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Prairie agriculture at a crossroads
Global competition and succession
Second of a three part series
Published on Top Crop Manager, June 24, and the Edmonton Journal, July 1, 2009
By Dr. Greg Mason
Department of Economics
University of Manitoba
Canadian and prairie agriculture face major challenges in two areas: realignment of global competition and succession.
For many years, economists promoted free trade as an obvious measure for increasing the income and wealth of trading nations. However, the recent collapse of the Doha Development Round of World Trade Organization negotiations reflects the complexity of managing international trade and shows that access to international markets is never assured. As the bovine spongiform encephalopathy (BSE) crisis illustrates, without access to international markets, Canadian agriculture fails.
Equally challenging for the prairie farmer is the rise of agricultural suppliers elsewhere in the world. Australia, Brazil and Argentina have all emerged in the last decade as serious agricultural competitors. Formidable competition is bound to emerge elsewhere, such as the rapid growth of grain production in the Ukraine, the former breadbasket of the world.
It can be difficult to find opportunities within these global trade challenges. However, the continuing subsidization of agriculture by the United States and European Union is not sustainable. The current financial crisis and budget deficit in the US has increased pressure on Congress to jettison expensive farm supports, especially as food prices continue to rise and farmers do well. The US taxpayer is becoming increasingly restless with the bailouts. In addition, the strategy of growing high quality hard wheat (suitable to pastas) has been Canada’s marketing edge. Coupled with a focus on food safety and quality, the positioning of Canadian food as safe and high quality is critically important to support the global marketing of our products.
Farm succession is also approaching a crisis point. In 10 to 15 years, with 40% of prairie farmers over 55, the number of operators and owners will plummet, with no assurance of sufficient replacement, even with the number of enterprises falling. To avoid inevitable “fire sales” where large agribusinesses consolidate farms into huge enterprises, we need a plan.
As the Senate Standing Committee on Agriculture in 2008 stated, “Younger generations of Canadians who want to farm and carry on the family business are now thinking twice before entering the profession of their parents.” However, why should inheritance be the business succession model for modern agriculture? A graduate from an agricultural school, with a student loan debt of $20,000, and no family connection, has zero prospects of entering farming as a profession - typically he or she will work for agribusiness or government.
How do we help farmers meet these two challenges? On the global trade front, one approach is to transform the Canadian Wheat Board (CWB) from a state marketing agency to a modern agribusiness. Too much of the discussion over the fate of the CWB is sterile and defeatist. Proponents are fighting yesterday’s war and opponents have no plan. Consider, however, the assets that the CWB brings to the table: it has a wonderful product - Canadian wheat valued the world over - and it has a worldwide marketing network. Transforming the CWB into a private company, and giving farmers shares (transforming permit holders into shareholders), lays the foundation for a company that could become a world leader. Released of its narrow mandate to market only wheat and barley, it could expand along the value chain, offering benefits to its shareholders: the farmers. Viterra, which emerged from the Saskatchewan Wheat Pool, illustrates the possibilities that may be available through this strategy.
To support the succession of existing farmers to the new generation, the federal and provincial governments could guarantee mortgages and loans to support the transfer. Prospective farms could form limited share companies or even cooperatives to acquire interests in existing farm operations. Some of the owners may not engage in the farm operation and serve only as business partners. These forms of support currently exist, but are limited and require both promotion and increased capitalization to support business succession on the scale required to make an orderly transition in land ownership.
Like reinventing the CWB, increasing the pathways to farm successions requires a relaxation of strongly entrenched mythologies about farming in Canada. These myths impede creative policy and are the subject of the third article in this three part series.
This article was prepared by Dr. Greg Mason of the Department of Economics, University of Manitoba and PRA Inc. and is part of the Canada West Foundation’s Going For Gold Project. The paper upon which this article is based—Prairie Agriculture at the Crossroads: Time for a New Policy—can be download at no charge from the Canada West Foundation website (www.cwf.ca).
S
Prairie agriculture at a crossroads
Global competition and succession
Second of a three part series
Published on Top Crop Manager, June 24, and the Edmonton Journal, July 1, 2009
By Dr. Greg Mason
Department of Economics
University of Manitoba
Canadian and prairie agriculture face major challenges in two areas: realignment of global competition and succession.
For many years, economists promoted free trade as an obvious measure for increasing the income and wealth of trading nations. However, the recent collapse of the Doha Development Round of World Trade Organization negotiations reflects the complexity of managing international trade and shows that access to international markets is never assured. As the bovine spongiform encephalopathy (BSE) crisis illustrates, without access to international markets, Canadian agriculture fails.
Equally challenging for the prairie farmer is the rise of agricultural suppliers elsewhere in the world. Australia, Brazil and Argentina have all emerged in the last decade as serious agricultural competitors. Formidable competition is bound to emerge elsewhere, such as the rapid growth of grain production in the Ukraine, the former breadbasket of the world.
It can be difficult to find opportunities within these global trade challenges. However, the continuing subsidization of agriculture by the United States and European Union is not sustainable. The current financial crisis and budget deficit in the US has increased pressure on Congress to jettison expensive farm supports, especially as food prices continue to rise and farmers do well. The US taxpayer is becoming increasingly restless with the bailouts. In addition, the strategy of growing high quality hard wheat (suitable to pastas) has been Canada’s marketing edge. Coupled with a focus on food safety and quality, the positioning of Canadian food as safe and high quality is critically important to support the global marketing of our products.
Farm succession is also approaching a crisis point. In 10 to 15 years, with 40% of prairie farmers over 55, the number of operators and owners will plummet, with no assurance of sufficient replacement, even with the number of enterprises falling. To avoid inevitable “fire sales” where large agribusinesses consolidate farms into huge enterprises, we need a plan.
As the Senate Standing Committee on Agriculture in 2008 stated, “Younger generations of Canadians who want to farm and carry on the family business are now thinking twice before entering the profession of their parents.” However, why should inheritance be the business succession model for modern agriculture? A graduate from an agricultural school, with a student loan debt of $20,000, and no family connection, has zero prospects of entering farming as a profession - typically he or she will work for agribusiness or government.
How do we help farmers meet these two challenges? On the global trade front, one approach is to transform the Canadian Wheat Board (CWB) from a state marketing agency to a modern agribusiness. Too much of the discussion over the fate of the CWB is sterile and defeatist. Proponents are fighting yesterday’s war and opponents have no plan. Consider, however, the assets that the CWB brings to the table: it has a wonderful product - Canadian wheat valued the world over - and it has a worldwide marketing network. Transforming the CWB into a private company, and giving farmers shares (transforming permit holders into shareholders), lays the foundation for a company that could become a world leader. Released of its narrow mandate to market only wheat and barley, it could expand along the value chain, offering benefits to its shareholders: the farmers. Viterra, which emerged from the Saskatchewan Wheat Pool, illustrates the possibilities that may be available through this strategy.
To support the succession of existing farmers to the new generation, the federal and provincial governments could guarantee mortgages and loans to support the transfer. Prospective farms could form limited share companies or even cooperatives to acquire interests in existing farm operations. Some of the owners may not engage in the farm operation and serve only as business partners. These forms of support currently exist, but are limited and require both promotion and increased capitalization to support business succession on the scale required to make an orderly transition in land ownership.
Like reinventing the CWB, increasing the pathways to farm successions requires a relaxation of strongly entrenched mythologies about farming in Canada. These myths impede creative policy and are the subject of the third article in this three part series.
This article was prepared by Dr. Greg Mason of the Department of Economics, University of Manitoba and PRA Inc. and is part of the Canada West Foundation’s Going For Gold Project. The paper upon which this article is based—Prairie Agriculture at the Crossroads: Time for a New Policy—can be download at no charge from the Canada West Foundation website (www.cwf.ca).
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