A letter to the editor of Ontario Farmer newspaper by Stephen Thompson of Clinton, Ontario.
I am amazed and at the same time completely horrified by the number of farm groups congratulating federal ag minister Gerry Ritz for promising to make it easier for Canadian farmers to get access to credit.
It would appear that neither Ritz, nor the farm groups applauding his latest announcement, have been paying attention to retired University of Guelph ag economics professor Dr. George Brinkman. In a number of recent articles (Alberta Farmer, April 27), Brinkman has been warning that “Canadian farmers are in deep financial trouble” and that “there’s a speculative bubble in Canadian agriculture in general and in land and quotas in particular.”
Brinkman points out that the price/earnings multiple of Canadian agriculture is more than 200 to one in terms of investment to profit, while stock markets generally average 16 times current-year profits per share. In addition, Brinkman notes that the U. S. earnings ratio for agriculture is by comparison about 20 to one. Brinkman points out, quite correctly, that a price/earnings multiple of 200 to one is rarely seen outside of something like the dot.com bubble at the start of this decade.
Incredibly, neither Ritz nor the farm groups applauding his promise of easier credit seem to have the foggiest clue that stratospheric price/earnings multiples are generally considered to be caused in large part by the over-availability of credit in the first place. Therefore, Ritz’s promise of even easier credit is exactly the wrong move to make, and at exactly the wrong time, because it will only increase our already-stratospheric price-earnings ratio, rather than do anything to bring it in line with the realistic U. S. price/earnings ratio.
Simply stated, Ritz is promising to pour gasoline on an already-roaring fire, and farm groups seem to think it is a wonderful idea. Even worse is that when, not if, our speculative bubble bursts, Canadian farm groups will have no one but themselves to blame for the “pennies on the dollar” valuations of farm assets that will undoubtedly ensue.
The completely undeniable, and rather inconvenient, truth to the whole story is that at a price/earnings ratio of 200 to one, Canadian agricultural policy is just useless, and needs to be scrapped in favour of a U. S.-style farm policy – a policy which actually produces realistic price/earnings multiples.
While it’s not surprising that nobody in government has the faintest idea about the direct link between easier credit and the horrendous problems caused by over-inflated price/ earnings multiples, it is sad to see too many farm groups seem to have no idea either.