TRUAX,
Saskatchewan, Canada, April 23, 2004:
Canada's Agriculture Minister peered into the crystal ball
last week and came to a startlingly obvious conclusion: prices
for generic agricultural commodities are going to remain low
into the foreseeable future. Citing the vast food production
potential of "agricultural powerhouses" like Brazil,
Speller warned that Canadian farmers cannot and must not rely
on producing "commodities".
Plainly put, Minister Speller was telling us that we might
as well forget the wheat, oats and barley type of farming.
What is coming, and what will allow us to continue to till
the soil is the production of industrial, pharmaceutical and
energy products.
It is another version of the same old song. Farmers must
get awfully tired of hearing it. When I was a kid, the mantra
was "specialize". The day of the family farm with
a few chickens and cows and some cash crops was gone. Concentrate
on one thing and do a good job on that. Didn't work for long.
A couple decades later, farmers were told to diversify. Ostriches,
buffalo, a few acres of strawberries. Spread out the risks.
When those balloons burst, it was value added. Invest in agriculture
by investing in agribusiness. Better to have shares in a hog
barn than to raise a few hogs on that inefficient family farm.
(Turned out they were partly right. The mega hog barns produced
until the prices were so low the small-scale producer couldn't
possibly make a go of it. Trouble is, neither can the big
barns.)
The theory behind the off-farm investment strategy was that
since there's no money in raw commodities, there has to be
some in processing, or maybe in selling the raw product to
your own processor. Now the farmer will succeed as the stockholder.
Minister Speller's new insight is another version of the
magic bullet syndrome. If we just exploit our comparative
advantage in technology, we might yet prosper.
What makes Speller's argument problematic is that he is partly
right. He is right in that commodity markets will never, under
the current world economic system, give a decent return to
farmers. He is wrong in thinking that salvation will come
from growing a different crop. At best that will be a short
term fix.
Farmers with a better crystal ball have, for some time, been
fingering a different culprit. They are looking at the processor,
the middleman as being the villain. So we see the lawsuits
in the U.S. against the meat packing giants, alleging they
are using captive supply to keep down the price to the feedlot
owner and the farmer.
A somewhat similar, though seemingly unrelated complaint
came this past week from the Canola Council of Canada. It
was in the form of a motion to end the canola contract on
the Winnipeg Commodity Exchange. The reason was the massive
basis that has developed recently, taking the bloom off surges
in cash prices. Someone, in the middle, appears to be taking
much of the profit out of canola.
Economist Richard Levins thinks he understands the problem.
"Farmers are smart", he says, "but they're
not strong." Levins says the real power in the food system
today is no longer the processor, but the retailer –
specifically retailers the size of Wal-Mart. Because of its
incredible size, (20% of supermarket food sales in the U.S.)
Wal-Mart is able to force suppliers to cut prices, hold inventory,
and dance to its tune. No processor can afford to be shunned
by Wal-Mart and its take-it-or-leave-it style of negotiating.
Levins solution is simple in theory, darn tough in practice.
Farmers need to band together and bargain from a position
of "market supply strength". It sounds remarkably
like supply management, or at least single desk selling. And
while a few farm groups still prattle away about fixing the
market, others realize the market isn't broken. It's functioning
exactly as intended. Farmers are simply the losers in a win-lose
situation. And they always will be if they go it alone.
A few feedlots in Alberta put Levins' theory into practice
during the ongoing BSE crisis. When they felt packers were
taking advantage of the situation, they got together in an
informal but very serious way and agreed to ration the number
of animals they would offer to the packers. Their own version,
if you like, of single desk selling. You won't read about
it in the farm press, but it happened. And it drove the prices
up.
This, and some other examples will give farmers a chance
to examine the real causes of their dilemma. It is a dilemma
technology will never fix. That's because it isn't a problem
of technology. It's a problem of power.
© Paul Beingessner, beingessner@sasktel.net
. The author is a columnist, transportation consultant and
third-generation farmer in Truax, Saskatchewan.
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