cost of a tractor,truck, car over several families? I doubt many of us would want to live the spartan life they live?
It isn't all roses down on the colony! They have an increasingly difficult time keeping everybody busy? Especially the boys! And hey boys will be boys? An old lady at one of the colonies told me that keeping the boys busy is a major problem. She said " If you can't keep them busy, they soon find a way to do the Devils business"!

[cowman]

Many of the colonies are expanding their operations eg: adding another species or increasing the size of their hog/dairy/poultry or beef feeding operation. Economies of scale affect their bottom line as well, and I think that they do live a less spartan existance these days. They certainly get out and about more. Its not an uncommon sight to see hutterite ladies shopping in various stores just like the rest of us do.
Keeping the 'boys' busy does pose a problem I am sure. my feedlot neighbour hires young hutterites on his operation, they all come from a colony down south and are usually ones that are bucking the system there so they are allowed to get out and work for a year or so, then if they want to come back they can. They have to sit at the back of the church for awhile until they regain their status in the colony.

They usually need a good tuning in at the neighbours when they arrive, they live in onsight accommodation and all of them seem to feel that the ladies of the house are there to wash, scrub and wait hand and foot on them. They get an attitude adjustment fairly soon after their arrival on that issue !

[farmers_son]

Whether we are talking Hutterites or other non religious based mega farms the issue needs to keep focused on what kind of agriculture we want to see prosper in this country and whether there is a level playing field for the family farm or do large farms get that way because of an unfair advantage or special treatment at the hand of government.

A case in point is Hutterite colonies. You might be interested in the following link to a study of HUTTERITE LITIGATION by ALVIN J. ESAU Prof. of Law, University of Manitoba, 1997

See: http://www.umanitoba.ca/faculties/law/Courses/esau/litigation/huttlitigationweb.htm


The issue of Hutterites paying income tax is crucial to understanding their competitive advantage. If the colony as a corporation or as a trust paid income tax on the profits of the colony, the rate would be very high since the colony paid no wages to the workers, which expense would ordinarily be deducted. However an arrangement was struck with the Government of Canada that allowed the colonies to pay income tax on a deemed individual basis.

While the family farm can split income by paying family members wages the money must actually be paid, a cheque issued and an actual expense occurred for the operation. The colonies can split their income as if the money was actually paid but it only a deemed payment, the cash stays within the colony and the actual colony members never see the money or have control of it. This has allowed the colonies to avoid hundreds of millions of dollars in income taxes and better explains their success than availability of cheap labour.