“The net income and the overall situation in the United States is not looking good,” said Craig Klemmer, senior agricultural economist with Farm Credit Canada. “When we look at the net income expectations for 2016, there’s not a lot of optimism in the United States.”

American farmers have been slammed by a steep drop in grain and oilseed prices, and livestock prices are now down, too. But the low Canadian dollar has sheltered producers north of the border.

“Broadly, commodity prices are down from where they were a year or two ago, but they are high historically,” said Michael Burt, director of the Conference Board of Canada’s industrial economic trends group.

“Canadian farmers have an additional advantage because if you’re selling commodities going onto global markets or priced according to global benchmarks, the weaker Canadian dollar is definitely good news.”

And although pork prices have dropped, beef prices are still high in comparison to what they have been, he added.

But the low loonie — which has been creeping towards the 80-cent market in recent weeks — will be less of a shield if it continues to climb.

“The impact of the change in the Canadian dollar is going to have an impact on profitability, and right now, it’s still providing us with cautious optimism,” said Klemmer.

Still, surveys conducted by the conference board in the last two years consistently show Canadian farmers are optimistic, with more than half saying they expect their businesses to grow over the next five years.

“It was remarkable how optimistic Canadian farmers were in regards to their growth prospects,” said Burt.

Back on the farm, there are other positives — lower fuel costs, relatively stable input prices, and if the slowdown in the oilpatch hasn’t made it easier to find workers, the pressure on wages has lessened.

And while global stockpiles of most crops are piling up, there are exceptions which are benefiting Prairie growers.

“But for other commodities, like pulses, there is strong demand,” said Klemmer, noting Western Canada has stepped in to fill demand for pulses caused by severe drought in India.

“That’s creating a lot of optimism,” he said. “If you look at our recent farmland values report, we have fairly strong growth numbers in Alberta and Saskatchewan.”

“We have a lot of specialty crops where Canada has a large market share in terms of global trade,” added Burt. “We’ve managed to establish ourselves as key players and in many respects, that’s good, because it allows farm operators to get away from staples that might be more cyclical, in terms of price fluctuations, and allows them to have a more stable source of income.”

It’s tough to forecast where the Canadian dollar will go, but Klemmer predicted there will be some fluctuation but not a steep jump in its value.

But there could be some pressure on commodity prices, and producers should sharpen their pencils and look at their management, he added. Producers should know their cost of production, make sure they understand their cost structure and work with their financial experts to prepare for the bad times.

“That being said, we have low interest rates right now and we have some strong land value increases, so we’re kind of at a point where we need to protect our working capital and build adequate working capital if we start seeing some further stresses in the market. If you have that cash availability, you have opportunities,” said Klemmer.

The post Sheltered from the storm — Canadian farm sector doing well appeared first on Alberta Farmer Express.

“Current approaches toward innovation and growth — particularly in the food industry here in Alberta — are not working,” said Jerry Bouma of Toma & Bouma Management Consultants.

“If we seek success and want to grow this industry, we’re going to have to do things differently.”

Alberta’s food-processing industry has been lagging behind other sectors for over 20 years, said Bouma, who spoke at the Conference on Food and Innovation in late May.

“Our industry — food and agriculture — is definitely second tier in Alberta. It’s way down there relative to energy,” he said. “It’s sort of an afterthought, a poor country cousin. No one’s excited about agriculture and food.”

In 2004, the government of Alberta launched a strategic plan that was meant, in part, to ramp up food production in Alberta. The mantra became 20:10 by 2010 that meant “we’re going to achieve a $20-billion value-added sector next to a $10-billion production sector by the year 2010.”

That didn’t happen, said Bouma.

“We thought 2:1, how hard can that be?” he said. “Back in 1995, the ratio was about 6:6 – $6 billion farm production and $6 billion food processing. In 2015, it’s about $12.5 billion to about $12.5. The ratio hasn’t changed at all. It’s still 1:1.”

And though it may look as though the outputs on both sides have doubled, Alberta’s “real growth is probably less than 15 per cent” once population growth and inflation are factored in.

“Relative to our population growth and economic growth, we’ve gone backwards.”

Wake-up call

In Canada, food manufacturing is the No. 1 employer and top contributor by GDP, at $103 billion in 2012, said Cornelia Kreplin, executive director of sustainable production and food innovation for Alberta Innovates Bio Solutions (AI Bio).

But only 40 per cent of agricultural commodities produced in Canada are converted into value-added products, she said. That number is much lower in Alberta.

“Three-quarters of what Ontario produces is actually value added in terms of exported product,” said Kreplin. “When we take a look at Alberta’s performance, most of what we export is dominated by agricultural commodity sales.

“We do have an opportunity to increase food manufacturing in Western Canada.”

In 2012, AI Bio contracted the Conference Board of Canada to review opportunities in Alberta’s food-processing sector. Its review found “Alberta’s food business motivation to innovate is, in many cases, much less than motivation in B.C. and Quebec.”

That was a wake-up call for Alberta’s food sector, said Bouma.

“We’re in this province thinking we’re leaders in entrepreneurship with a can-do spirit, yet this firm comes along and tells us that, within the food sector, we’re not even average. We’re at the bottom, relative to our provincial counterparts.”

Driven entrepreneurs

And why is that?

Well, said Bouma, food manufacturing is a “tough, tough business.”

“The food business, from a business perspective, is not very enticing,” he said. “It’s terribly competitive, the margins are tight, and it’s so easy to copy.”

Look at thriving Alberta food businesses — such as Heritage Foods, Big Rock Brewery, and the Little Potato Company — and you find “intense personal drive and differentiation were the key success factors.”

“They were led — and in many cases, founded — by a very driven individual who exemplifies leadership and tenacity that you’ll find nowhere else,” said Bouma. “And in almost all cases, they’ve either developed a new product line or introduced a new product category that clearly differentiates them.”

But these companies are already going “flat out” to keep up with growth.

“Those companies that are best placed and best suited for exponential growth are, in fact, maxed out, and it’s hard to attract the managerial and the business talent to enable that.”

Innovation model

A new framework for food innovation could fix that, said Bouma.

Presented at the conference, the proposed Food Research Project Framework is based on the “model of innovation” that led to the creation of the Internet — the U.S. government’s Defense Advanced Research Projects Agency.

“What makes it different from what we’ve done so far? It’s built on capability and proactivity — getting the right people led by a vision and a mandate,” said Bouma. “It’s focused on the market: Where’s the growth opportunities? What are the companies that can really grow with the right kind of management teams and structures?”

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“About six or seven per cent of people’s spending in a year is just on gasoline,” said Michael Burt, director of industrial economic trends with the Conference Board of Canada.

“If you’re suddenly giving people back two or three per cent of their expenditures, they’re able to spend on other things.”

So what kind of a bump might that mean for local food, particularly products that cost a little more because of the way they are produced?

Very little, said Burt.

“Food, in general, is a fairly stable consumer item,” he said. “We don’t see big swings in the amount of money that people spend on food.”

When money is tight, people tend to cut back on quality — buying ground beef instead of steak, for instance — but in general, people trim other areas of their budget before cutting back on food spending.

And when times are good, food spending is typically the last thing that gets increased.

“There is a small improvement in consumer spending on food when times are good, but it tends to be more cyclical things, like cars, that see much bigger ups and downs depending on economic conditions,” said Burt.

Consumers may start to shift from “commodity-based items” to “higher-quality, higher-priced” foods, like implant-free beef or organic produce, but the shift should be minor.

“It’s possible that there could be a benefit for food, but I wouldn’t overstate it. It’s likely to be very small.”

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Its plan to change supply management for growth is a prescription for weakening, if not eliminating, the three pillars of supply management for dairy production in Canada — production controls, import tariffs and farmers’ cost-of-production pricing — in order to produce more milk, lower its price and increase exports.

The board claims to be an independent think-tank, but advocates for policies that promote corporate interests at the expense of the values and aspirations of Canadian people.

In the 1960s, dairy processors were using erratic milk-hauling practices to depress farm gate prices paid to farmers. Farmers were faced with delivering milk at whatever price they could get or lose it all. In 1969, a new system had the government regulate farm gate prices based on farmers’ cost of production in return for farmers producing a constant flow of high-quality milk along with a system of discipline (quotas) to prevent overproduction.

Canada’s dairy supply management operates smoothly, efficiently, and sustainably without government subsidies in contrast to other Canadian agricultural sectors where AgriStability payments are often needed to support farm incomes and overcome depressed commodity prices.

The conference board now promotes increasing dairy production beyond Canadian needs in order to export.

• More from the Alberta Farmer Express: The time has come to scrap supply management

There is definitely capacity in Canada to produce a lot more milk. But what kind of export markets could we pursue, what kind of programs would be required to obtain those markets, and what net benefits would there be for various players in the system?

Only a small portion of the world’s milk production crosses borders because it is a bulky perishable product. Most exports depend on subsidies, often obscured as indirect production supports to comply with trade agreements.

American dairy farmers receive U.S. Farm Bill-related payments that nearly double their milk cheques. European subsidies provide dairy farmers a base income, allowing them to survive on lower farm gate prices. The exception is New Zealand, a major dairy exporter with little or no subsidies. With the world’s lowest production cost (no winters) it can sell at the world’s lowest farm gate prices.

Dismantling dairy supply management would be costly for Canadian taxpayers. To compete internationally we would have to match the massive U.S. and European subsidies. Dairy farmers in Canada would receive lower prices for milk, be subjected to less transparent pricing and require government bail-out programs to keep operating.

The conference board suggests an export-oriented dairy system with lower farm gate prices would result in lower prices for consumers. In reality, retailers charge what the market will bear — New Zealand consumers pay among the highest prices for dairy in spite of their farmers’ low cost of production.

Canadians value dairy supply management, as they enjoy a steady supply of high-quality products for a reasonable price. Supply management regulates production in each region of our vast geography, providing milk where consumers need it. An unregulated dairy market would centralize production, processing and distribution, requiring consumers in distant areas to pay more due to transportation and storage costs.

Dismantling dairy supply management would help companies affiliated with the conference board, such as food processors and retailers, and those industries that have their eyes on massive concessions at the trade deal table. Their gain would be a huge loss for Canadian citizens and Canadian dairy farmers.

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