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Farmer efficiency benefits everyone but the farmer

by Paul Beingessner
Canadian farmer, writer

(Wednesday, Dec. 3, 2003 -- CropChoice guest commentary) -- A recent report from the National Farmers Union discusses what it describes as myths of efficiency and competition. It is sobering reading and well worth the time. Using data derived from Statistics Canada, the study shows that, in contrast to the popularly held notion, farmers are actually the most efficient part of the food chain, and possibly of the economy as a whole. It is an important conclusion, because for almost the last four decades, agriculture policy in Canada has been driven by the notion that farmers, particularly small ones, are inefficient and must either expand or be driven from the business.

Of course, yesterday's large farmer is today's small one, but governments seem able to forget the past faster than an election promise flying out the window. The myth of efficiency (meaning larger size, lower cost of production) as requisite for farm survival has had a remarkable life span for a notion that should have died a violent death years ago.

In supporting its argument that farmers are the most efficient sector of the food chain, the NFU notes that the prices farmers receive for almost all of the commodities they produce have not gone up in 25 years. Prices for inputs, however, have increased exponentially, despite continual mergers and consolidations among these suppliers.

It is an unfortunate truth that, while increasing farm size has allowed some to survive, it has not resulted in increased net farm income. Year after year, decade after decade, average net farm incomes have remained below the poverty line in Canada.

That is not to say, of course, that agriculture does not generate greater revenues that it did 25 or 50 years ago. Farmers have become more and more productive (measured in terms of output) as they have adopted new technologies and higher levels of inputs. The simple fact is that the increase in revenue does not stay in the farmer's pocket. It flows out, quickly, to pay for all those inputs and technologies. As well, farmers now get an increasingly smaller piece of the money that comes from the final link on the chain - the consumer of the products.

The humble pork chop provides a striking example of this. Between 1976 and 2002, the price a farmer received for hogs varied from 50 cents to one dollar a pound (except for the 30 cent a pound meltdown in 1999). The price a consumer paid for a pork chop, however, increased steadily during that period from a low point of about $1.75 a pound to the 2002 price of $4.50 a pound.

It is apparent then, that the efficiencies of the farmer are good for someone, almost every one in fact, except the farmer.

Dr. Daryll Ray of the University of Tennessee makes a similar point about American farmers. He says that farmers do not respond to market signals in the way you would expect from other sectors of the economy. When faced with low prices, farmers do their darndest to produce more to make up for the low price. This, of course, only makes the situation worse. Ray's analysis is mostly true, but farmers do also attempt to diversify when prices fall. The problem is that their remarkable efficiency allows them to overproduce almost any commodity, so agriculture tends to lurch from surplus to surplus.

Daryll Ray points out that these production surpluses in the U.S., driven by the end of compulsory land set-asides, have been a boon to everyone but farmers, and governments, which have had to fill the gap on the farm. Integrated livestock producers, millers and other processors, and importers have benefited from rock bottom prices and agribusiness has thrived on supplying the massive inputs required to fuel this overproduction. As Ray puts it, "The obvious conclusion is that it's the grain users and agribusinesses who are the real beneficiaries of today's government check-writing".

Ray is a proponent of limiting production to improve prices. Most farm groups in Canada have not yet made that leap. The Canadian Agri-Food Trade Alliance (CAFTA) is an example. While not exactly a farm group, since it is heavily composed of agribusinesses, it is headed by farmers.

Ted Menzies, once of the now-defunct Western Canadian Wheat Growers is the president and Neil Janke of the Canadian Cattlemen's Association is vice president. CAFTA's proudly proclaimed motto is "Prosperity Through Trade". According to CAFTA, only trade barriers stand between the good life and us. Now CAFTA may not be so wrong if you think about whom it represents. Increased trade and its sister, increased production, would no doubt be good for CAFTA's agribusiness members, many of whom, like Cargill operate on all continents.

As a panacea, increased trade and increased production have yet to prove of great benefit to farmers. We'll keep trying however, won't we? After all, how else to keep up our newly found reputation as the most efficient of Canadians? And as dumb farmers.

(c) Paul Beingessner (306) 868-4734 phone 868-2009 fax beingessner@sasktel.net