Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 18 - Evidence
OTTAWA, Thursday, June 11, 1998
The Standing Senate Committee on Agriculture and Forestry met this day at 9:02 a.m. to study the present state and future of agriculture in Canada (farm income).
Senator Leonard J. Gustafson (Chairman) in the Chair.
[English]
The Chairman: This morning we are in committee dealing with the present state and future of agriculture in Canada, particularly in the area of farm income. That broadens out into a lot of different areas dealing with subsidies and safety nets and things we might see on the horizon in terms of problems that might arise.
We have as witnesses here this morning Mr. Tom Richardson, Director General of Farm Income Policy Programs; Mr. Jack Gellner, Director of Economic Industry; and Mr. Roger Eyvindson, Director of Policy Development Division, Policy Branch. We are pleased to have you here this morning. Gentlemen, we welcome you.
I understand that you have a presentation first and then we will go to questions from the senators.
Mr. Tom Richardson, Director General, Farm Income Policy and Programs, Policy Branch, Agriculture and Agri-Food Canada: We have a very brief summary of the farm income situation. We also have three or four overheads on farm input prices as that has been an issue in the last couple of years.
There are people here from PFRA, if there is any interest in talking about drought or crop conditions in the Prairies, which has been of some concern. We are also able to talk about safety nets.
There is a detailed book over at the table which contains a lot of information on farm income. Jack Gellner will provide a quick summary of the basic elements of how farm income is measured and information on the current situation, and then Roger Eyvindson will talk about farm inputs.
Mr. Jack Gellner, Director, Economic and Industry Analysis, Policy Branch, Agriculture and Agri-Food Canada: I should like to give a very quick overview of the farm income situation, and I will begin with some definitions so that everyone is clear on the kind of measures used for farm income. We will look very briefly at some recent trends and at the actual number situation for 1997.
First of all, we are looking at definitions that Statistics Canada uses and indicators that they put together on farm income. I think it is important to understand how these relate because there tends to be confusion when people talk about measurement concepts.
The first is a net cash income: market receipts plus direct payments less operating expenses. This basically gives a measure of the cash available to farmers in a given period of time -- cash in the pocket, in effect. It is probably the best indicator of the revenue they have at a given time.
The next measure is called "realized net income," and this is net cash income plus income in kind minus depreciation. Depreciation is a measure to reflect the fact that equipment and machinery gets used up over time and farmers have to replace it. The income in kind is a very insignificant amount and probably does not even have to be considered. This realized net income gives a better measure of the profitability of the sector than the net cash income does, and it accounts for depreciation.
The third measure is called "total net income," and this is just the realized net income plus or minus the value of inventory change. The value of inventory change can be a negative or a positive number, depending on whether farm inventories are built up during the year or sold off. If there is a big sell-off of inventories in a given year there is a negative change; if there is a build-up of inventories on the farm there is a positive change. This is an approximation of an accrual accounting measure and does not really give a good indicator of the health of a sector at any particular time.
Maybe I could pause to answer any questions about these definitions because the subsequent charts will use them.
Senator Rossiter: Do these figures come from Revenue Canada?
Mr. Gellner: The concepts are used by Statistics Canada and the information is from them. They are their estimates.
We will go to the net farm income numbers. This gives net farm income for Canada from 1981 to 1997. The top blue line is the net cash income and is the one which measures cash in pocket for producers.
As you can see, from 1991 through 1997, net cash income had been rising and, in fact, in 1997 was at a record level. It increased by 9 per cent over the 1996 number. The line below it is realized net income and the difference between those two lines is depreciation charges, so from the net cash income you subtract depreciation and you have realized net income. Realized net income increased from 1996 to 1997 even though depreciation charges also increased during that period.
I want to focus on total net income now because, for 1997, there was a significant drop of about 55 per cent. That is because, in 1997, inventories were sold off. The red line shows the value of inventory change. In accounting for all of this production, Statistics Canada measured the inventory change and there was a big negative of inventory change at $1.4 billion. However, those inventories that were sold off appear in cash income. That is why the net cash income number for 1970 was so good; there is a link there.
To summarize, these are the actual numbers for net income for 1996 to 1997. Cash receipts, which are the market receipts plus government payments, increased to a record high level. Gross operating expenses were up by only 1 per cent, which is a relatively small increase in this decade.
Net cash income again had a record level; that is the third line down. Depreciation was up as well, which reflects the fact that farmers have been reinvesting in recent years and purchasing new equipment and machinery. That gives a higher depreciation number.
Realized net income, $3.2 billion, also shows a fairly profitable sector in 1997. This is where I mentioned the big inventory change of minus $1.4 billion, reflecting the fact that during that year farmers sold off inventories. This rose in part because 1996 was a fairly good cash year and farmers had an incentive to move their deliveries into the next year for income tax reasons. There were also some problems with rail car movements in late 1996, which delayed deliveries as well, so there was a build-up of inventories at the beginning of 1997 which were then sold off, producing that negative number. When you subtract that from the realized net income, you get a decline for total net income; however, it is just an accounting measure.
Mr. Richardson: We will be looking at the slides on farm input costs. In 1997, there was only a small increase in farm input prices, although there were increases in the previous years. We should like to focus on what has been happening with farm input prices and on some of the key indicators to which producers pay the most attention.
Mr. Roger Eyvindson, Director, Policy Development Division, Policy Branch, Agriculture and Agri-Food Canada: Input cost is a very important part of the equation for farm income. We will look briefly at the total picture for expenses. Farmers pay out about $2.5 billion in operating expenses, which is a large number. This chart gives the distribution of those operating expenses among the different elements.
The largest single item is commercial feed, an expense which in large part is paid to other farmers because the feed is grown on farms.
Farmers often have concerns regarding the prices, and, in some cases, the availability, of fertilizer, pesticides and energy, so I want to just spend a few minutes talking about the markets for those commodities and how they operate.
There are three basic fertilizer elements -- nitrogen, phosphate and potash -- and they are essentially commodities. There is no differentiation of nitrogen in one market versus another market; therefore, the markets for these commodities operate much like a market for a commodity like grain. In the period from the late 1970s into the early 1980s, there was quite an increase in fertilizer prices. That basically reflected the fact that there was a very high demand for fertilizer in that period, not only in Canada but in North America and in the world in general.
As we got into the 1980s, the demand slackened off but production capacity increased. That meant that fertilizer prices were actually flat through the 1980s right into the early 1990s. In fact, I think the price in Western Canada did not reach the 1981 level until 1994 or 1995. Since then, we have seen an increase which reflects the increase in the demand worldwide.
There is still quite a lot of capacity for potash, but the capacity for nitrogen and phosphate is getting a little tighter, a little more restrictive. We had flat prices through the 1980s into the early 1990s, then we had an increase because of high demand and capacity getting a little tighter.
Fertilizer price indexes are basically comparable for Canada and the United States. There are no restrictions, tariffs or barriers in the movement of fertilizer between Canada and the U.S. In 1997, the Michigan price for urea dropped a little below the Southern Ontario price. Urea is the most important form of nitrogen used in Southern Ontario. If we compare prices between Western Canada and neighbouring states, we find the same pattern; the prices are mostly tracked together.
The pesticide market is quite different from the fertilizer market. Basically, each product is a separate item used for very specific purposes. As a result, the pricing in each market is different. Here we compare Manitoba and North Dakota, and in the material we distributed there are also comparisons of the U.S. and Ontario.
Some of the products we looked at have higher prices in Canada and some have lower prices. In fact, some of the more important products, including Avadex, were less expensive in Manitoba in May 1997, and these patterns are generally the same over time. We have done this study for about four or five years.
Differences depend on the pricing of the company making the product and take into consideration the costs of registration and research and development, the overall size of the market, and what alternative products farmers can use. If there are a limited number of alternatives, companies tend to price a little higher.
With pesticide, there is the question of availability. If there is a small market for the product in Canada, the company may decide not to bother going through the registration process, so that becomes a bit of an issue. That is mainly for minor-use products; however, there are regulations in place to help get those minor-use products into Canada where the companies might be reluctant to go through the full registration process.
The prices differences between Manitoba and North Dakota are comparable to differences between other countries, such as in Europe. For example, prices in France, Germany and Britain are different. Again, this is because of the way the pricing is done. Each market is priced separately. Although there are no tariff barriers, the registration process and patents and so on do restrict the movement of these products between countries.
The third market of special interest to farmers is the energy market, and we have looked briefly at diesel prices. There is detailed information on propane and gasoline in the booklet we have provided. Farmers make up a small part of the market, about 9 per cent of the diesel market and 3 per cent of the gasoline market in Canada. Approximately 5 per cent of gasoline and diesel combined is used in agriculture. The crude price, the refining margins and the marketing margins are all the same whether the product is going into agriculture, transportation, industry or for consumer use in cars or as heating fuel.
Let us compare the average Canadian diesel prices for a consumer and a farmer on December 30, 1997. The crude costs, 17 cents, were the same for both consumer and farmer. There is a federal excise tax of 4 cents per litre paid on all diesel fuel used in Canada, with no rebate to any users. The consumer paid GST, about 3.5 cents, that was not paid by the farmer -- or if it was paid it was fully rebated. The consumer paid a provincial tax of, on average, 15 cents. Farmers are generally exempt from that tax. The retail margin would have been about the same, so where the consumer paid between 54 cents and 55 cents on that day, the farmer paid about 36 cents a litre for diesel.
We have again made a comparison between Ontario and Michigan, showing the prices for diesel at the farm level from 1993 to 1997. There are no restrictions on the import of fuel into Canada from the United States. In Ontario, The price ranged from about 35 cents in 1993 up to about 39 cents in 1997. In Michigan the prices were lower, about 30 cents in 1993 and just under 34 cents in 1997.
The difference between Ontario and Michigan for those years ranged from 4.4 cents in 1994 up to 5.8 cents in 1997. The federal excise tax which is paid on diesel in Canada accounts for 4 cents of that difference. The remainder reflects differences in market costs in Canada relative to Michigan.
Those are the three markets of inputs that farmers are most concerned about. I guess we are ready to get into questions.
The Chairman: With respect to the statistics data for the future, and I understand that these are probably projections, for 1998, are the freight rates in Western Canada and the changes in the Crow taken into consideration?
Mr. Gellner: Yes, the impact of freight changes would be implicit in the receipt numbers to the extent that the higher freights reduce the prices to producers.
The Chairman: I notice that Ontario's income in crop receipts will be up significantly for 1998 -- 3.151 compared to 2.974 -- while Saskatchewan's will be down significantly. How do you account for that?
Mr. Gellner: These forecasts were prepared and released early in 1997. At that time we were expecting some decline in grains and oilseed prices. I think the decline affected Saskatchewan more than Ontario and I think deliveries were expected to be down as well.
The Chairman: Does that take into consideration the increased freight rates that farmers are paying? The President of the Canadian Wheat Board indicated an increase of 139 per cent.
Mr. Gellner: Yes, the impact of the freight rate increases would be reflected in the prices the farmers received.
The Chairman: In these numbers?
Mr. Gellner: It would be reflected in these numbers, yes.
The Chairman: That is a significant difference between Ontario and Saskatchewan.
Mr. Gellner: I do not think the impact of the freight rates would be any different from 1997 to 1998. I am not aware of any increase in freight rates between those two years.
The Chairman: So we can expect next year's figures to be even more serious than what we have here.
Mr. Gellner: When we did these forecasts, we assumed normal yields and we assumed that the impact of the drought would be to reduce yields which could worsen the situation. We considered the global policy environment that existed at the time and we considered the impact on world grain prices of U.S. or EU actions to increase subsidies.
The Chairman: The other day I bought a small can of gasoline for my lawnmower and carried it away. It absolutely scared me, thinking of filling those tractors, because the cost of fuel is unreal. I had approximately three gallons and that was over $7, and I said to myself, "I am carrying two bushels of wheat here." It just does not add up.
I recall Otto Lang saying to me on the airplane one time, "The government is going to have to remove some of this tax from agricultural fuel because tax is a major part of the fuel costs." With respect to continuous cropping, and so on, the question is, "Do you use spray or can you afford the fuel to cultivate?" I raise that as a major consideration for farmers.
Mr. Eyvindson: Two things, Mr. Chairman. The only tax farmers pay on fuel is the federal excise tax of 4 cents per litre, so in terms of cents per litre, the farmers' fuel costs would be considerably less than what you had to pay for the fuel you got for your lawnmower. On December 30, 1997, the difference was roughly 18 cents per litre, and that is all because of the difference in taxes. Farmers do not pay provincial tax or GST on fuel.
The federal excise tax is collected on farm fuel and on fuel used by everyone in Canada. Regardless of what the fuel is used for, everyone pays the 4 cents per litre.
There is another interesting point regarding fuel use in agriculture. We did a survey on the use of energy by farmers in 1981 and again in 1996. Between those two periods, the energy use in agriculture actually declined by 11 per cent. This was due largely to the reduced tillage that farmers are using, which also has other advantages in terms of environmental conditions. But the main point is that there was a lot less fuel used in agriculture, which is one way that farmers have, in fact, reduced their fuel bills.
The Chairman: With the fear of dry weather, which we are having in Saskatchewan and in different parts of the Prairies, farmers are returning to more summer fallow rather than continuous crop. If there is not enough moisture, continuous cropping does not work.
I chaired the task force on drought in Western Canada. The places that had the most severe drought and where farmers were most affected were where they had moved away from summer fallow. In northern Saskatchewan, many of the farmers are talking about one third summer fallow and reversing that to an extent at least. For what it is worth, I think we will face some major changes if the dry weather continues.
Senator Fairbairn: I should like to follow our Chairman's interest in Saskatchewan by asking you to take me through the projected figures for 1998 for Alberta. You note that, in 1997, net cash income and realized net income were up in all but four provinces including Alberta. From the 1998 figures, on page 16, it looks as though we continue downward, and I just wondered if you could give me a picture of why.
Mr. Gellner: I think the factors affecting Alberta would be pretty much the same as those affecting Saskatchewan, in the sense that when these forecasts were prepared there was some expectation that prices for grains and oilseeds would soften globally and deliveries that were quite high in 1997 would fall off in 1998. I think one has to remember that, in terms of 1997 and recent years.
Senator Fairbairn: Is that strictly grain that you are talking about?
Mr. Gellner: Yes; livestock receipts tend to keep up, so the impact is basically through grains and oilseeds.
Senator Spivak: I should like to explore the relationship between decreased commodity prices and increased fertilizer and pesticide prices. Do you have an economic explanation for why this continues to happen? How concentrated is the industry in fertilizer and pesticide? Is this a very competitive industry?
Mr. Eyvindson: The fertilizer prices change with demand and with the capacity of the industry. It is true that when grain prices go up the demand generally strengthens, and that is an opportunity. At close to capacity, there will be increases in fertilizer prices.
The increase in the late 1990s was the result of an increase in demand when the capacity of the industry had been reached. It takes a long time to expand the capacity. A fertilizer plant is a major undertaking. For instance, a $450 million plant was built in Saskatchewan a few years ago. It is a concentrated industry and in the past years has become more concentrated.
Senator Spivak: You are talking now about fertilizer, not pesticides.
Mr. Eyvindson: Yes, I will talk about fertilizer first and then pesticides. It is a very concentrated industry. I think there are probably four or five major companies in North America in the fertilizer business. It depends on the particular commodity as well. Potash, although it is not a concern in Western Canada because there is no need for it, is quite concentrated, with the potash corporations in Saskatchewan being a major player in that market.
The pesticide market is also concentrated. There is a tendency to increase the prices of commodities which farmers really need and for which there are no substitutes. Unlike fertilizer, which is made of nitrogen no matter who supplies it, patented pesticides may not be readily substitutable. A farmer either uses a specific pesticide or suffers the consequences of the pest that is affecting the crop.
Pesticide pricing is different than fertilizer pricing. It is demand driven, although it allows markets to be segregated. A company can look at a particular market, look at how badly farmers need that product in that market, and price accordingly. There are differences across international boundaries because of the restrictions in pesticide movement which are due, not so much to tariffs or import barriers, but simply to the registration process. Every country has its own rules and regulations on the use of pesticides because they are dangerous chemicals, and governments want to be sure that the effects are not deleterious to the general population or the environment.
The pesticide market is different from the fertilizer market. I am not sure of the number, but there are certainly fewer than 10 major manufacturers of pesticides in the world, so when a pesticide is very effective and is patented for a long period of time, that company has a considerable advantage.
It is not just in chemicals and fertilizers that there is a concentration. I learned just two weeks ago, from an employee of Shaver Poultry Breeding Farms Limited, that there are only three poultry breeders left in the world. These three conglomerates provide all of the laying hens and broiler chickens that supply the industry.
Senator Spivak: That is why we are not getting the variety that we used to get.
Mr. Eyvindson: Right.
Senator Spivak: We saw a figure somewhere which indicated that farm income, net income, I think, really has not increased since 1971. I do not know whether that is accurate. The gross income has increased a great deal, but not the net income. This is what puzzles me. Obviously, there is no policy to regulate prices or to look at total input costs. There are input costs other than fertilizer and these ones we have heard mentioned. There is storage, and so forth. Is the profit picture of some of these other input costs transparent? Regardless of how demand varies over time, in general, the producers are not getting any further ahead and their profit picture is not there. There is something not right here.
The Chairman: Senator Spivak, I think that number came from the total investment that farmers have in their farm, machinery and all, and the return was, I think, less than 3 per cent.
Senator Spivak: Yes, and that has not changed since 1971.
The Chairman: In fact, it is going the other way.
Senator Spivak: It is the same thing. Nobody in these companies would think of that as a return; they would not even consider it.
What is your answer to that?
Mr. Gellner: First of all, the numbers that I presented provide the income for the sector; they are aggregated numbers. During this period, there has been a significant decline in the numbers of farm, so the aggregate amount is divided up among fewer people. As I said, in recent years the net cash income has been increasing. Certainly in 1996 and 1997 it increased.
Senator Spivak: So how do you account for that figure of 3-per-cent return not changing?
Mr. Gellner: I am not sure what the figure is.
Senator Spivak: We could get it for you; we have received that.
The Chairman: I think the researcher can get it for us. The latest figure you had was 1995, I believe.
Mr. Gellner: Without knowing what this 3-per-cent number is, it is difficult to respond. Perhaps we can get some clarification and subsequently we could provide a response.
Senator Spivak: There is still a great discrepancy between what the producer earns and what all the people who supply the producer and who are make their profits from the producer earn. This discrepancy has puzzled me from the beginning. It strikes me, although I do not know for sure, that it is probably more in this industry than in other industries.
Mr. Gellner: In the deck that we circulated prior to this session, there is, on page 30, a chart that shows real income levels of rural, farm and urban families in 1985 and 1995, and there does not appear to be a major discrepancy. That provides a little bit of information about the relative levels of family incomes.
Senator Spivak: That is one indicator, but that is just rural income relative to urban income, and we know that there are lots of poor people in the urban centres. There are different reasons for that distribution of income. That is not my question. My question is: Within this agricultural industry, is there a fair share of return for all the players involved? How do you gauge that? What is your opinion about that? It is fine to say the industry is or is not concentrated, but what is government policy with respect to this sort of picture which does not appear, in the view of many observers, I think, to be exactly a fair one?
Mr. Eyvindson: It is a very difficult question to deal with. In I think the mid-1990s, we looked at returns to agriculture, including the current net income and the appreciation of land values, basically the capital gains that the farmers had made. We looked over a fairly long period of time, probably back to the early 1970s, although I cannot remember the exact period. We compared those returns from agriculture to the returns that one might have received form investing in the stock market with a basket that was the TSE 300. We added in the capital gains and the dividend income which would have been received that way. We discovered that, in fact, for that period, a person was better off investing in farm land and operating a farm business. Farming got a higher return, which is interesting. Farmers make decisions about investment based on whether they feel that the return they can make in that investment is satisfactory. It is a hard decision. Everyone would like to get more, and I think in particular situations farmers have been disadvantaged in terms of the returns they have received. However, in other periods they have done quite well. It is a very difficult question to say what would be the right return for agriculture.
Senator Spivak: In Manitoba, apparently, according to the latest news reports, farm income has dropped quite sharply. Are there policies in place to cushion farmers in that event?
I just want to say that we also heard this in Western Canada. Farmers were complaining that they are not doing well; they are barely making a living. It is difficult to hear that information and to have it jive with what you have just said. I take it your information is accurate, but, on observation, there seems to be a discrepancy.
Are you aware of this with respect to Manitoba, which was particularly hard hit because of the severe increase in transportation costs?
Mr. Gellner: Regarding this report about Manitoba's total net income dropping, you have to remember the distinction between total net income and net cash income. Clearly the total net income did decline substantially because of the drawdown in inventories.
Senator Spivak: Is it not as bad as it appears?
Mr. Gellner: No. Focusing on that number, I think, can give a somewhat misleading picture.
The Chairman: I do think that it is important for those of us from the grass roots to communicate to the Department of Agriculture that farmers are telling us that they are finding it increasingly hard, and they are looking at the year ahead of them and they are not terribly impressed with what they are seeing. There are some very dark storm clouds out there.
There was a lot of optimism, as you indicated, in the past three years or so. However, in the face of what we are finding today -- grain prices falling to the extent that they are, the increased price of operation not moving much, and the fact that we may face a drought -- we might question whether there are significant safety nets for the future. I do not want to be a pessimist, but I think it is important that the Department of Agriculture look at the whole area of safety nets and where we are heading.
Mr. Richardson: Mr. Chairman, I should like to talk a bit about the net income stabilization account, which is one of our key safety nets. You are from Manitoba, so I should like to mention that this program was conceived of by two Manitoba farmers, and in particular Bob Hopley, who had a lot to do with designing the way this program operates.
In response to the Chairman's comment, we all are very much aware that commodity prices cycle in agriculture. The last three or four years in the grain industry have been probably the best on record, but inevitably prices cycle downwards for a period of time.
The net income stabilization account was introduced in 1991, and it is a very simple program. If a producer sets aside in a bank account 3 per cent of gross revenues, the federal and provincial governments will match that amount of money. There is a cap on that program, so it is not completely open ended for very large farms.
The program is administered in Winnipeg. At the same time that farmers file their farm income tax returns they can file for the NISA program, so it is a very efficient program to administer, and quite easy to do.
We have 132,000 farmers in the program, and as of last year they had almost $2.5 billion saved in their bank accounts. That is an important point about this program, and it is something that the farmers who designed it thought was important. They wanted a program where the farmers had control of the money.
In the Prairies, where I believe people have concerns about prices and crop yields, especially at this time of the year, we have about $2 billion in NISA accounts. In Saskatchewan, there are about 55,000 people in the program; in Manitoba, about 18,000 people; and in Alberta, 25,000 people. Farmers are putting money in their NISA accounts right now because their tax returns are being processed right now, so we anticipate that over the next month or two there will be probably $400 million saved in Prairie agriculture. In July we will likely have around $2.4 billion or $2.5 billion in bank accounts for prairie farmers.
That sounds like a lot of money. Is it? How much protection does that provide? How much would $2.5 billion do for Prairie farmers? I find the following measure useful. I asked my staff last week, "What was the average value of prairie grains, oilseeds and forages for the last five years?" The average, I believe, was about $7.5 billion; in other words, for the last three or four years, the value of the crops grown in the Prairies was around $7.5 billion.
Farmers have saved, or will have saved by July, about $2.5 billion, so my feeling is that, grosso modo, there is a fair amount of protection there. In other words, you can have a fair amount of fluctuation in those prices. That is not to say that every farmer is in a good position, because those NISA accounts vary. Farmers have saved money each year since 1991, so every situation is different. I know how much is in the average NISA account of the average farmer. Some have saved more, some less, depending on the size of the farm. Our feeling is that, from a macro point of view, with $2.5 billion saved in bank accounts and with a $7.5 billion crop, this year we can stand some price softening on the grain side.
Regarding drought I will throw out one other number. Crop insurance participation in the Prairies historically has been around 55 per cent to 60 per cent of acres covered. I believe that for 1998 there is about $3.5 billion in crop insurance coverage.
If you look at the total coverage, you will see that Saskatchewan is up at almost $1.7 million, $1.8 million. Manitoba is around $800 million and Alberta is around the same. When you add up the crop insurance protection we are looking at about $3.5 billion of insurance on a crop of $7.5 billion, which is a little under half.
We already know that the forage crop has been severely affected by the drought in many parts of Saskatchewan, and I was just talking to the Chairman about that. Unfortunately, the forage crop insurance program in Saskatchewan is not as good as the one in Manitoba, so there will be some losses there for sure. We are not sure how extensive they will be.
There have been a number of significant improvements in the grain crop insurance program in the Prairies. It is now a two-tier program with a basic 50-per-cent or 60-per-cent coverage. The governments cover the premiums, so it is free to the farmer except for an administrative charge. Then the farmer can buy usually up to 70 per cent or 80 per cent. Drought is never a good thing, but with at least that $3.5 billion in coverage, there is a certain amount of insurance there.
No one ever likes to see low prices, drought or frost, but our sense is that with $2.5 billion in NISA accounts and $3.5 billion in crop insurance coverage, we can withstand a certain amount of low prices or drought for this year.
I guess one of the things that is very unsettling for people is the threat that the Europeans or the United States would up the ante on grain subsidies. As you are probably aware, the minister did meet with France officially last week and he did raise that question a number of times. This is a concern and it makes people very nervous when they see some of these EEP things come in. We are monitoring that very carefully and the minister is certainly working very hard to pressure the U.S. and the Europeans not to up the ante on that. Nonetheless, we do feel that we have pretty good coverage at this point.
The Chairman: Regarding the safety nets, particularly the NISA program, there are two complaints that come through consistently. One is that younger farmers, who are most in need, do not have the cash to access the program. That is the biggest complaint I hear. The second one is that there is not enough flexibility in the process for getting into the NISA program when there is a severe drought. Farmers have to wait out a period of time, possibly a year, show their next income tax form and show what they have lost before they can access it. I read in the Western Producer that there is some consideration about changing that. Can you fill us in on that?
Mr. Richardson: Mr. Chairman, our safety net advisory committee has looked at the matter of beginning farmers a number of times. I do not have the data here; perhaps we could come back to the committee with the information on that.
We have done some survey work to look at participation by younger farmers, relative to middle-aged or older farmers. We were surprised because the participation by younger farmers was a lot higher than everyone had thought. In fact, the participation by younger farmers is quite good. The whole question of inter-generational transfers and how beginning farmers start and how the farm gets passed on from the older generation is one that is a constant topic of discussion. I do not think one should assume that beginning farmers necessarily do not have protection, even though those farmers may be in a situation where the first call on their money is building up assets and so they do not have money for NISA. They may also be in a situation where they are taking on a farm from the parents or the grandparents. Nonetheless, we will provide that information to you.
With respect to the question of getting money out of the NISA program in the right year, at last year's federal-provincial ministers' meeting, the ministers agreed with the farm community that an interim withdrawal mechanism was needed. As of last week, that mechanism is in place, and we are sending a notice out to all the farmers telling them about that.
As you mentioned, Mr. Chairman, it used to be that farmers had to wait until the following year when they filed their income tax return to get money out. Now we have a mechanism whereby the farmers can go to the NISA administration and say, "Look, we forecast that this will be a bad year," and they will be able to get out money that is in their accounts in the year when they need it. This also addresses the concern that one's tax position might change if the money arrives a year later.
Senator Fairbairn: First of all, following partially on Senator Gustafson's question on crop insurance, could you give us statistics or a profile indicating the degree to which farmers across the Prairies currently are buying into crop insurance?
Mr. Richardson: We have provided participation rates of both crop insurance and NISA. The dark bar is crop insurance participation, and the lighter one is NISA participation. In the Prairies, simply because of the more variable production conditions, participation is higher than in the other provinces. The peak is in Manitoba where it is close to 70 per cent. It is a little less in Saskatchewan and Alberta at around 50 per cent. That number has not changed much in 20 or 30 years.
Senator Fairbairn: Why is that? Is it lack of information?
Mr. Richardson: We have done surveys and we would be happy to make them available to you. You hear a lot of reasons. The reason sometimes given is: "It is too expensive." That is a judgment call.
Senator Fairbairn: It is a question of priorities.
Mr. Richardson: If I provide you with a 50-per-cent or a 60-per-cent subsidy in crop insurance, and then you say it is too expensive, what you are probably saying is: "When I evaluate the risk on my farm I will do something different." We do not have a breakdown of farmers' participation. It certainly depends on the area of the Prairies you are considering. People will buy hail insurance if they happen to be in an area where hail is common. If they are farming light brown or dark brown soil, participation is higher.
Sometimes in both large and small farms, the decision is made to cover the risk in another way. People I know who work for provincial agriculture departments have an off-farm job which is their main source of income. Some of them will not bother with crop insurance. A lot of people have small farms, so participation rates can vary by size of farm and type of farm. If a farm is a mixed farm, say, a hog or cattle operation, the farmer may take the risk.
It is something we review fairly constantly with the provinces. One of the reasons for bringing in the two-tier program was to try to deal with this problem. We call the bottom tier the 50-per-cent tier, the "disaster tier" or the "catastrophic tier." I believe participation at that level is a lot higher than 50 per cent. Generally, we have 70 per cent or 80 per cent participation in the bottom tier.
For people who did not want to buy 70 per cent or 80 per cent crop insurance, the idea was to split it into two tiers, so we decided they could get the bottom tier for free. Of course, there is usually an administration fee. By doing that, at least a higher percentage of people have basic coverage. However, 50-per-cent crop insurance does not do lot of good if that is all you have. That may not be the smartest thing to do. With the restructuring we have a higher percentage of people with some coverage.
The question of whether the program should be voluntary or not is another topic. It becomes a challenge because in the past, when there have been back-to-back droughts, you start fielding questions such as: "Did you have to be in the program?" There are ad hoc pressures. That is a topic the administration has become very concerned about, because when governments introduce ad hoc programs, what is the incentive or reward for people who buy crop insurance?
I should mention as well the participation in NISA. You will see that the Prairie participation in this program is very high, at around 80 per cent. Some farmers are trying to build up their NISA account. For some of the larger farms in the Prairies, the average would be $40,000. Some grain farmers with sales over $100,000, and maybe even $125,000 or $150,000, have said, "If I can get my NISA account built up I may buy less crop insurance." They are making a choice about where to put their money. In some situations, people have made that choice.
Senator Fairbairn: Earlier a point was made about the significant decline in the number of farms in Canada. Looking at the average family income per farm, small and large, is that decline still on a sharp downward mode, and who is benefiting from this, if I can even use the word "benefiting"? Are small farms being bought by larger farms or are farm corporations buying up farmland for the feed lots that are springing up all over the place in Western Canada, especially in my area? Can you give me a snapshot of what is ahead?
The percentage of off-farm income, even in big farms, is significant and worrisome.
Mr. Eyvindson: The number of farms has been declining since 1941. In the 1941 census the number had peaked. The decline in recent years has been slower than it was during much of that period. It has tapered off to some extent. However, the number of very small farms, those with a gross of less that $50,000, continues to decline. In fact, the biggest decline is in those with a gross of less than $25,000. They are very small operations.
Adjusting for the change in the value of the dollar, the number of farms with sales over $100,000 has been increasing in the last five to 10 years. We probably have a few more of what you might term "commercial" farms than we did 10 years ago. Most affected are the very small farms that generally were part-time operations. In fact, they had to be. Even with very low costs, you cannot expect to live on a gross of $25,000. It is true that all farms have off-farm income, but for the larger farms it is a smaller part of the total income, and it is investment income.
There are often two spouses on the farm, so the spouse's income is included in that. Usually, in that case, the farm operator is taking on two jobs. The small farmer runs the operator of the farm, and has either a part-time or, often, a full-time job of some other kind. That is a decision they have made. They like the lifestyle of the farm, but at the same time they are not into a full-time operation.
Senator Fairbairn: They are not relying on it.
Mr. Gellner: I presume you are looking at page 28.
Senator Fairbairn: Yes.
Mr. Gellner: We can provide some details of what makes up those blocks, if you are interested.
Clearly, for the small farms a large chunk of the off-farm income is employment income; whereas the larger farms tend to have a higher proportion of investment in terms of off-farm income.
The other point I wanted to make is that this situation is not new. Off-farm family incomes have always been a significant part of farm family incomes.
Senator Chalifoux: In the Peace River country of Alberta, there has been a trend for many years of large foreign conglomerates buying up farmland. Has your department done any surveys or any investigation into that? The concern of many farmers in that area, and also in the area around Westlock, in North Central Alberta, is that this seems to be continuing. I have no figures on this, but this has been a concern of many farmers in that area. Has your department done investigation into this, especially as it relates to foreign ownership?
Mr. Eyvindson: I cannot speak about the Peace River district but we can get information on that. The census of agriculture, which is carried out every five years, is directed, basically, to the organization of the farm business. We do know that, for Canada as a whole, over 95 per cent of the farms are family owned although they may be owned through a corporation. The number of corporations has been increasing, but they are still family corporations. A relatively small percentage of the operations are owned by non-family corporations. We can get data specific to the Peace River area, but I do not have it with me, and I have not looked at it.
Mr. Richardson: We will ask Statistics Canada to provide that information and we will provide that to the committee. What you want to know is not just the number of farms, but the percentage of the production or the acreage in the area that would be allocated between those. We will undertake to provide that.
Senator Fairbairn: As the shift continues in farmland, where is it going? Do you have any way of measuring that?
Mr. Richardson: There is information on rented land and how it is moved around. I believe 30 per cent or 40 per cent of all farmland in Canada is rented, so many larger farms do not own the land, they rent it. The ownership may be spread out but, in effect, those people have decided to own the land because they think it is a good investment, it is their family heritage, or for other reasons. Yet, the larger farms find it profitable to rent that land. It is one way to get at your question.
Mr. Gellner: The census does provide information on rented land, so we can get some information on trends.
Mr. Richardson: Particularly in Alberta, especially when you include Crown land for grazing, a very large percentage is rented.
Senator Fairbairn: Do you have statistics relating to the degree to which aboriginal farm land is rented?
Mr. Richardson: I would have to check that.
Senator Fairbairn: I am from the heart of the Treaty 7 area, and I know a great deal of effort is being made to develop agricultural business and to encourage the maximum use of irrigation. At the same time, a lot of land in my area is leased or rented.
Senator Spivak: It might be interesting to look at changes as well between grain farms, hog operations, and cattle feedlots.
Senator Rossiter: It seems that Agriculture Canada is only concerned with western agriculture, that the rest of the country is not included. Are the same trends applicable to Atlantic Canada?
Mr. Gellner: In terms of some of the structural changes that are occurring you would see the same kind of tendencies towards larger farms and fewer smaller farms. In particular, with middle-sized farms there tends to be more of a polarization in the structure.
Senator Rossiter: In my province the rural population is certainly declining.
Mr. Richardson: In the potato industry in Atlantic Canada you are definitely seeing much larger operations, particularly on the island, but also in New Brunswick. In New Brunswick some new, large hog operations have been built, just as they have been in Manitoba, Alberta and Saskatchewan.
In every census, every looks for a trend to assess whether the middle-size farms are disappearing because there is the idea that we will end up with corporate farms, a bunch of very small farms, and nothing in the middle. We have never really seen that trend. There is an increased number of quite large commercial farms but, overall, there is still a balance between the three sizes.
Senator Rossiter: We have land ownership rules on Prince Edward Island to prevent the island from being totally bought up.
The Chairman: We have just passed Bill C-4.
Ontario and Quebec are the only two provinces that are projected to show increases in 1998. Is that because Ontario will have access to the American market and the Prairies will not? The numbers are significant. The Maritimes and the Prairies are projected to make less money, but Ontario and Quebec will make more money. What is the reason for that?
Mr. Gellner: You must remember that the composition of agriculture production is different. For example in Quebec, and perhaps to a lesser extent, Ontario, you have a large concentration of supply-managed production, and you do not tend to see fluctuations in those sectors as you would in the grains and oilseed sectors. That is probably one important factor. As well, horticulture tends to be concentrated in Ontario and Quebec.
The Chairman: The important factor seems to be that, at a time when agriculture is going down in every province, it is going up in Ontario. Ontario farmers tell me that things are going quite well. Is it the relative location to the market and the freight rates?
Mr. Richardson: This may be partly opinion and partly fact, but I think, certainly in Ontario, climate is a consideration. A co-op student from the University of Guelph stayed at my place a few years ago, and he now works for the Toronto-Dominion Bank, in Leamington, in Southern Ontario. I forget how many millions of dollars they have invested in new greenhouse production in Leamington but, as you probably know, Mr. Chairman, that production goes all over the United States and Canada, including the eastern seaboard. There is diversification in Ontario and Quebec, and access to markets. They have chose some alternatives that, perhaps are not available in other parts of the country.
As to the Prairies, we have some investment numbers on hog operations and to some extent cattle operations. I do not think we have seen the consequences of the change in the CROW yet. In the Prairies, when grain prices switch, we still see a major impact because export grain is still and will always be a significant part of the Prairie agriculture economy. However, as hog production in Manitoba, Saskatchewan, Alberta continues to increase, and as it makes more sense to process grain either for livestock or for alternative uses of the grain, it may well be that five years or 10 years from now you may see more a stable income pattern in the Prairies because of the diversification.
It is fair to say that the consequences of the Crow are apparent in terms of investment changes, but they may not yet be apparent in terms of stabilizing farm income in a macro sense.
Mr. Eyvindson: I think Tom's point that the adjustment, which is a major adjustment that has happened very quickly and to an extent we have never seen before, is still in process and it will not show up yet in the farm-income numbers.
The Chairman: For quite some time, I have been interested in the area feedlot operations and feeding cattle. I have been told that they will lose anywhere from $10 to $100 on every head of cattle that is being fed right now. With the change in the rates, and so on, you would have thought this would be a boom period, but it is not.
Mr. Richardson: The question to ask is whether these people have hedged their cattle in the future or the options market. We are seeing more activity in futures and options instruments this year. We have been doing some work with the Ontario Wheat Board. They now have a forward contract. They are actually hedging their pool.
As you probably know, some of the hog marketing boards have put in forward contracts that are hedged in the market. We have done some survey work on that and, if you are interested, we can make it our findings available to you. Some of these instruments can help stabilize fluctuations in the market. Some producers are ready to use them, others are not. We have offering some assistance by way of training in that area. Those mechanisms can help deal with fluctuations that occur within a short period of time. They do not deal with subsidy awards, but they can deal with market fluctuations. Whenever people in a feedlot tell me they are losing money, the first question I ask is: "What kind of option or future contract do you have? " Sometimes they have them; sometimes they do not. Sometimes they have chosen to go another way, but there are more instruments available for dealing with that kind of problem.
The Chairman: I have been a part of that, and it seems to me that every time I was involved, I failed to make the income that the other fellow made.
Mr. Richardson: You were not speculating, were you?
The Chairman: I hear the same thing from people who have been in it for years. It appears that there is a lot of control exercised at the top end by big companies and big processing companies. The smaller operator who is dealing with a few hundred head is not really on the "in". He often takes it on the chin.
Mr. Richardson: That is a fair point. I think that, for some of the medium or smaller cattle operators with, say, cow calf operations, from time to time, if prices are favourable, they may feed the cattle. For some of those operations, trying to use a sophisticated options or futures instrument may not make sense. The Sask Pool does provide minimum price-forward contracts for canola and, I believe, for cattle. Many of the cattle processing plants in Canada do not provide that kind of instrument. It is desirable to have that because it is a lot easier for a producer to have all paper work done by a processing company. In the case of the Sask Pool, they do that for canola. You can forward contract. In some markets the mechanisms are not yet as easy to use for middle or smaller operators as everyone would like.
Senator Spivak: What does a "forward contract" mean? If you think that the price of canola is dropping, you lock in a price that you will sell it at a certain date, is that right?
Mr. Eyvindson: A "forward contract" usually means that you enter into a contract with a grain company or a processor, and the undertaking is to deliver grain or cattle at a certain date at a fixed price. If it is satisfactory to both sides, they will do that.
Senator Spivak: Not everyone assesses the future in the same way.
Mr. Eyvindson: That is right. We operated a program called the "Cattle Options Pilot Project" under which you could buy an option, which means that you would have the right to sell your cattle at a minimum price, but not the obligation to do so. Let us say you bought an option for $80 a 100. If, when you came to sell, the price was $60 a 100, you would still get $80 a 100. If the price was $90 a 100, then you would benefit from that increase. The problem in Canada is that not only do have the price risk, but you also have the currency exchange fluctuations. The only market is the United States. We developed a product that allowed producers to buy an option in Canadian dollars and we hired a company to do the hedging between the two. We had very low take up, and a lot of effort went into trying to get producers interested in it, but basically we could did not get the interest. There were many reasons why they did not want to do it. Often they would tell us that they did not want to lock in a loss. They were not really locking in a loss because, if the price went up, they could benefit.
Farmers are always optimistic, they think that things will get better and hope that things will get better, so they do not like to lock in, they like to be able to take advantage of whatever positive things happen in the future.
The Chairman: An example of that is in the canola crop. You can lock in at Weyburn for $8.08, but the price of canola today is $9.25. If there is a poor crop, you might lose $2 a bushel by locking in. Alternatively, if it goes to $6, you will have made a profit.
Senator Spivak: It is gambling. Given all the disincentives to growing grain, given the surpluses, which are the lowest ever, and given that grain inventories around the world are not high, are you not concerned about food security? The Department of Agriculture makes forecasts. Do you have a concern that we will have too many cattle and not enough grain?
Mr. Eyvindson: It is true that worldwide inventories have been declining.
Senator Spivak: I believe they are down to 30 days or 60 days, or something like that.
Mr. Eyvindson: I do not know the exact number, but it is quite low.
It does mean that you can have a lot more volatility in the market, so the prices will jump around more. In terms of food security in Canada, because we have such a large grain industry relative to the population, there is no immediate concern in respect of feeding our own population. It is more likely that there will be much more volatility in prices and that would have some impact on food costs, but it would be relatively small.
However, in global terms, it is an issue.
Senator Spivak: I do not think it is easy to switch back. If a person goes out of the grain farm business, he cannot go back the next year. You can go from one crop to another but, if you change your operation from grain farming to hog producing, you will not go back.
Mr. Eyvindson: Once you have made a big investment in a hog operation feedlot, it is more difficult to go back.
Mr. Gellner: Historically we have seen cycles in livestock production. Cattle cycles have tended to be much longer and hog cycles shorter, but more recently, with the structural changes in the hog industry, the cycles are less pronounced because people are making major investments. They are getting into production and staying in.
The Chairman: On that point, do you think there has been a significant change in the last 15 years? I can recall when in the Prairies, especially in the U.S., row after row of granaries was built by the government of the U.S., and filled. They were an insurance against a failure in food production. Canada had a similar program. However, we have moved away from that and we sell everything in the year it is produced. My own opinion of that is that it has not worked out to the benefit of the farmer. It has worked out to the benefit of the grain companies because they have made record profits, as we can see from their financial statements.
Representatives of the World Bank appeared before our committee to talk about world food supplies. A few years ago I prepared a paper entitled: "Food: A Priority". However, I must say that it really is not. In countries like Canada, we take it for granted. Producers in North America have decided that, in light of the global economy, and because everything can be transported quickly, we do not need an extra supply. When we are confronted with a drought we question whether the Old Testament prophecies of Joseph -- seven good years and seven lean years -- did not have some validity.
Senator Fairbairn: We talk about the new global marketing, but countries in Africa and elsewhere are experiencing devastating droughts. That is why there is concern over the very low level of world food supply.
The Chairman: Perhaps we could turn to the trade situation and the trade wars that might be looming. The Minister of Agriculture from the European Community testified before our committee last week, and there are some indicators coming from the U.S. that that might happen. How does Agriculture Canada view this issue?
Mr. Gellner: It is a real uncertainty, and we certainly cannot predict what the Americans and the Europeans will do. If they do start subsidizing heavily, that could have an impact on grain prices, in particular globally, and that will have a negative impact on us. However, it is impossible to say what will happen.
The Chairman: Have we had any assurance from the Europeans that they will not go in that direction?
Mr. Richardson: I know the minister had some private conversations after the meetings here in Ottawa. The delegation visited the minister's home riding. I am sure you saw the public statement. The Europeans are saying that, within the reduction and export subsidies allowed, they are within their right to do that. That is not a very encouraging statement.
One of Jack's colleagues is taking a closer look at how an EEP by the U.S. affects us. We have not completed that work. However, the EEP is quite complicated because it is used only in certain markets. Of course it depends on how it is done, but a lot of our grain does go to markets where, in the past, the U.S. has not applied an EEP, so not all our grain is going into a market where the Americans might undercut the Wheat Board or the grain companies. We will be completing our work in this area over the next period of time and, when we have, we will be glad to assist you in any way we can. It is a complicated subject.
Our sense is that it is a situation where, perhaps, the perception is worse than the reality. The minister has pushed very hard on this, as it is one of the critical items on which we are consulting with the industry for the next trade round. It is a major concern of producers. For the next trade round, considering the export subsidies by the Europeans and the Americans, it is a high priority.
In the short term, one needs to continue to push on the Americans and Europeans, not to distort markets. The date the work will be done is not readily known.
Senator Fairbairn: On this particular subject of trade and the Americans, and to move to another commodity dear to my heart, the production of sugar beets, we have had an incredible amount of investment in Southern Alberta, and there are intentions of greater production and higher sugar levels. I would take some comfort in knowing that we have a policy of pushing as hard as we can for increased export opportunities with the United States on sugar and sugar-containing products because, in the mid 1980s, the industry, for all intents and purposes, was shut down in Alberta. We lost Manitoba for other reasons. It is significant, maybe not to the nation as a whole, but to one part of the nation. I would hope that our farmers, our producers and the companies can still take some comfort in the notion that Canada is not in the business of trading off sectors of agriculture, one against the other, in these negotiations.
Mr. Richardson: I am not a trade expert, but your last point is a constant issue in that, when one moves into a trade negotiation, one does not trade out of either sectors within agriculture or sectors across the economy. Certainly, with sugar, because of U.S. quotas and whatever, this is one item that, presumably, we will see in the next round.
Senator Fairbairn: I hope that the negotiators and the ministers keep their spines strong on this one.
The Chairman: I have one more question which relates to a very important part of agriculture, not only in the Prairies, but also right across Canada. I am referring to the machine dealers who, at least in the Prairies, are quite loaded down with used machinery that they are unable to sell. The same situation applies to machinery being sold at auction sales. I have attended two or three auction sales, some very good machinery has been bought inexpensively and that, of course, is good for the purchaser.
However, it is a strong indicator that farmers are very concerned about the future. They have stepped back on input costs. They are just not spending money. I talked to one machine dealer who had about 35 combines on his lot and he told me that they had devaluated by at least $20,000 each which is a significant amount of money. That type of behaviour has always been a leading indicator on what is happening in farming. Some small factories in Saskatoon, which build air seeders and so on have shut down. They have laid off as many as 150 men. That is a strong indicator of what is happening on the Prairies. As your graph shows, there was a lot of buying and there was a lot of optimism, but I think the atmosphere is different now.
Mr. Richardson: It is cyclical, depending on the state of current income.
The situation regarding used machinery varies across the country. I know it does around Ottawa. Because of the exchange rate with the U.S., there are people who make more money buying used machinery and selling it in the U.S. market. There is a very strong demand.
The Chairman: The value of Canadian dollar would be a consideration.
Mr. Richardson: People make money on that. They buy new equipment and they can sell older equipment and get a very good price. That may just be a local phenomenon for Eastern Canada, I am not sure about that, but Roger could, perhaps, could comment on this.
Mr. Eyvindson: We have two charts in that regard, the first of which shows the sales of total tractors, which is the solid line, and then four wheel drive tractors, which is the bottom line on the graph. In the middle you see the statistics for self-propelled combines.
Throughout the 1990s, sales have been strong. They have been increasing, and that reflects a relatively good period for farmers in those years. We do not have the figures for 1998, but I would expect, and Senator Gustafson has pointed this out, that they are down for 1998 because it is a much less favourable situation this year.
We have a chart on capital formation which indicates the situation over a longer period, back to 1986. The solid top line represents machinery and equipment. You will see that it declined fairly steadily to 1991. There were droughts in that period and there were market problems, trade wars and so on, and farmers cut back in periods of difficulty. However, it went up again as is illustrated on the previous graph. As we get into a more difficult period, it will drop off again, which is what we are seeing in 1998. The machinery market tends to be, as agricultural markets, quite cyclical; farmers buy when they have extra cash and hold back when they do not.
The Chairman: It is quite significant now that interests rates are reasonably low. I think that is a very strong indicator of the lack of optimism.
Mr. Gellner: We prepare medium-term forecasts which extend to five years, and although they are showing a downturn in 1998, the expectation is that grain prices will increase subsequently, so there is some optimism.
Senator Spivak: Why?
Mr. Gellner: Because of global demand conditions.
The Chairman: Being from the land, I believe that everything comes from the land, and that even our major cities have to depend on the land. I believe it was Sir Samuel Leonard Tilley who said, "Destroy the farms and grass will grow on the streets of every city in the nation." It is a slow process waiting for governments, worldwide, to wake up to the reality that, if you do not have a strong agricultural base, you will miss out on something that is very important to the global economy, As a farmer, with a farmer's heart, I have often wondered if anyone has really grasped that reality. Can you comment on what I know is a pretty broad statement?
Mr. Richardson: Senator, I would offer just one comment. We were talking earlier about the whole agri-food system. I think there is a lot of optimism out there although, when I was in Saskatoon about a month ago speaking to the chairman of the Agricultural Faculty, he was not very optimistic that day because one of his professors, and bright and quite capable young man, had taken a job with a chemical company. However, he also told me that many graduates in the faculty, including those with masters degrees in, say, biology or biotechnology, have jobs lined up a year before they graduate.
From time to time, as we have been discussing today, grain prices may be up or down, and there is a reflection of that in terms of how farmers behave. However, you can meet a professor who will tell you that all the kids are getting jobs in agriculture. Those jobs not be in farming, they may be in the chemical industry or another input industry. They may even be in marketing. Overall, there is strong optimism.
As you know, the federal and provincial ministers have set this goal of trying to increase total agricultural production in Canada, and that has been happening. There has been tremendous growth in production and the medium-term forecast is that we can grow more. It is difficult to determine the mix of jobs, but there are a lot of very good hi-tech jobs in agriculture. Many of the scientific and marketing jobs require a lot of skill. There are a lot of positive signs in the whole agri-food chain. One has to keep in mind, when we see prices fall as we may see this year, that, overall, there is a positive view of what agriculture and agri-food can do for every part of the country.
The Chairman: I agree with you that some of the white collar jobs, if you will, with, say, fertilizer companies and other companies are very good. However, just last week a young farmer, who is about thirty years of age, told me, "I do not know of a young farmer my age who would not lease his land out if he could get another job." He told me how tough it is. What is happening right now in Saskatchewan is that many young farmers are finding other jobs.
I can tell you, locally, there is more land for cash rent than there has been before. In our area it goes for $4,000 a quarter. There is no way they can get their money back on that cash rent. In some parts of the provinces it is as high as $7,000 and $8,000. I think the reason for that is that we had stars in our eyes when we saw the price of some of the cash crops, and we penciled them in and, with continuous cropping, we thought we would grow twice as much as we did with only summer fallow. However, with the input costs, we came out with less money, as is shown in the Statistics Canada information related to Manitoba and Saskatchewan.
I mention that as a caution. It reflects the importance of the safety nets and the importance of Agri-Canada doing everything possible to get prices up. I recognize that this is a global problem.
This is a subject this committee will continue to explore. Many of our committee members have expertise in this area, and we intend to consider the question of safety nets, subsidies, input costs, and many other issues facing farmers.
The committee adjourned.