David Dodge, governor of the Bank of Canada, seemed peeved, even annoyed, at the question about the impact of his latest policy announcement on the farm economy.
Or maybe he didn’t like the negative Nellie connotation of a question that wondered about the dual whammy of higher interest rates and a strong dollar that result from his monetary policy.
“I think you have to be very careful in phrasing that question to look at the background,” he lectured a reporter after providing an answer that all but ignored the question.
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It happened at a news conference after the Bank had announced a 0.25 percent interest rate increase with the promise (threat?) of more to come because of a hot Canadian economy.
Higher interest rates, albeit low by modern standards, are intended to stifle economic expansion and to control inflationary pressures (also low by modern standards).
One of the consequences of the interest rate news was that the already strong Canadian dollar got another boost to 30-year highs.
In his opening statement to reporters, Dodge noted that projected inflationary pressures and the tools used to control them have both up and down sides.
“In the context of the bank’s new projection, these risks appear to be roughly balanced.”
This seemed like a logical follow-up question: with record farm debt of $52 billion, higher debt charges because of the interest rate increase and a higher dollar that reduces export commodity prices, where is the balance in this policy for farmers?
Dodge, who raises cattle part-time on a farm in eastern Quebec, began by saying that grain and oilseed prices have increased “quite dramatically” in the past year.
“Even when you translate that back into Canadian dollars accounting for the fact that the Canadian dollar has appreciated over the course of the year, those price increases have been very strong.”
Question: But high gross prices do not necessarily translate into a stronger bottom line because input prices also are rising, so where is the balance?
Answer: Grain prices are going up much faster than input prices.
Later, there was a second round of questions.
Question: you referenced higher grain prices but for sectors like livestock that use grain as input and then export final products, higher grain prices eat into their bottom line, as does a higher dollar. Where is the balance?
Dodge seemed annoyed, beginning his answer with “just a moment here” before explaining that higher interest rates are a global trend, the hot international economy is in part responsible for higher commodity prices and pork futures in Asia are higher.
Then came the “be very careful in phrasing that question” remark, which roughly translates as “you don’t know what you are talking about.”
OK, grain and oilseed prices are higher, pork futures in Asia are up and input prices are going up slower than commodity prices.
Let’s assume for argument’s sake all that is true.
Higher interest rates also increase servicing charges on a record farm debt, farm net income remains thin and volatile while debt servicing charges are steady and growing and a higher dollar reduces the international value of Canadian food exports.
Could someone please answer the question: where is the balance in this monetary policy for Canadian agriculture?
