Farmers are in a unique position among businesses. They must invest billions of dollars months before any profits can be reaped.
Across the country, farmers will be busy seeding Canada’s millions of crop acres over the next two months.
This spring, Saskatchewan farmers will seed more than 40 percent of Canada’s farmland, or 43 million acres, and they will spend nearly $1.5 billion on the seed they need to plant their crops.
Last spring, Saskatchewan farmers planted nearly 13 million acres of canola, 11 million acres of wheat and almost four million acres of lentils. To seed these crops, farmers spent an estimated $836 million for canola seed, $301 million for the different types of wheat seed and $157 million for lentil seed.
In 2017, Saskatchewan farmers spent $1.44 billion alone to buy the seed they planted. This does not include fertilizer to help the crops grow or the fuel needed to power the seeding implements and machinery.
According to Statistics Canada, Saskatchewan farmers have spent an average of $1.75 billion on fertilizer and $675 million on fuel every year for the past five years. In total, that is nearly $4 billion spent on seed, fertilizer and fuel by farmers in Saskatchewan, all without a single guarantee that they will have anything to harvest.
While farming is profitable, there are risks and crops can be lost to bad weather or pests. That’s why Saskatchewan farmers have the option of using crop insurance programs to provide them with a payout should their crop suffer due to weather conditions.
Farmers can buy insurance the same as urban residents, but their insurance may not cover all their losses like your fire insurance would. Crop insurance also only covers cases of not enough rain, too much rain, or hail; additional coverage comes at an additional cost.
When city residents plant flowers or vegetables in their yards, the small scale gives them the ability to control the amount of water (in most cases), weeds and fertilizers.
Farmers are considerably constrained in those areas. Farmers know what they are doing, they have planned their year and know what to do in different scenarios, but the scale they farm limits their control. They can seed and fertilize, but if they have insufficient rain and no irrigation, there is little they can do to help their crop grow. If city gardens or flowerbeds don’t get enough rain, homeowners can water it themselves.
It is unlikely that a farmer would face the situation where their entire crop was a total failure. However, it is common for small areas of farmland to suffer entire crop losses, most commonly due to drought.
Crops are innovative and adaptive like farmers, they will survive without farmer intervention most times, but there’s a difference between surviving and being good-yielding crops that bring in profits.
Investing billions with little to no guarantee of what kind of return one might receive makes the risk-reward tradeoff unique. I wonder how many individuals outside of farming would be comfortable making this type of risk decision?
Stuart Smyth is an assistant professor in the University of Saskatchewan’s agricultural and resource economics department and holds the university’s Industry Research Chair in Agri-Food Innovation. This blog appeared on the SAIFood website. It has been edited here for length.