Farmers fear big price hit from carbon tax

The focus has been on the price of fuel, but the effect of a carbon tax on the price of fertilizer, chemicals, and machinery could be much greater

Sixty miles south of where Stephen Vandervalk farms lies the American border — an invisible line dividing farm country with the same growing conditions producing crops that will be sold to mostly the same customers.

But the Fort Macleod producer worries that being north of the line is going to be a huge disadvantage when the provincial carbon tax comes into effect in January.

“How do you compete?” he asked. “This tax is going to apply to us and nobody else in the world. To a certain extent, we’re already not very competitive on the world stage because of where we live. We’re already at a freight disadvantage.

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“This just adds more fuel to the fire.”

While farm fuel will be exempt when Alberta’s carbon tax of $20 per tonne (rising to $30 per tonne in 2018) comes into effect, other input costs — such as fertilizer, transportation, and crop protection products — will still be subject to it.

That’s Vandervalk’s key concern on his 10,000-acre grain farm.

“It’s just going to increase costs, and as primary producers, we can’t pass that cost on to our consumers,” he said. “It’s literally just going to come out of our margins, and there aren’t any margins in farming to allow for that.”

Vandervalk is a director for the Western Canadian Wheat Growers Association, which is circulating a petition calling on the federal government to scrap the proposed carbon tax. That tax will start at $10 per tonne in 2018, so it won’t affect Alberta at first. But it will increase $10 per tonne per year until it hits $50 in 2022.

Naomi Christensen

Naomi Christensen
photo: Supplied

“For the next few years, Alberta’s carbon tax is actually going to be higher than the federal one, so it’s not until about 2020 when both plans say the carbon tax will be $30 per tonne,” said Naomi Christensen, a policy analyst at the Canada West Foundation.

“After that, the federal plan could affect Alberta if the tax is raised and Alberta’s stays the same.”

It’s also unclear whether Ottawa’s tax will exempt farm fuel.

“Because the federal announcement was so short on details, it’s natural that farmers are going to be wondering how it’s going to affect their operations moving forward,” said Christensen.

“Until those details are released, that worry is going to remain.”

The bigger hit

At the top of the list of worries for Canadian farmers is staying competitive.

Ron Bonnett

Ron Bonnett
photo: Supplied

“If all of a sudden, Canadian farmers have a carbon tax that gets written into their production costs that the United States or Australia doesn’t have, that puts them in a very uncompetitive position,” said Ron Bonnett, president of the Canadian Federation of Agriculture.

Right now, there are “too many unknowns to say what the final impact will be,” said Bonnett, who farms near Bruce Mines, Ont.

“I think the narrative that’s coming out from the farm community is fear that our costs are just going to go through the roof.”

B.C. offers an example of how those costs might rise. Its $30-a-tonne carbon tax increases the cost of a cubic metre of natural gas by 5.7 cents. Since it takes about 1,000 cubic metres of natural gas to make a tonne of anhydrous ammonia, that means the cost of anhydrous would go up by $57.

That said, anhydrous prices sometimes vary more than what a carbon tax would add. Last winter, it was around $820 a tonne, now it’s $650 — a drop of 21 per cent. Adding a $30-a-tonne carbon tax now, $650-a-tonne anhydrous would cost nine per cent more.

“People are really focusing on the fuel side,” said Vandervalk. “That’s one of the aspects, but not the biggest. The biggest aspect is going to be fertilizer, chemicals, and equipment.

“If you see fuel go from 70 cents to 76 cents, you’re maybe adding $2 an acre to the cost of your farm. That might be a $20,000 hit, but that’s not really going to affect the margins.”

But while fuel is about $20 an acre (depending on the farm), an average fertilizer bill is around $75 to $100 an acre, he said. Depending on where you live, crop protection products range from $30 to $70 an acre, and equipment costs are around $50 to $60 an acre.

“Farm fuel is a cost, but in the grand scheme of things, it’s not even in the Top 5,” said Vandervalk. “All the costs are going to be passed down, and we can’t pass those costs down.”

The unknown road ahead

Both the provincial and federal governments will need to take these costs into account as they move forward with their carbon tax plans, said Christensen.

“Those policies are going to have to be adapted to make sure our agriculture sector — which is so important to Alberta — is not losing ground to our competitors,” she said.

“We’re going to have to see how they will come up with the details of that plan so that the agriculture sector is not put at a competitive disadvantage.”

But the whole point of a carbon tax is to reduce emissions and it can — and should — be designed to reduce agriculture’s carbon footprint, said expert Brandon Schaufele, who studied the effects of B.C.’s carbon tax on agricultural trade.

“If we’re worried about profitability, there are effective and less effective ways of alleviating profitability concerns,” said Schaufele, an assistant professor at the Ivey Business School.

“The least effective way would be to exempt the agricultural sector. The more effective way would be to provide an output-based rebate.

“This would essentially provide a subsidy for the number of bushels of canola or wheat you grow. This then provides an incentive for farmers to reduce their emissions but also to increase their output. That gives us a win-win situation.”

The revenue generated from a carbon tax could also be used to cut other taxes, he added.

“Then you get the benefit from reducing emissions, but you also get a secondary benefit from reducing personal income tax. If you can reduce that income tax and get reduction in emissions, we get two wins.”

The same idea could be applied to the agricultural sector, he added.

“The revenue from this tax could be recycled back to the agricultural sector through output-based rebates or even just lump sum rebates.”

Bonnett favours carbon credits.

“Getting credit for some of the things we’ve already done will be critical in figuring out whether this is going to be good, bad, or ugly,” he said. “If we don’t have recognition of agriculture’s role or some understanding of the competitive nature of the marketplace, it’s going to have a pretty devastating impact.”

Moving forward

Regardless of how the carbon tax is implemented, producers will need to advocate for themselves and their industry in the months ahead, said Christensen.

“Producers will have to pay attention to how the policies are affecting them and try to influence the best implementation possible so that their bottom lines are not impacted, putting them at a competitive disadvantage,” said Christensen.

But trying to stop the carbon tax will likely be futile.

“The government has clearly indicated that this is a policy that’s going to be put in place, and I don’t think anybody is going to be able to stop it,” she said.

If that’s the case, producers will need to make their voices heard.

“If we can get the discussions going around possibly exempting some of the input costs because they are being used to produce food, as well as getting credit for the carbon we do sequester, it may work out to our advantage,” said Bonnett. “And the dialogue has to start right now.”

But Vandervalk isn’t hopeful.

“I think the feds have an agenda, and I’m not sure federally that they’re listening or that they will listen,” he said.

“We can do our best, but I’m not sure what’s going to happen. It isn’t about facts. It’s about ideology. And it’s sad.”

— With files from Allan Dawson

About the author

Reporter

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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