Grain growers face bleak outlook for next few years
Grain growers will continue to face great challenges for the next few years if an outlook by the United States Department of Agriculture proves true.
USDA held its annual outlook conference in Washington last week.
Each year, USDA updates a 10-year scenario for American agriculture called the Baseline Projections. It can be found at www.econ.ag.gov/.
It shows that in the absence of massive assistance such as what has been seen in the last two years, American net farm income will be disappointing until 2006.
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For example, it puts net farm income in 1999 at $48.1 billion (U.S.) It hit that level, despite lower proceeds from sales of all commodities and higher expenses, thanks to $22.7 billion in regular and special federal assistance.
Without special federal bailouts, net farm income falls below $40 billion in 2001 and stays there until 2004. It takes another two years to climb up to the level of 1999.
In other words, if farmers rely only on the market, farm incomes through most of the first decade of the 21st century will be as bad as they are today. This is probably also true for Canadian farmers.
This has great importance for Canadian farmers and governments because the implication is that either government support must continue or more farmers will be forced leave the business.
The main problem is on the crops side, where a full recovery following the Asian collapse and build up of grain stocks appears unlikely before 2005.
A key reason is that China won’t need the big grain imports previously forecast.
China’s Governor’s Grain Bag Responsibility system, instituted in the mid-1990s to boost production and reduce imports, worked too well.
Grain production rose to 512 million tonnes in 1998, up from 467 million in 1995.
The government bought and put a lot of the grain into storage. Stocks rose from 25 million tonnes in 1995 to more than 250 million in 1998.
New rules come into effect this year to reduce production, but with the huge stockpile, China won’t need to increase imports. Also, new data shows China has lots of room to improve yields.
The factor not included in the baseline projection is China’s possible entry to the World Trade Organization.
USDA expects that if China joins the WTO, imports of wheat will improve, but still not to the level of the early 1990s and not enough to return North American farm income to levels that are sustainable for all producers.