Death by a thousand cuts

With grandchildren to enjoy and a garden to tend, Blair Rutter doesn’t need to immerse himself in the minutiae of agricultural policy analysis now that he’s retired.

But he’s found himself drawn back into the sort of work he did for decades, with the impact of the federal carbon tax occupying a lot of his thoughts these days.

“I feel a sense of duty to highlight this,” said Rutter, a longtime analyst with the Western Canadian Wheat Growers Association.

“You’re undermining your competitiveness and you’re not improving the environment, simply because other countries will increase their production.”

While Rutter’s current focus is on the carbon tax’s impact on the cost of producing crops and livestock in Canada, it’s part of a larger concern with a steady stream of costs, regulations and restrictions being imposed on farmers that damage their ability to compete with producers from other exporting nations who don’t face as many costs and restraints.

It’s not a concern felt by only a few isolated individuals — it is shared across a wide swath of Canadian farm policy analysis. As Canadian farmers swallow more and more costs, their profitability and viability declines.

At the same time, the federal government, provincial governments and Canada’s agrifood industry have set lofty targets of greatly increasing exports.

In 2017, the federal government’s Advisory Council on Economic Growth urged Canada to attempt to boost agricultural exports by 50 percent and double its share of global agrifood exports by 2027.

Yet the countries that Canadian farm exports compete with, such as the United States, those of the Black Sea region, Brazil, Argentina and Australia have generally faced fewer increases in government-induced costs, or receive more government support, or have a combination of both. That means they might be able to survive better, and continue with maximum production, when Canadian farmers are being pushed toward and into losses by low prices. Instead of Canadian farmers gaining market share at their expense, it could be Canada’s competitors stealing market share from it.

The combination of increasing costs and little government support is beginning to squeeze prairie farmers, said Agricultural Producers Association of Saskatchewan president Todd Lewis.

“It’s a trend. Expenses are going up. Farm income’s going down. We’re getting to a point where we won’t be sustainable much longer,” said Lewis.

“We’re in an international market here.”

Some of the incremental cost increases hitting Canadian farmers recently include:

  • The federal carbon tax, which applies to many inputs and services farmers pay for.
  • Toughening environmental regulations compared to many competing exporters.
  • The absence of hefty government compensation for low grain prices, like those paid to U.S. farmers by their government.
  • A grain transportation system vulnerable to political disruption, as with the Indigenous blockade protests in early 2020.
  • Attempts to restrict the use of common pesticides such as some neonicotinoids, which if banned would reduce yields and profitability.

The carbon tax has drawn much heat from farmers, regardless of the exemption for farm fuel, especially over the winter when thousands were forced to run grain dryers in order to save crops that went into the bin damp after a dreadful harvest season.

The federal agriculture department recently rejected farmer calls to eliminate the carbon tax from propane and other heating sources for grain dryers, saying it was not significant enough to warrant a special exemption.

That frustrated some farmers who see the government on one hand aggressively promoting the idea of boosting farm production and expanding sales to export markets while adding costs and constricting the ability of farmers to make enough money to justify boosting investment.

“There are significant costs being added,” said Lewis.

Inside two weeks in June, the federal government both denied farmers’ calls to remove the carbon tax from grain drying and loaned $90 million to a new pulse processing plant in Winnipeg that will focus on export sales.

How does the disjuncture between government hopes for greatly increased export capacity and the imposition of profitability-destroying regulatory and tax actions arise?

Some blame an inward-focused Canadian population that presses governments to impose environmental and other regulations and costs on a Canadian farm sector as if it was a domestic situation, unconnected to the foreign competitors who set world grain and meat prices. Decisions are made in isolation, rather than as part of an overall agriculture and food strategy, and oblivious to the likely result of production simply being pushed overseas to less-squeezed farmers.

This creates instability and a confusing vision of the future for farmers.

“Here’s this enormous economic potential … but it needs stability,” said analyst Kerri Holland, who recently presented a study of the flaws in Canada’s farm safety net system in a session organized by the University of Calgary’s School of Public Policy.

“I think we need to start recognizing the potential that it could have and then also looking at all the various economic, social and environmental roles of the industry. What are action steps to get there?”

World geopolitics expert Jacob Shapiro said Canada should be able to thrive in the future of world food trade.

“Canada won the geography lottery,” said Shapiro, noting the country’s ample land, water and low population density.

“The challenges compared to what other nations are facing? Canada’s doing fine and should do fine in the future.”

However, with geopolitical and other challenges besetting Canada from many sides, the country needs a focused strategy to succeed.

That potential and the need for a strategy are also seen by analyst Al Mussell of AgriFood Economic Systems.

“We’ve been pretty cost-competitive,” Mussell said about Canada’s traditional strength.

But much of that competitive edge, including arguably the lowest cost of production for pigs, will fail to deliver sustainability if the “rules-based order” within which they are ideal fades and becomes unenforceable.

An example of this is the U.S.-China trade war, which has not just glutted the U.S. domestic market with corn, soybeans and wheat but also sparked direct cash handouts to farmers from the U.S. government, allowing them to sell at what would otherwise be losses.

“As the U.S. ramps up support, it’s going to be harder and harder for us,” said Mussell.

Canadian farmers might have a slightly lower cost of production for crops and pigs, but that won’t be enough to make up for the depressing impact of U.S. overproduction and a malfunctioning world market.

“In the short run, economic inefficiency can be covered by government support,” said Mussell about U.S. farmers. Canadian farmers could go broke before natural geographical advantages make enough difference to save them.

“How do you avoid being run over by the Americans?” pondered Mussell.

Some of the challenges Canadian farmers face are mostly beyond Canada’s ability to control. Those include many geopolitical situations, something that Canada’s small population and lack of power make difficult to resolve advantageously. The distance between the Prairies and world markets can’t be changed.

But other factors are in Canadians’ control, and that’s something Canada needs to manage if it wants Canadian agriculture to grow. Incrementally pushing Canadian farmers to the financial breaking point won’t help anybody and will fail to deliver the growth Canada is hoping for.

“We bring up issues. They don’t get rectified. They say it’s only incremental damage,” said Lewis.

Costing a farmer $10,000 by a regulatory or tax decision like the carbon tax might not sound like a big deal if he is grossing $1 million, but that’s the wrong way to look at it, he said. If a farmer only nets $100,000 out of that gross revenue, that cost takes away 10 percent of his income.

If he was at break-even, it will push him into losses. Enough years of that sort of a drain and many farms will fail.

Farmers will get squeezed out if enough of these increased costs pile up, while producers in other exporting nations that don’t face those costs move in to take over the market.

“It’s not like other businesses where you can pass your expenses along,” said Lewis.

Rutter said the increasing cost of growing crops and raising livestock is a reality that people need to know about.

“I’m concerned that these costs are piling on to farmers and it’s not being well understood (by the public or government) how this is undermining our profitability and competitiveness,” said Rutter.

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