Chinese assumptions become risk management issue

Does it matter if Chinese demand for what Canadian farmers grow and raise begins slumping 20, 50 or 100 years from now?

Over the past two weeks fellow reporter Robert Arnason and I have taken a deep dive into the question of whether or not China’s expected ever-increasing hunger for western Canadian crops, meat and foods is a safe assumption.

If China’s anticipated growing demand for Canadian agriculture products doesn’t appear, what would it mean for farmers?

To me, the confidence that so many farmers have, encouraged by “futurists” and other sage-sounding seers at conferences, is based on a set of dangerous assumptions. If any don’t work out, farmers’ futures will be much less assured.

I look at it from a risk management perspective: if farmers are designing their farms to be multi-decade factories to produce crops and animals for booming Chinese and worldwide demand, they need to keep in mind that this booming demand might never appear.

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It’ll be nice if it does, and there are reasons to hope and believe it probably will, but farmers need to be prepared to be viable if the world remains in a bad patch like now, with ample crop supplies satisfying world demand, causing weak profitability.

The conclusion I have reached after doing a lot of research and interviews on this subject is that the Canadian farmer’s best defence in the long run will always be world-leading cost-of-production, flexibility in responding to shifting markets, and low debt.

We saw in the boom years from 2006-13 how high prices and extraordinary demand can allow farmers to reap amazing profits and manage big debts.

But we have seen over the past century much more of break-even prices or losses leading to multiple waves of farm failures. Over the long run, agricultural commodity prices tend toward break-even, and every time so far we’ve thought “it’s different this time,” we’ve been wrong.

Our work looked out a few decades at Chinese and other future demand and some may wonder if there’s any value in taking such a long view over the horizon.

Who reading this today cares what the situation is in 2050 or 2100?

I’ll just say this: the mantra about farmers having a great future because of having to feed nine billion people by 2050 — and many more after that — is oft-repeated at farm conferences. It serves the purpose of providing farmers with confidence.

I hope our work here adds a touch of caution to that outlook. It’s good to have faith in the future, but it’s also good to prepare for the unending grind of life as a bulk commodity producer in an unforgiving world.

Maybe things will develop in a fabulous way. Or maybe it’ll be just more of the same.

It’s best to be prepared for both.

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