March 8, 2006

"Holy Cow, Farmers Really Are Efficient"

Record corporate profits are linked to farmers' woes: NFU

by Dru Oja Jay

The Dominion - http://www.dominionpaper.ca

The story of farming in the last few decades is a familiar one and a sad one. Competition means lower prices, and lower prices mean that farmers have to produce more to break even, which drives prices lower yet.

This story is present everywhere farming is discussed. Official government policy says that farms must become larger and more efficient. News reports chronicle the shut down of hundreds of family farms, which are no longer viable in the global economy. In a recent editorial on stagnant productivity growth, the Globe and Mail singled out farmers for their inefficiency. Farm subsidies, the conventional wisdom says, can only soften the impact of the inevitable transition to hyper-efficient, large-scale operations and imported food.

Canada's National Farmers' Union (NFU), however, says there's a small problem with the story: it's wrong.

The NFU's director of research, Darren Qualman, says that farmers have achieved the largest increases in efficiency of any sector in the Canadian economy in the last 30 years. Farmers "can make and deliver products for 1970s prices. No one else can do that," says Qualman. Only half joking he adds that someone should challenge theGlobe and Mail editorialists to write for 1970s freelance rates.

In November of 2003, the NFU released a report entitled "The Farm Crisis, Bigger Farms, and the Myths of 'Competition' and 'Efficiency,'" which details the drive for efficiency in government policy and its effects on farm income.

A series of graphs shows that while prices for food products have increased three- and fourfold, the prices farmers get for their crops have stayed constant since the 1970s.

Farmers have made massive gains in efficiency, but have not received any financial benefits. Paradoxically, even as per-farm revenues have increased due to consolidation, farm profits today are at an all-time low. 2003 was the worst year ever for Canadian farmers, when per-farm Market Net Income was negative $16 000. Farm profits for the last 20 years, the NFU says, have been near or lower than they were during the Depression.

"Today, farmers are paying to produce," says a recent NFU report. "Were it not for taxpayer-funded support, off-farm income, depletion of savings, and access to debt, farming in Canada would have to cease."

Why do farmers remain in such dire straits?

While news coverage often dwells on the plight of farmers, it rarely looks at the overall success enjoyed by agribusiness. This is the subject of the NFU's November 2005 report, "The Farm Crisis and Corporate Profits."

The report examines the finances of 75 companies in the supply chain of food production, including meat packing, farm equipment, veterinary drug manufacturing, fertilizer, fuel, food processing, and food services . It finds that 41 companies posted record profits in 2004, which was at the same time the second worst year on record for farmers. For 76 percent of the companies examined, 2004 was one of the three best years for profits .

The NFU says there is a direct connection between corporate profits and farmers' losses.

Qualman says that the main problem is the difference in market power between farmers and the small number of corporations that control distribution. Because "a handful of companies" are buying from 250 000 farmers, they can effectively set prices as low as farmers will go, but can also raise prices for consumers. Corporations like Kellogg, Cargill, PepsiCo (which owns Quaker Oats), and Tyson Foods were among those posting record profits while farmers were posting record losses.

The dynamic is similar for suppliers of farm equipment, pesticides, seeds, veterinary drugs and fertilizer. According to the report, "Huge profits and impressive ROE [return on equity] rates are the norm at the non-farm links in the agri-food chain." Having consolidated ownership through mergers, the NFU says, corporations selling inputs and equipment are able to raise prices to account for any profits that farmers earn through increased productivity.

Qualman says there is a direct link between farmers' relationships to powerful conglomerates and their lack of profits. "It's farmers that are most hooked in to the input corporations that are having the hardest time making a profit."

Because of their relatively direct channels of distribution and lack of dependence on fertilizer, veterinary drugs and pesticides, Qualman says organic farmers "have an easier time hanging on."

The root problem, says Qualman, is that "policymakers economists and media assume that markets work... these guys are market ideologues, and their a priori assumption is that markets work."

"They say, 'If these people are earning poor incomes, maybe it's because they're inefficient."

"We just say 'No no, the markets are failing.' We've made tremendous progress. " in pushing back against the prevailing wrong assumptions, says Qualman.

"Three ministers of agriculture have been largely forced to stop talking about inefficiency." When shown the evidence, they're forced to say, in Qualman's paraphrase, "'Holy cow, farmers really are efficient!'"