Here's this week's commentary from Ontario Federation of Agriculture President Geri Kamenz. Farms can expect more pressure from consumers and scrutiny about their bottom line, as food prices rise and others in the value chain duck.
* * *
Farmers are justifiably sensitive when government agencies start releasing dollar values for what is sold from the farm. All too often such presentations paint an incomplete picture and fail to illustrate the farm’s costs to produce that product.
Consumers keep a keen eye on farm products that contribute to the cost of their food supply and we often hear complaints about increases in costs not considered justifiable. That’s why farmers have to watch closely for any news that may trigger an alarm by self-appointed consumer watchdogs.
Recently the Farm Product Price Index was reported to have climbed by 4.5 per cent in January compared to a year earlier. This reflects the value paid to farmers. Something like this catches the attention of consumers, but the accompanying explanation may have satisfied most consumers – that 4.5 per cent increase was an average of lower livestock prices and higher crop prices.
Farm input costs are something farmers are all too aware of – and consumers don’t hear enough about. A recent report from Agriculture and Agri-Food Canada projects the prices farmers pay for the fuel used to operate their machinery will continue to rise. When you consider 15 per cent of all farm operating expenses are made up of fuels and fertilizers, it becomes a very sensitive topic for farmers.
Canadian farm machinery fuel expenses totalled $2.2 billion in 2007, up five per cent from the previous year and are expected to increase by twice that amount this year.
Because fuels are used extensively in the production of farm fertilizers, it comes as no surprise that farm fertilizers saw a 20 per cent increase in 2007 – that amounted to an additional 509 million dollar increase in the farmers’ cost of fertilizer for the previous year’s crops.
A report from Agriculture and Agri-Food Canada cites a combination of strong world demand and limited fertilizer supplies when it projects a supply and demand imbalance that will see fertilizer costs continuing to climb. In fact, the world price of fertilizer rose 200 per cent year over year from 2007 to 2008.
More than a decade ago, a document was produced that compared the prices farmers received for their products to what it cost to produce those products and the prices paid by consumers. Over the years, interest has been maintained in that comparison, and the Ontario Federation of Agriculture has contributed to updating the figures in the ‘Compare The Share’ document.
The original document looked at costs and prices during the 1990s. In order to provide a meaningful comparison for consumers, the document looked at what percentage of disposable income was spent by consumers in nations around the world. That study found that nations with higher levels of disposable income spent the lowest proportion of that income on food – in Canada 10.5 per cent of disposable income was spent on buying food. That was compared to India with just over 50 per cent spent on food.
There’s a lot of discussion now about how higher wheat prices are driving up the cost of a loaf of bread. A graph in the Compare the Share document tracks the retail cost of a loaf of bread and compares it with the price the farmer gets for wheat. From 1981 to 2004, the farmer received basically the same value of 11 cents for the amount of wheat used to produce a 675-gram loaf of bread. The retail price of that loaf has increased to almost two dollars.
The value of wheat at the farm level is rising, as is the price of bread. The costs of producing the wheat are also rising – some faster than the price of wheat.
Farmers must work hard to control costs, but should feel no need to apologize for any increase in the Farm Product Price Index.