Good year in the offing if good numbers continue

Agricultural finance expert David Kohl is bullish on agriculture in his speeches and he has plenty of numbers to support his optimism.

First there’s his 50-100-70 theory, developed by one of his Cornell University students, suggesting that by the year 2050, the world will need 100 percent more food, fibre and fuel, and 70 percent of it will come as a result of advances in biotechnology, engineering technology and information technology.

“If you can’t be excited about this first set of numbers, you probably better not be in this room,” he told a group of producers from Canada, the United States and Europe in a July 25 speech.

His data holds if we consider current population growth projections. Meeting the food, fibre and fuel needs of more than six billion people will be a challenge and an opportunity for farmers.

Kohl’s next set of numbers, 20-10-15, is equally encouraging. It refers to statistics showing the top 20 percent of farms realized more than a 10 percent return on investment over the last 15 years. That spans a period of tough times for agriculture, more recently exacerbated by the recession.

If producers can make those kinds of gains amid poor economic conditions, this period of healthier commodity prices should allow for continued and possibly greater returns, provided debt is kept under control.

Kohl expresses it as an equation: P=O+C+L+M2, meaning that profit is the sum of (low) overhead, cash on hand, liquidity and working capital, and good marketing and management.

Examples of producers who live that equation are numerous in the agricultural industry here on the Prairies. But Kohl throws out another number that, if ignored, could put the brakes on agriculture’s potential.

He calls it the 83-2 reality: 83 percent of all North Americans are two generations removed from the farm.

That’s a hard statistic to swallow for those working on farms or otherwise making a direct living from them, but consider its implications.

It means the majority of those who buy Canadian farm products have little first-hand knowledge about how those foodstuffs are produced. If they want to know — and cultural shifts indicate that many of them do — then agricultural producers have the additional challenge of communicating their production methods to ensure consumers have confidence in the end results.

In that task also lies the opportunity to promote agriculture and increase general understanding of modern production methods, including biotechnology, intensive livestock production and fertilizer and water use.

The message of agriculture’s boundless opportunity isn’t easy to embrace as crops falter under drought in large parts of Eastern Canada, the U.S. Midwest and Eastern Europe and as the EU’s economic struggles play havoc with markets.

As is always the case, agricultural troubles in one part of the world are a boon to those in more fortunate circumstances. The rules of supply and demand will play out and both sides can benefit from the transaction.

Such will be the case if western Canadian crops deliver on their current promise, and in the longer term, if projections for greater meat export opportunities come to fruition.

As this is being written, hailstorms have severely damaged some crops on the Prairies. The federal government has announced cuts to farm safety net programs. Rising feed costs reduce livestock industry profits.

There are challenges ahead but in the longer term, opportunities for agriculture appear strong. Kohl believes there will be more opportunities for agriculture in the next 10 years than there has been in the past 30.

It’s not a bad thing to be infected by his optimism.


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