Remember a few years ago when Canada’s big five English Canadian banks were endlessly whining, whingeing and carping about how they needed to be deregulated and allowed to merge in order to be big, tough and successful like the yankee banks down south?
You don’t hear that so much. But as recently as the end of 2007 Canada had only one bank – Royal Bank of Canada – in the Top 10 list of North American banks. The banks almost managed to nag Paul Martin into clearing the way for them to merge and to spread their tentacles into insurance, but they didn’t get that far before moods changed, governments changed and they were backburnered for the medium term.
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The banks seem to have shut up recently, and that makes sense. The big, heroic, buccaneering banks that they admired so much in the United States and overseas – and wanted to emulate – have either collapsed or become nationalized, which is not really an optimal outcome for any business that sees itself as the essence of capitalism. The talk of allowing mergers to produce a “Canadian champion” bank that could sally forth onto the world stage and hack out riches has completely disappeared. All of a sudden being modest and regulated doesn’t seem so bad. As opposed to being broke and disgraced.
And where has that left the supposedly over-regulated Canadian banks? Way, way up the rankings. Right now four of the top ten North American banks are Canadian! Royal Bank is seventh, Toronto Dominion is eighth, Bank of Nova Scotia is ninth and Bank of Montreal is tenth. That’s an incredible success story considering that they did nothing active to achieve it, simply continued existing and doing what they had always done.
That’s a lot like the way that Warren Buffett’s companies grow over the decades. They don’t do flashy things, they don’t make big strategic shifts or flip their paradigms, they simply keep well capitalized, offer good services and wait for their competitors to overextend themselves. Look at Dairy Queen – a Buffett possession. It may not be the flashiest ice cream and dessert place – think of the TCBYs, all the gelato shops in every city – but when the wreckage clears from the present econpocalypse, which one of these do you think will still be open for business, selling peanut buster parfaits?
I wonder if it’s going to be the same for Canada’s farmers? Everyone likes griping about how hard it is to farm in Canada – environmental regulations, zoning laws, labour laws, commercial regulations – and often overseas places are described in glowing terms by farmers who don’t know much about them. A few years ago I toured farms in Brazil, a place everyone in North America seemed to be viewing as the Promised Land for farmers. I came back thinking prairie farmers were much better off than their Brazilian competitors because at least up here, regardless of tougher regulations and higher costs, at least there is the true rule of law, a lack of Indian uprisings, a relative absence of armed raids on farms to steal chemicals and a high unlikelihood of either a violent revolution or a brutal military repression. Plus we have a grain transportation system that is a dreamride compared to what they’re stuck with down there.
In the present crisis prairie farmers face the same threat as everyone else from disintegrating demand. If people around the world end up truly broke, they cease to exist as part of “demand.” Demand without money is not demand. But compared to other farmers, prairie farmers, like U.S. and EU farmers, are sitting pretty. Farmers here this spring are going to be able to get credit to buy the best seed varieties, all the fertilizer they need (if they buy it soon enough), all the fuel they need and be able to fix, rent or buy whatever equipment they require to get the crop in. Is that true in Brazil, where the banking system is primitive? How about in Russia, or Ukraine, where it’s both primitive and corrupt? I doubt all farmers in Africa, India, Pakistan, Kazakhstan, etc. are going to have the luxury of farming as they think they should this year. Money has been drying up and farm credit isn’t safe from shrinkage in shaky countries.
Whatever happens to demand and the world markets, farmers here will get a chance to maximize their yields and attempt to produce an optimal crop. All they’ll have to do is to grow their crops the way they already do, using inputs efficiently and effectively, following rotations that get the maximum out of their land, producing the best crops in the world. At least for this year they are unlikely to have an unravelling banking or government system tie one or both hands behind their backs.
In that farmers are a lot like our big five banks: they are stuck with lots of rules and regulations, but they are well organized, well capitalized, highly professional and good at what they do. They are not generally overextended (compared to their competitors). And this crisis is not going to stop them doing what they do best.
Hopefully, as with the banks, this crisis gives prairie farmers the chance to take over more of their market, as the fly-by-night guys go bust and overseas farmers who have been riding high on the commodity bull get temporarily thrown aside. It’s not polite to say it out loud, but this is a competitive business and it’s times like this when the weak players get cut and those who are equipped to win get at least the chance to try for it.
In a year, when crop production stats become available for all of the 2009-10 world’s crops, we’ll be able to see how this crisis affects the world’s farmers’ ability to produce crops. I expect to see Canadian farmers march a few steps forward, just like the boring old Canadian banks have done.
