RURAL CRISIS: by Ken FrancisNews Weekly
Black Friday for Canadian farmers
, February 18, 2006
Australia can learn much from a recent Canadian study of the impact of market deregulation on farmers, writes Ken Francis.In 2003, Canadian farmers reported a catastrophic collapse in the profitability of their farm businesses when they recorded a realised net farm income of a negative $13 billion. This result was the lowest ever recorded, including the Depression years of the 1930s.
According to Stewart Wells of the Canadian National Farmers Union (NFU), "This is the most spectacular and damaging market failure in the history of Canadian agriculture."
Furthermore, if the calculations of farm income are made net of government payments to farming families, and are based solely on the trading performance of farming enterprises, the Canadian farm sector as a whole, suffered a loss of C$5 billion.Tragic
Government officials interpreted this tragic situation as being the result of BSE (or mad cow disease), the drought and the rising value of the Canadian dollar. Wells (www.oneworld.ca) is reported as disputing this official explanation.
He said: "Adjusted for inflation, farmers' gross revenues are at their third highest level in the past 20 years. Adjusted for inflation, our gross revenues are far above their 1990s levels."
These statements underline the fact that while gross
incomes may be high, the farming family does not live and reinvest in their business only out of total or gross income, but out of the net income after a profit margin has been achieved.
An analysis of farm income trends in Canada between 1947 and 2003 has shown a number of interesting trends.
First, inflation-adjusted Canadian gross farm revenues, were some C$125,000 per farm in 2003. Second, adjusted realised net farm income, including government payments, was virtually zero in 2003. Third, adjusted realised net farm income, net of government payments, showed a loss of over C$20,000 per farm.
The difference between "gross" and "net" realised farm incomes, at some C$140,000 per farm, is equal to the amount of money that the average farmer pays out to the chemical manufacturers, seed companies and other suppliers of the inputs used in the running of the farm.
In terms of the profitability of the average farm, it must be understood that realised net income is not the same as farm profit. Realised net income is calculated before any allowance is made to the farming family for the contribution of their own labour and management skills to the farm enterprise.
Wells explained that this net income "wreck" is the culmination of two decades of "destructive government and corporate policies". He said:
"Our Federal Government pursued free trade, free market and deregulation policies while our corporate buyers and suppliers were busy merging to increase their power and reduce their competition.
"While governments talked about free markets, farmers increasingly faced near monopolies. What did governments think would happen?"
Another farmer, Paul Dowling, put the question of the farm income crisis in these terms:
"It means farmers aren't getting enough income to pay their bills. You can only carry on for so long without having to give up if the money isn't there. A lot of farmers are going out and finding outside jobs. They are putting the money that they make on those jobs back into their farms. It's a way of keeping things going, but it's not very acceptable and most farmers would rather be farming full-time."
The NFU analysis of the income disaster reveals some interesting insights. In the first place, they believe that production subsidies alone do not encourage excessive production of cereals and oilseeds for the world market (with the subsequent decline in prices paid to rural producers).
The NFU proposes that the market power of transnational corporations is so great at strategic points in the supply chain between the farm gate and the consumer that farmers' prices are reduced.Only a few huge buyers
The NFU makes the further point that, in international grain-trading, there are only a few huge buyers and exporters operating. These conglomerates negotiate prices with their own customers, take their own margins and pay the farmer the residual income from the deal, which becomes the farm-gate price.
For this reason, the NFU supports the concept of single-desk marketing for agricultural commodities. Through this mechanism, the original producer of the grain is able to command some market power.
Another culprit in lowering farm incomes is the presence of free-trade agreements.
The Public Citizens Global Trade Watch group (www.tradewatch.org) has observed the impact on US farmers since the North American Free Trade Agreement (NAFTA) was introduced in 1994.
NAFTA is designed to increase agricultural imports into the US domestic market by guaranteeing market access, even when domestic production more than meets domestic needs. For Canadian farmers, the Canada-US Free Trade Agreement (CUFTA) of 1988 has resulted in a doubling of farm debt; a decline in net farm income; the loss of 50,000 Canadian farmers; and the loss of 11 per cent of family farms between 1996 and 2001 alone.
Australian farmers, farmers' organisations, governments and business should learn from the experience of Canadian farmers.