Banks Credit and Interest

[grassfarmer]

Coppertop, Saying 'our lobby groups don't all sing from the same songsheet' is being rather generous to them in my opinion. Some of our lobby groups, including the biggest, levy funded ones appear to be working entirely against primary producers interests. They are working to achieve the aims of the processing sector to the detriment of the producer interest.
There should be no need for producers to survive on Government injections of money, there is still plenty money created by the beef production process. Allowing processors and retailers to pay half as much for their raw product (fat cattle)as they did historically and pocket the difference is the problem. The tools they use are monopoly control and captive supply. This is what Governments should be acting on and what producers should be lobbying them for action on.

[perfecho]

Rather than reinvent the wheel, is there a group who's mandate or mission is focused on the producer? (Farmer/Rancher)

[coppertop]

grassfarmer, I agree with your views on this.
For instance, when oil started dropping it also started dropping at the pumps, but when the beef producer gets half what they did six years ago, the consumer gets no break at all. The packers have controlled the industry, and until that changes we are at their mercy. Not fair ball is it ?

[grassfarmer]

Perfecho, I believe there is such an organisation - the National Farmers Union. It's national rather than provincial and it represents producers of all agricultural products, something that I think is essential.

From the NFU website;
"NFU members believe that the problems facing farmers are common problems, and that farmers producing diverse products must work together to advance effective solutions. The NFU works toward the development of economic and social policies that will maintain the family farm as the primary food-producing unit in Canada.....NFU members believe that individual farmers must work collectively to assert their interests in an agricultural industry increasingly dominated by multi-billion-dollar corporations."
I think the NFU has much to offer producers of all commodities.

[Sawbones]

GF..While I think that Darren did a great job researching the NFU paper and agree with many of the solutions especially regional producer owned/influenced plants of a moderate size (500 head/day), I can't accept throwing out the FTA (Free Trade Agreement) when we are still trying to export 35-50% of the beef we raise. Mexico is an excellent market for many of our products. I think we have to diversify our marketing to EU or Asia rather than rely on the US. If we are going to throw out FTA and only produce for ourselves, then 35-50% of beef producers will have to sell out. That may already be happening but it's not a good thing.

[farmers_son]

While I got to hand it to Grassfarmer on his ability to take a thread on Banks, Credit and Interest and turn it into an opportunity to plug the NFU I think some important points are being missed.

• Agriculture in Canada is heavily, heavily burdened with debt.
• Agriculture is sensitive to changes in interest rates, both up and down.
• The majority of Canadian agriculture debt is with banks.
• By lowering the overnight lending rate from 6% in 2000 to 2.5% in 2008 the federal government has lowered the cost of lending for agriculture by what should be $2 billion dollars annually. This should have had the same benefit as if the federal government had written agriculture a subsidy cheque for that amount.
• The banks have not passed this along and at least today the cost of credit at the banks is higher today than it was in 2000 in spite of the Canadian banks being gifted billions of dollars by the feds (more than the automakers got from Canada and the U.S. combined). A comparison could be made between BSE subsidies all ending up in the hands of the packers… the banks are keeping the benefits of the lower overnight bank rates and billions in direct government support all for themselves. Finance Minister Flaherty said as much.
• While the Bank of Canada Rate is 2.5% and TD Bank Prime is 3.5% the banks are squeezing agriculture and the larger overall economy by doubling and tripling (or worse) the amounts over prime they are charging their clients for loans.
• The TD Bank (I am picking on the TD Bank because they claim to have managed their affairs best through the sub prime wreck) is offering 0.95% on one year fixed deposits, 2.35% on fixed five year deposits. Yet to get even a one year fixed fully secured open loan from the TD Bank will cost you 8.55% today (advertised rate).
• In effect the banks are operating like loan sharks.
• It is only going to get worse.

Cattle are the largest segment of agriculture in Canada. The effect of even a 3.5% change in the cost of credit will have on agriculture is roughly equivalent to BSE in the worst years. Producers hung onto the cows tail through BSE but I question if they can through a credit crisis, made worse by irresponsible greed at the banks.

The end result of a credit crunch will be producers selling cows to pay debt. The Canadian cow herd has already shrunk from 5.4 million cows to 4.4 million cows. If we lose another million cows (and I think we will) even if it is only from selling cows to pay down debt then Canada will produce just enough beef to meet our domestic needs with no net exports.

If one million cows were sold at $600 each and the entire amount went to pay down agricultures debt (with nothing going to pay the resulting tax) that $600 million dollars would only reduce agricultures debt by 1%. Hopefully that gives some perspective on the magnitude of the problem.

[grassfarmer]

Sawbones, I know the point about concentrating more on domestic supply is the thing producers have the biggest job accepting about the report. I have concerns with it too but the reality is the FTA is not working for producers, the disastrous results outlined in the NFU document have been gained under the FTA.
The point I made to Darren about having a herd reduction to domestic consumption levels was that this in itself would not raise cattle prices in Canada as long as we only have 2 packers and no competition in the processing/retailing sector. The conditions that would make a herd reduction policy successful would be that Government intervention would bring about more competition, less captive supply etc. If these actions were taken it would also allow us to continue to export, only now we may actually benefit from exporting, something that has not happened thus far. Darren accepts that argument and I think the final wording he included acknowledges this. Certainly diversifying our markets both geographically and product wise (eg hormone free, bse tested, grassfed etc) are things the NFU support wholeheartedly.

[smcgrath76]

There is a pretty good ebinar featuring George Brinkman on the farmcentre.com website (available in audio for dial up I think). His work is pretty interesting. Basically he has found Canadians pay WAAAAYYY too much for land in comparison to other places such as the US. The amount of capital financed to generate $1 of income is way out of whack in Canada. In the webinar he suggests that if land values in Canada were scaled back 50% it would just be a good start. I think this is reflective of two things here. 1. That we are not good in Canadian agriculture at generating income/extracting value for various reasons largely outlined in previous posts.
2. That for some reason we pay to much for capital.
I dont understand the reasons for #2 but it has certainly slowed our farm growth, when land within the vicinity is priced out of its agricultural capability and is be purchased by agricultural producers. I don't understand it, but it is a key challenge to our industry. The solutions I see are a correction in the price of land or a way to capture more revenue from the same land base.
Some of our problems are always self made, many are policy driven and I think the solutions are only possible through a combination of prodcer effort and responsive policy. That said, I would also be disturbed if the value of the largest part of my equity (on paper) was to decline by 50%.