Those who were wondering if the rising fortunes in some parts of agriculture (grains and oilseeds, in particular, whose prices overall have risen 40 per cent in the past year) are real or a blip, should check out a new report from the TD Bank Financial Group. TD, a rising player in farm finance, says agriculture is often overlooked or undervalued, and largely associated with adversity.
But, says the bank, the truth is that agriculture is well-positioned to grow.
The report, called Canadian Agriculture Begins a New Era: Growth Opportunities Abound, stands back and takes a long look the prospects for the farming sector and food processing.
That's not easy to do, even for the head of economic studies at the bank, Derek Burleton, when all around conflicting signals and immediate crises prevail, particularly in the livestock sector. Farmers who raise animals have taken a pounding from rising animal feed costs (as competition heats up from biofuels for soybeans, corn and other feedstocks) and from the high dollar.
Canada is the world's fifth largest food exporter, so it's no wonder that when the dollar goes up, our food-processing export sector takes a hit in ways not unlike parts of the manufacturing sector.
In response, the Ontario government announced $150 million last week to help beleaguered pork, beef and horticulture producers get through this unexpected downturn.
Such bailouts are sometimes questioned. But grains and oilseeds products, live animals and red meats account for more than half of Canada's export sales. So when the chips are down, governments are not inclined to let farmers fail.
However, even in the midst of the current woes, TD is bullish on agriculture. It says the sector has been doing all the right things to set a steady course. Through research and perhaps necessity, it's developed and implemented new technologies and processes to improve efficiencies — in other words, it's producing crops and livestock as cheaply and effectively as possible.
As well, the sector has lowered costs, and raised the economies of scale, meaning that overall, it's gotten bigger. The latest national census of agriculture told us mid-size farms were flagging and growth was taking place instead in big farms. However, the number of small farms has risen as well. These are the farms that can cater to niche markets, such as certified organic farmers whose legions have grown 60 per cent in the past six years.
But it's the big farms that have attracted the TD's attention. The bank predicts that globally, the consumption of wheat and some grains will soon exceed the world's production. You know that means for prices — up even more. And whether or not you believe biofuels are good for agriculture, the environment, the economy or the planet, there's no doubt in TD's mind that efforts to squeeze energy from crops will continue.
The federal government is talking about mandating a five per cent ethanol blend in gasoline by 2010. Meanwhile, Ontario has taken steps of its own to ensure it has a vibrant biofuels sector. Someone has to grow the feedstocks to turn plants into fuel, and in our society, farmers are the ones with the ways and means to grow plants and raise animals.
But it's not all roses, and the shattered livestock sector is just one of several problems still facing the sector, says the bank. Other woes include rising wages, continually increasing energy and fertilizer costs, the strong dollar and the increasingly protectionist U.S., our biggest trading partner.
Still, all in all, the bank is upbeat about farming. The sector endured decades of chronic low prices, and survived, it notes. Now, with prospects for some of the biggest commodities looking up, and help on the way for others, reasons for optimism abound.
But the champagne corks won't pop until the livestock sector is settled. Despite cheery prospects, there's just too much hurt, especially in the beef and pork sectors, to say farming is on an overall winning streak.