Corn followed soybeans lower, but was supported by strong export demand and possible export limits in Ukraine.

Wheat futures fell slightly, but were bolstered by an export tax in top-producer Russia.

The most-active soybean contract on the Chicago Board of Trade (CBOT) fell 31 cents to $13.85-3/4 per bushel, losing 2.2 per cent, its biggest drop since Oct. 12, 2020 (all figures US$).

CBOT corn slipped 5-1/2 cents to $5.26 per bushel, while wheat shed 3-1/4 cents to end at $6.72-1/4 per bushel.

Rains across much of Brazil’s growing regions bolstered parched crops, as the country slowly begins its soybean harvest, which could ease supply worries.

“Each week we go by, we’re picking up harvest in South America,” said Don Roose, president of U.S. Commodities.

Falling palm oil futures further weighed on soybeans, while the U.S. Department of Agriculture’s announcement of fresh export sales of 132,000 tonnes of soybeans to China for shipment in the 2021-22 marketing year did little to strengthen the market.

Despite the drop, there is still upside potential in soybeans, according to Dan Anderson, broker at ED+F Man Capital.

“If you look at the rally, the dips have been shallow and we tend to remain fairly bullish,” he said.

Corn fell after gaining early, as discussions in Ukraine about possible export limits offered support.

USDA reported private U.S. corn sales totaling 128,000 tonnes to Japan and 100,000 tonnes to Israel, both for shipment in the 2020-21 marketing year.

Top importer China bought a record 11.3 million tonnes of imported corn last year, according to General Administration of Customs data.

Wheat, too, benefited from China’s increased imports, with a record 8.38 million tonnes of wheat imported in 2020.

— Reporting for Reuters by Christopher Walljasper in Chicago; additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore.

The post U.S. grains: Soybeans fall on South American rainfall appeared first on Alberta Farmer Express.

Corn and soy futures also rose as tightening supplies, particularly of soybeans, and lingering concerns about South American crops amid dry early-season weather supported prices.

Chicago Board of Trade (CBOT) wheat posted its strongest weekly gain in nearly four months, while corn notched its fifth weekly gain in six weeks. Soybeans dipped slightly on the week in a second straight weekly decline.

Grain markets were propelled higher on Friday by surging wheat a day after USDA cut its supply outlook and as Russia considers imposing a wheat export tax and a grain export quota to help stabilize rising domestic food prices.

Russian officials are considering imposing a wheat export tax for the period of Feb. 15 to June 30, four sources familiar with discussions told Reuters Friday.

Sources familiar with government plans said the tax could be set at around 2,000 roubles (C$34.40) per tonne; one source said a tax of 25 euros (C$38.76) is also under consideration.

That source also said the government plans to introduce temporary quotas for overseas shipments of wheat, rye, barley and maize.

Meanwhile, Russia’s Sovecon agriculture consultancy downgraded its 2021 wheat crop forecast on Friday, citing the worst crop conditions in a decade.

“Global wheat stocks in that report were five million tonnes below trade expectations, U.S. stocks came down and there’s news about Russia wanting to put quotas and taxes on exports. Wheat is rightfully leading this market higher,” said Craig Turner, senior ag broker at Daniels Trading.

CBOT March wheat futures ended up 18 cents at $6.14-1/2 a bushel (all figures US$). A three-day rally has taken March futures up 7.8 per cent, the strongest such gain since July.

January soybean futures were up 7-3/4 cents at $11.60-1/2 a bushel, while March corn gained 2-1/4 cents to $4.23-1/2 a bushel.

Investors are monitoring South American corn and soy prospects following dry early-season weather in key production areas.

Widespread rains are expected in central and southern Brazil and northern Argentina next week, while a drier pattern envelops northern Brazil, according to meteorologists.

— Karl Plume reports on agriculture and ag commodities for Reuters from Chicago; additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore.

The post U.S. grains: Wheat soars as Russia eyes export curbs appeared first on Alberta Farmer Express.

“I have clients who spend $100 to save $15 in tax,” said the MNP accountant. “I get it. I don’t want cash to go to Revenue Canada for any of my clients, either. But there is a certain amount of tax that it makes sense to pay.”

In an effort to keep their yearly taxes low, farmers often play the “deferral game,” Strilchuk said at Alberta Canola’s Leading Edge Farm Management workshop last month.

That allows them to smooth income from year to year, but sometimes it’s not worth it.

For instance, selling a bumper crop in the year it’s grown means more income and more taxes. Cash deferrals push some income into the next tax year, but then it gets tricky.

“It allows you to manipulate the income to where you want it to be,” said Strilchuk. “If you defer the tax dollars to the future, you have more cash now to pay costs or buy property. It’s a deferral game, but it can catch up to you.”

Farmers can also lower their income (thereby lowering their taxes) by pre-buying next year’s seed, chemicals, and fertilizer, he said. But in some cases, that doesn’t make sense.

“That’s not a great investment, unless it was a great deal to be had strictly for business reasons,” said Strilchuk. “If you did get a deal and it makes sense to buy it now, great. You not only get to deduct it for tax, but it was also a deal. It makes sense for business reasons — not just tax.

“Let’s separate tax from business decisions.”

Farmers struggle with that because they don’t realize “money costs,” he added.

Say, for instance, that a producer has an operating line of credit with an interest rate of 4.4 per cent. If they had the money they deferred, they could pay down that debt, reducing their interest payments often by as much or more than what they would pay in tax.

“People say this to me all the time — ‘Don’t worry about it. I’ve deferred $494,000 into 2019.’ And when I tell them that’s going to cost them a bunch, they say, ‘At least I’m not paying the tax.’”

Deferrals are just another form of financing, he said.

And when producers wrap their mind around that, they need to start thinking about who actually has the use of their money, said Strilchuk.

“The grain company with a deferred cheque has it. If you pre-buy cattle, the feedlot has it. The input supplier has it. If you’ve gone out and bought seed, chemicals, and fertilizer, those guys all have your money.”

And if any of them go out of business, you could be out of luck.

“That would really suck. I mean, you fixed your tax problem, but you lost all that money.”

Some producers argue they get a premium on deferred cheques, but that amount is likely negligible, said Strilchuk, who once was given a $100 premium on a $60,000 deferred cheque.

“That interest rate is not even measurable,” he said. “And if I had an operating line going, how much did I pay in interest while they had the use of my money?”

The cost of capital is different for everyone because different individuals have different rates of return and debt. But ultimately, producers need to find a number that they’re comfortable with paying in taxes and work with their financial advisers to hit that target.

“It’s definitely not zero. Surely to god it makes sense to pay a bit of tax,” said Strilchuk, adding you have to be below $11,000 of personal income if you want to pay zero taxes.

“We don’t have to get down to zero to be better off. In one case, we’re giving the money to the government. In the other, we’re giving the money to the bank.”

The post Dodging the taxman may be costing you appeared first on Alberta Farmer Express.

All cattle producers are coming to terms with the significant tax influence over the past month. The healthy margins throughout 2017 caused a huge surge in feedlot demand during November and December. At the same time, the cow-calf producer held off on sales, waiting for the New Year. We now find larger-than-expected supplies coming onstream while feedlot operators are sharpening their pencils. Buyers are basing purchases on forward contracts for live cattle and the feeder market has some work to do.

In east-central Saskatchewan, a group of black medium-frame steers weighing 935 lbs. traded for $170; however, in central Alberta, medium-frame Simmental mixed steers weighing 958 lbs. traded for $184. Simmental steers weighing 835 lbs. traded for $176 in east-central Alberta.

Lighter weight categories under 700 lbs. traded $3-$5 below week-ago levels. Red mixed steers weighing 575 lbs. were quoted at $220 landed in southern Alberta feedlot, while larger-frame 600-lb. red mixed heifers were quoted at $193.

Alberta packers were buying fed cattle on a dressed basis in the range of $272-$276 delivered; this is down from last week’s price range of $275-$280. Live sales were quoted from $163 to $165. The U.S. fed cattle market traded at US$123 in Kansas, up $3 from last week. This should lend a supportive tone to the feeder complex. Alberta feedlot margins are in the range of $120-$140 per head, but operators are content with current numbers and don’t need to reload just yet.

— Jerry Klassen manages the Canadian office of Swiss-based grain trader GAP SA Grains and Produits Ltd. and is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339.

The post Klassen: Feeder market continues to soften appeared first on Alberta Farmer Express.

But there are “a lot of other tax strategies” that farmers can use, say financial planning experts.

In July, federal finance officials announced proposed changes to the Income Tax Act that, if passed, will change the regulations around lifetime capital gains deductions, income splitting, and incorporating farms, among other things.

Critics — including a growing number of farm groups — have decried the changes as well as the 75-day public consultation process, which ends Oct. 2 while most farmers are busy with harvest or fall work.

Both Finance Minister Bill Morneau and Prime Minister Justin Trudeau have vowed to push ahead, saying the changes are about levelling the playing field for all taxpayers. But although the two politicians say the target is high-income earners, federal finance officials are also concerned about farm corporations.

“The government doesn’t like it when farmers are using their farming corporation as a pension plan as a way to defer taxation — it doesn’t see that as what it was designed for,” said Jean-Pierre Laporte, CEO of Integris Pension Management Corporation in Toronto.

“The government realized it’s losing a lot of tax revenue because that’s exactly how a lot of farmers have structured their affairs.”

That’s made the government keen on closing “what it perceived to be a loophole” and if the proposed changes go ahead, farmers will be affected, he said.

“Most of the time, farmers operate through a private corporation, and the tax changes are designed to impact how those private corporations are taxed in an adverse fashion,” said Laporte.

“Almost all of the farmers who have businesses that are incorporated will be impacted by these changes.”

But these changes are also “a good wake-up call” for producers, said financial planner David Derwin.

“This type of planning is all extremely important, but it’s not necessarily urgent,” said Derwin, an investment adviser at PI Financial. “Regardless of what happens, this process is going to be a good way to get people to think about what they should do for retirement planning.”

And in some cases, these changes will be the push producers need to “ask what else is out there” when it comes to their retirement planning.

“They can’t necessarily do what they did in the past going forward,” said Derwin. “There have been a lot of other tax strategies that have been made available for farmers that an RRSP or pension plan wasn’t necessarily the best tool to look at.

“There have been some opportunities that have been overlooked, but this is the time to look at the bigger picture and say, ‘How do these other tools fill a lot of those gaps?’”

Personal pension plans

And one of the most valuable — and underutilized — tools is a personal pension plan.

“If the idea is to shelter as much corporate tax as possible, there’s really no better way than a personal pension plan,” said Laporte.

A personal pension plan is a registered plan with fewer limitations and greater benefits than RRSPs or their company and government counterparts, he said. Those benefits include larger tax-deductible contributions, credit protection, tax-free intergenerational transfers, and tax-deductible corporate funding, said Laporte.

“Personal pension plans offer seven additional tax deductions at a corporate level that don’t exist when farmers use an RRSP to save for their retirement,” he said.

“The personal pension plan is a tool that addresses a lot of those issues with the potential tax changes,” Derwin added. “It addresses so many things — diversification, generating income, protecting your assets, transitioning from one generation to the next.

“There are some tax benefits, but even over and above that, these other things make them so flexible in longer-term planning.”

Despite the added benefits of personal pension plans, most farmers don’t currently use them, said Laporte.

Most people view pensions as something only available from the public sector and larger private sector companies, so the rules can seem overly complicated for small businesses such as farms.

“The path of least resistance means keeping it simple,” said Laporte. “A lot of farmers prefer the simplicity of just paying dividends to family members with no fuss, rather than going through the bother of setting up a pension plan.

“Now, though, they won’t have a choice. They’ll need to at least look at the pension solution if they want to avoid paying all this extra tax.”

It’s too soon to say whether the federal Liberal government will persevere or back down in the face of the growing backlash from farmers, doctors, and other small-business owners.

But ultimately, “the trend is toward more taxation,” said Derwin.

“Whether these tax changes happen this year or down the road, these pension plans are a good investment and a good planning tool in and of themselves,” he said.

“Even if the government doesn’t make dramatic changes, I think it’s a smart planning tool to look at.”

The post Worried about federal tax changes? There’s an alternative, say experts appeared first on Alberta Farmer Express.

“If they take this deferred cash ticket system away, you’re going to have farmers refusing to move grain when we need it to move,” said Stuart Person, director of primary producer agriculture at accounting and business advisory firm MNP.

“You’re going to have railroads sitting idle. You’re going to have grain terminals sitting empty. All because selling at certain times might not work for farmers because of tax implications.”

Right now, deferred cash tickets are used to help producers “smooth their income out,” said Person.

“With any farm business — it doesn’t matter if it’s livestock or grain — the income fluctuations can be significant from year to year due to a number of factors,” he said.

If, for instance, a farmer has a bumper crop one year and sells it that same year, he or she will have a significant spike in income — and “generally, the higher your income, the higher the rate of tax you pay.” But the deferred cash ticket system allows farmers to take a portion of the money and defer the rest until next year.

But Ottawa is considering scrapping the cash ticket deferral system — a move that would seriously impact Prairie producers, say Alberta’s wheat, barley, pulse, and canola commissions as well as other farm groups.

The commissions asked MNP to review the situation and its analysis supports their claim.

The majority of farmers aren’t trying to avoid paying taxes, but just want to “smooth their income out and make sure they’re paying tax at a reasonable rate like everybody else,” said Person.

And the federal government has overlooked a major benefit of the tax break — it bolsters the year-round flow of grain, he added. If the system is abolished, farmers may choose to sit on their grain for another year to avoid paying more in taxes.

“It will screw up our logistics royally if they do this, and it will cost everybody money,” said Person.

“It will cost farmers money because they’ll lose opportunities to sell. It will cost the grain companies money because they won’t have any grain to move. And it will cost the railroads money because they will be under pressure to move a whole bunch of grain all at once, which they generally fail at.

“That’s a massive problem. We’ll lose market share if that happens.”

Big tax hit

The tax implications for the average farmer can’t be ignored, added Person.

“If your income is nice and smooth — like you’d see with a non-farm — you’d pay taxes at a rate of 12.5 per cent every year,” he said.

But a farm that has the same average and net taxable income over five years as a non-farm business would likely see a wide variance in their income from year to year.

“Farms are way more likely to experience these large fluctuations in income than a corner store or a gas station or an accounting firm, which generally have more steady streams of income,” said Person. “By jumping around like that, what ends up happening is the high tax rate of 27 per cent kicks in, in certain years.”

As a result, a non-farm business will pay far less in taxes over a five-year period, even if their five-year net and average incomes are exactly the same as an incorporated farm business.

It’s even worse for unincorporated farms.

“The swings in taxation are much more dramatic for people who are unincorporated than the incorporated ones, especially if you get into higher incomes.”

That’s why the cash ticket deferral system is so critical, said Person.

“The cash deferral system allows them to move income out of the high years and put it into the lower years, which smooths the income out and effectively makes that farm pay the exact same amount of tax as a non-farm did, which is how it should be,” he said. “That’s treating those two businesses the same.”

A retirement hit, too

Producers would also be penalized in their retirement years.

“Self-employed people who run a business — like farmers — are eligible to contribute to the Canada Pension Plan (CPP). But there are thresholds to what you can contribute each year,” said Person.

And in years where the farm doesn’t show any income, the farmer can’t put any money into the CPP program.

“The same business with the same net five-year income and the same average five-year income would contribute more,” said Person. “The farmer is actually being penalized by the fact that he has a high income one year and next to no income in another.

“He’s going to get a smaller CPP cheque than his neighbour who ran a logging business.”

Income smoothing through the deferred cash ticket system means “the farmer can maximize his Canada Pension Plan contributions every year and get the same benefit that everybody else gets.”

Whether the federal government will move forward with its plan to scrap the system is still up in the air (a consultation process is currently underway) but regardless, farmers should start thinking about the impact on their operations if cash ticket deferrals are abolished.

“Whether it’s your accountant or your business adviser, sit down and have a conversation about how this might impact your farm and how you can plan for it,” said Person.

“If they do put this through, it’s going to have some significant impacts, and some planning will be required to deal with it.”

The post Scrapping deferred cash tickets could ‘screw up’ grain-marketing system appeared first on Alberta Farmer Express.

“We’re happy that the judge upheld the business tax,” said Lethbridge County Reeve Lorne Hickey. “He felt that under the Municipal Government Act, we were fully capable of putting that tax in place.”

The $3-per-head business tax — more commonly referred to as a ‘head tax’ — was imposed on area feedlot operators in April 2016 as an effort to raise $3.5 million annually over 35 years to cover road and bridge maintenance. The tax has been dropped to $2.50 per head for 2017.

On April 20, a Court of Queen’s Bench judge ruled that “the Business Tax Bylaw complies with the delegated taxation powers” laid out in the Municipal Government Act. That was good news for the county — but not for feedlot owners who feel the tax is unfair.

“When you challenge the intensive livestock industry the way the county has, and other governments have, we’re really concerned for our longevity in this business,” Rick Paskal said in an interview last fall.

Paskal, who is president of Van Raay Paskal Farms Ltd., which owns seven feedlots in southern Alberta with capacity for up to 130,000 head, was one of nine feedlot operators who initiated the lawsuit against the county. Paskal declined to comment for this article.

Cattle feeders in Lethbridge County currently feed around 500,000 head of cattle, more than half of the cattle on feed in Alberta and Saskatchewan, but the $3-per-head tax — along with increased costs because of the carbon tax and new workplace safety legislation — has made it harder for them to compete.

“Right now, it’s $5.60 more costly to feed cattle here in Canada than the United States. The $3 tax takes us to $8.60,” Paskal said last fall.

“They have found their cash cow, so to speak.”

But for the county, it made sense to gear the tax to the biggest users of the rural road infrastructure, said Hickey.

“We’re not out to make a hardship for anybody, but we’re responsible to keep up our roads to a certain standard,” he said.

“We tried to go after the people who had the highest use of the infrastructure.”

Lethbridge County has “very little” oil and gas activity, so the tax base is smaller than it might be in other counties, said Hickey.

“Other counties are able to keep up their roads better than we’ve been able to because we don’t have that extra income.”

The head tax was designed to pay for a new “market access network,” a series of “better-quality” haul roads that link to numbered highways. The primary users of these roads are intensive agricultural operations, he said.

“We had a lot of trouble with our infrastructure, especially during heavy rain periods or frosts,” said Hickey. “But with the improvements to the roads we’ve been making, that should eliminate that.”

The county also levied a special tax on all farmland in the county, which the judge ruled was not “specific” enough to comply with the Municipal Government Act and was therefore invalid. The county may implement a “modest increase” to the mill rate instead.

While it’s uncertain whether the feedlot operators will appeal the ruling, Lethbridge County is open to further meetings with them to discuss their concerns, said Hickey.

“We’ve always said our door was open, and we meant that.”

The post Lethbridge County ‘head tax’ ruled legal appeared first on Alberta Farmer Express.

From where I sit, a mid-size incorporated family grain farm, we know that the reversal of this option will have a drastic impact on our profitability and bottom line.

In the recently released report by the federal government’s Advisory Council on Economic Growth (Unleashing the Growth Potential of Key Sectors), agriculture and agri-food was named as a key sector to increase economic growth for Canada. The report cites “the large natural endowment of water and arable land” and “exposure to favourable global market trends including demand from fast-growing Asian economies” among a number of other factors.

According to the same report, the agriculture sector employs 2.1 million Canadians and accounts for 6.7 per cent of GDP “with lots of potential for growth” — numbers we don’t dispute. We know the resiliency of our agriculture industry makes it a key sector for economic prosperity.

• Read more: Tax treatment of deferred grain cash tickets under review
• Read more: Alberta Wheat fighting to keep tax deferral

But do you know what will impede this cited opportunity for economic growth?

Placing grain producers, who are key to the economic growth in this sector and this country, at a distinct disadvantage.

Grain producers are unique in that we must buy our inputs retail and sell our grain products wholesale. We are price takers. We do not have the opportunity to pass on increased costs that we shoulder. We are also unique in that our income is not stable — our yields and subsequent profits vary from year to year. But this shouldn’t be new information.

One of the key ways to manage cash flow and fluctuating yields is to be able to defer cash tickets out to the following year. As small family businesses (which is the majority of farm operations), we can ensure income stability in the next year and manage tax paid in the current year.

Let’s be clear on this — we are not avoiding tax, we are simply deferring it to the following tax year.

Though the response to this issue has largely been that of great concern for the loss of this key management tool, it’s also been suggested that the benefits of deferring income are inflated. For incorporated farms, it’s conceptually true that dividends can be taken to ensure a lower tax rate on income incurred over the small business threshold of $500,000. But this is not a realistic fiscal management practice for several reasons. There are limits to personal dividends that can be taken from a farm corporation, and most importantly, the opportunity for growth would be lost in a year of higher revenue (i.e. increasing farm capital and assets). Instead of taking a dividend, income over $500,000 can be deferred and used by the farm corporation the following year.

The pressure on our margins is ever increasing (for example, Alberta’s carbon tax) and should this option be removed, we’ll feel it even more.

As it currently stands, we choose to sell our grain into the top of the market, no matter what tax year this sale may occur. Should this option be removed, we’ll likely find ourselves forced to sell our product at less than desirable prices to manage tax that is paid. Not to mention the potential ripple effects of grain moving (or not moving) through the value chain, essentially stifling any economic growth targets.

The Advisory Council report cites that it wants Canada to grow to be the second-largest agricultural exporter on the world stage — targeting an eight per cent share of global ag exports and more specifically, targeting pulses and oilseeds as key export areas for growth.

I believe the sector will respond with a resounding yes in support of trying to reach these goals. But we can’t do that if producers are at odds with our government.

The reaction and response of producers and industry to this review speaks for itself. Agriculture needs a seat at this consultation table, hopefully across from policy-makers who are willing to listen.

The post Farmers can grow the Canadian economy — if they’re not shackled appeared first on Alberta Farmer Express.

“Everything we buy — whether it is in inputs, fertilizers, freights, parts, machinery — all of those service providers to us are all impacted. Their costs go up,” said Greg Stamp of Stamp Seeds near Enchant.

“If their costs go up, are they able to pass it on, if they want to maintain the same margin they’re having? For farmers, it becomes tough because how do we maintain margins?”

Kevin Auch, chair of the Alberta Wheat Commission is also concerned.

“If all those other items go up in cost, it comes off our bottom line before we ever make a dollar,” said Auch, who farms at Carmangay. “With a thin-margin business like farming, that could be a concern if those numbers are too big. We just don’t know what they will be at this point.”

One exemption made for producers is that there is no tax on dyed fuel used in tractors and other farm equipment. But producers, like everyone else in Alberta, now pay 4.5 cents of tax on every litre of gasoline and six cents on every litre of diesel, effective Jan. 1.

Stamp says this could make a difference in staffing costs at his farm.

“If my staff is driving to and from work with her car, she’s paying more for fuel and everything she is buying will be going up,” he said. “She will be in a tighter position. They may want to be paid more, which is fine. Costs go up for everybody and they have to cut back or try and make more money.”

Other costs are also set to go up, said Stamp, a delegate for Alberta Barley.

“A lot of our irrigation cost is electricity. So if electricity and transmission costs keep going up, it’s going to make our irrigation costs very high. Seed cleaning also uses electricity, so as that keeps going up, it brings the cost of cleaning up.”

Auch is concerned about rising fertilizer costs in the province. Both urea and anhydrous ammonia are produced in Alberta using natural gas. Auch would prefer to have fertilizer produced and used locally.

“If we’re importing fertilizer because our homemade fertilizer becomes more expensive, then you have extra freight costs on there. But if those freight costs are less than the carbon tax, it will happen. We will be importing fertilizer.”

And this approach could actually add to producers’ carbon footprint instead of reducing it.

Team Alberta, a group representing the four biggest crop commissions, has met with the government to discuss an improved carbon offset system for farmers, as well as other concerns about climate change and carbon tax.

“We want the government to understand that agriculture is actually part of the solution,” said Auch, an active member of the lobby group.

“If you’re going to tax us, reward those who are doing the sequestering (carbon through no till) as well,” he said. “If we’re sequestering more carbon than what we’re using, we shouldn’t be penalized at all. If what you’re trying to achieve is removing carbon from the atmosphere, well, we’re doing that.”

Many producers have adopted these practices because of environmental and economic benefits. But some may need incentives to choose some of the lower carbon practices, and that could be an area where the government could step in and assist, said Auch.

“Incentives for adopting more sustainable and environmentally friendly practices is one example where you could mitigate some of the damage from the tax. But we don’t know the numbers right now. The bigger concern is how this is going to affect our costs before we make a dollar.”

Team Alberta has met with Agriculture Minister Oneil Carlier and Environment Minister Shannon Phillips. One of its requests is a seat for the agriculture industry on two government bodies, Alberta Climate Change and Emissions Management Corporation.

Government response

Carlier’s ministry has moved to help the greenhouse sector, which will receive carbon tax rebates of about 80 per cent on natural gas used for heating. A few months ago, the government also bumped up funding for a Growing Forward 2 program which offers grants to offset part of the cost of upgrades such as more energy-efficient lighting and solar panels for barns.

“What I’m hearing from producers right across the province is to ensure we can find those efficiencies and make sure the system works for everyone,” Carlier said in an interview.

Carlier has said producers will be able to take advantage of programs offered to all Alberta residents, such as programs that will make housing more energy efficient.

“Part of the carbon levy is to incent people a little bit more to find those personal efficiencies,” he said.

All of the money collected from the carbon tax will be going back into Alberta’s economy to try to find efficiencies and to make every industry, including agriculture, ready for a more environmental economy.

“There is a lot of work that producers right across the province and the country have been doing and we’d like to continue working with them to continue the good work they already do,” said Carlier.

The post Province needs to soften the carbon tax blow appeared first on Alberta Farmer Express.

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.

“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.

“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.

“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.

• Read more: B.C. farmers learned to live with a carbon tax

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

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