by BETTER FARMING STAFF
A highly consolidated grocery industry dictates prices paid to processors and producers. and it’s “not an exciting future for primary producers,” says a former president of the International Federation of Agricultural Producers.
“Do we have to really go and challenge the concept that one grocery store is what the country really needs?” New Liskeard grain and oilseeds grower Jack Wilkinson asked during this week’s annual Christian Farmers Federation of Ontario conference in Waterloo. An increasingly consolidated retail and distributor sector is “fundamentally controlling” the Canadian food system, he charges.
The impact of retail consolidation was one of several themes that emerged from a three-speaker panel probing the future of food production at both local and international levels. Others included the implications of foreign ownership of land in developing countries and the role of government policy.
Wilkinson says policy plays a pivotal role in shaping agricultural sectors. During his 2002-2008 tenure as an international farm leader he recalls visiting developing countries with good land and low-cost labour and wondering why they were not “blowing our socks off us when it comes to agricultural production.”
He blames bad government policy that creates “one problem after another that really discourages small-scale subsistence farmers to become small-scale commercial farmers to become commercial farmers.”
Within Canada, policies that address different scales of farm operations are necessary, he says. “We should have a system that works for everybody.”
He is skeptical of policies that encourage farmers to diversify into further processing and farmers markets. Higher prices are a result, but there’s also more work involved, he points out.
Wilkinson notes that small co-operatives and processors, which become key players in local food movements, need policy to encourage their activities. “If a consumer wants to buy meat within 100 miles, this is getting tough with the number of abattoirs we have now,” he says.
As governments impose more standards, farmers should employ these to build relationships with consumers and create a brand for their products, he adds.
Len Penner, president of Cargill Limited, says the world must double grain production by 2050 to feed burgeoning populations.
He says volatility in grain prices is here to stay and is related to small, incremental changes in stocks-to-use ratios that trigger fears demand might change. The chain reaction can create enormous price changes. He cites droughts and fires creating a shortfall in Russian wheat this year as an example. Even though only a small percentage of world production was affected, the situation “changed commodity prices by 60 to 80 per cent.”
Volatility in crop prices will affect fertilizer prices, he adds.
Access to open markets, protecting farmers’ ability to own their property and matching crops to land and climate in the developing world to give farmers a competitive advantage are critical for the success of all farmers, regardless of their operation’s size. Strategies such as developing marketing plans to manage market volatility and building knowledge among small farm holders about best management practices will help farmers obtain the best prices for their products, he says.
Penner and Wilkinson both emphasize the importance of global trade in sustaining agriculture in the future. Panel member Mike Schreiner, leader of the Green Party of Ontario, says he supports global trade but observes a correlation between declines in farm income and increases in global trade. “Some of that has to do with the levels of consolidation that’s happening in the agri-food chain.”
Three retailers, distributing food through centralized warehouses, dominate the provincial market and Schreiner says the system discourages farmers from dealing with local stores. Many can’t meet the system’s expectation of continuous supply.
Value-driven markets that deliver a local, “authentic” food experiences to consumers and a well-differentiated agriculture sector put more money in farmers’ pockets, Schreiner says. But these scenarios require policies that foster processing capacity, distribution networks and investment in rural areas as well as to address the rural and urban divide.
“I think farmers have to start looking at working together more,” Schreiner says.
He also called on the government to commit to buying food from local growers. BF
Comments
If Wilkinson actually looked at the name "agriculture and agri-food" being severed by the same minister, he might have come to his conclusion some time ago. The goals and objectives of production agriculture is to try to be above COP and pay the bills. A better situation is to make a profit but often too much to hope for in manipulated market, price set by value adders.(read "adders" as snakes if you choose)
The agri-food sector strives for the lowest raw product price it can legally obtain product for, thereby increasing a spread to reward investing shareholders.
Wilkinson and others might well speak more truth in advocating the agri-food sector would be better suited to be under the retail manufacturing sector and the minister of industry rather than to continue to exploit and gouge agricultural producers through an ag. minister trying to serve two opposing interests.
I've known, and liked, Jack Wilkinson, for almost thirty years. Most of the time I agree with him, but on this matter he doesn't know what he's talking about. Consumers, and NOBODY else, determine prices - well except in supply management, but producers pay the consequences in terms of lower volumes of products consumers are prepared to buy.
Retailing, especially food retailing, is even tougher than farming - what with razor-thin margins, zero consumer loyalty, constantly changing input prices and volumes of product available to market. Farmers just don't seem to understand that whatever gets produced, gets consumed, but at whatever price is necessary to persuade the consumer to buy.
In essence, blaming others in the food chain for low farm gate prices, is nonsense - food has been a low margin business almost forever, and if there was any excess profit being made, it would show up in the share prices of the companies making this excess money, and it's not.
Moreover, I'll put my money where my mouth is, and say that nothing in my Undergraduate degree in Ag Economics, or my Master of Business Administration degree, would give me any reason to agree with Wilkinson on this matter.
Stephen Thompson, Clinton ON
The rule of farmers wanting to have it both ways, having it good for for one group while resulting in it not good for the rest of farmers aids the cheap food policy being continued
Mr. Thompson, MBA, said "Retailing, especially food retailing, is even tougher than farming - what with razor-thin margins,"
Mr. Thompson does not back up his statement with fact.
Fact: George Weston Ltd. reported a major increase in third-quarter net earnings Tuesday despite relatively flat sales. Net earnings more than doubled to $184-million in just one quarter which is a 47.1 per cent increase from same period last year.
It looks like the Weston family earns more profit in one quarter than all the farmers in Canada earn in a whole year.
The Weston company is always the first to jack up prices when wheat starts to look good for a farmer I know my income did not increase 47%
Did you even examine why Weston's income increased 47% on a quarterly basis from one year to the next, or are you just trying to be difficult?
Anytime I got into this sort of jousting match with my students, I always asked if they had gone back even as much as one year further to see if the base-line, quarterly income on which the 47% increase was calculated, was, itself, an unusually-unprofitable quarter due to write-downs and that sort of thing.
They, of course, had never done any analysis of this sort whatsoever, and were always chagrined when it inevitably turned out this 47% increase type of figure was based on two completely-unrepresentative quarters - the first with unusually low incomes, and the second with unusually high incomes.
Unfortunately, this type of "cherry-picking", out-of-context analysis, seems to be the stock-in-trade of unscrupulous stock market promoters and, alas, on occasion, some farm organizations.
If you want to learn more about this topic, I would invite you, or any interested farmer, to take the Canadian Securities Course (available by correspondence when I took it, but probably available on-line by now) which is the definitive course of study for anyone aspiring to work in the investment industry, either as a trader, or as an analyst.
Stephen Thompson, Clinton ON
The Security Commission deals with publicly traded companies.
Farmers' securities do not fall under the jurisdiction of the security commission.
Fact: the Weston family is the 3rd richest family in Canada and they did not get to where they are today by "razor thin profits" as you said.
Stop diverting your unsupported statements into a technical argument no one cares about.
Farmers: Live poor, die rich.
Weston Family: Live rich, die rich, next generation rich.
The basic fallacy of your argument is that if Weston, or anyone else like them, was making any sort of excess profit, they'd have any number of highly-profitable competitors - and they don't.
One of the most basic principles of both economics and business is that excess profits increase the number of competitors (or as in the case of the excess profits generated by supply management, drive up the price of quota), low profits reduce the number of competitors (or lower the price of quota), and low profits are exactly why our food system is dominated by oligopolies and oligopsonies.
Anyone, like many students do in their first ag economics class, can delude themselves about companies like Weston all they want, but that doesn't change the undeniable fact that basic economic and business principles simply don't support your theory - and never will, plus for students, adhering to your point of view guarantees they'll fail the course.
And if you still feel like denying what everyone learns (at least what anyone who passes, learns) in basic Economics, go ahead - I always did have a few students in every class who would rather fail than disavow any of their father's favourite fallacies about economics and business.
Stephen Thompson, Clinton ON
I think I want to be difficult. In 2006 Weston's showed its first loss in profit in 19 years. They have not lost since and I understand companies show one quarter low and the next one high I get how it works so we cut through that and really it comes to a 9% increase in annual profit. My point was every time commodities jump up to where you can actually make money the companies like Weston's get to the media and blame the price increase for food on raw farm gate products. Lets go back in time 15 years, bread was $2.34 per loaf wheat was $275 per tonne, today bread is $2.89 per loaf and wheat is $210 per tonne. So lets do the math $.55 increase per loaf 1842 loaf per ton = $1013 more profit out of raw material you are now paying $65 less for. Not to bad. I don't need to take a course on how to fudge numbers I live in the real world and actually farm for a living and like I said I don't see my profit keeping up with Weston's.
One would think with your credentials and many years of educational teaching ...
Your points have validity but your presentation could use a course in etiquette 101.
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One quarter does not make any point except prove that someone can read - you have to look at yearly figures, especially ROI and earnings per share, for at least five years, to get any sort of sense of propriety.
When I was teaching this subject, I used the annual Forbes rankings which invariably showed food to be among the lowest ranked industries for both earnings, and potential for growth. If you want proof, look there instead of "cherry-picking" one quarter, for one company.
In addition, net earnings reported on a quarterly-basis are often skewed by things like gains (or losses) on disposal of assets, and other non-recurring items which don't mean anything to experienced investors and analysts.
Stephen Thompson, Clinton ON
George Weston, North America's largest baked goods maker, earned C$179 million, in its third quarter, ended October 4, 2008. and so on.
George Weston started with 2 bread routes in 1882. The family business survived the Great Depression without problems. How many farms were destroyed during the depression?
Truth of the matter is that Galen Weston is worth over $6 Billion and is the 3rd richest man in Canada and rated as 98th richest in the world.
He's making money and it is not from "razor thin profits" as you claim.
Back you your claims and stop dumping of fellow farmers. The farmers are not the problem in a country that practices a "cheap food" policy.
Forget about cherry-picking isolated facts and figures, and look at the big picture which is that food production, distributing, and retailing (except for supply managed farmers) isn't very profitable, and never has been. Although I don't have the latest Weston financials in front of me, and don't have the time to lead you through a semester-long course in the marketing of agricultural products, I can almost guarantee from memory that Weston's profit as a percentage of sales is, by any definition, razor-thin, and that's about the only statistic that matters to anyone who knows what they are talking about, when it comes to financial analysis.
Weston, like Wal-Mart, got to be where they are, simply by being always just a little better than, and just a little harder-working than, the next guy, and not by any type of the hanky-panky farmers so easily delude themselves into believing.
Furthermore, if you want to get demanding about it all, I'll match my six years of University education in food policy and food business-related issues, plus successful completion of the Canadian Securities Course, against whatever qualifications you have to offer. If you don't want to take my expert opinion as having any value - too bad for you, I'm the guy who got hired to teach the course.
In addition, if you want to skew statistics, my 2010 farm income is going to be about a zillion percent higher than it was in 2009, when it was negative. Simply stated, my 2010 margins are not razor thin, and if you applied the same year-to-year percentage changes to my farm operation that are being incorrectly applying to Weston, the same skewed, and misleading, results would be apparent.
And with the most-minimal amount of respect, we don't have a cheap food policy in Canada, and won't ever have a cheap food policy in Canada, as long as we have supply management.
Finally, if you're so sure of yourself, identify yourself, and don't hide behind the veil of cheap-shot anonymity.
Stephen Thompson, Clinton ON
The last time I heard Westons had over 72 consecutive increase profit quarters. That is over 6 yrs of constant increase during depressed grain commodity pricing!
If you are the buyer and the seller (like Weston / Walmart) setting both prices, you hold more cards of destiny than most farmers.
Maybe agriculture and agri-food are incompatible bedfellows. Read as indecent under the sheets cheered on by an ag minister trying to serve the economic fetishes of greed for both.
All the alphabet soup in the world after your name does not make your statements, arguments, or personal opinions more true to change the factual fortunes of Westons.
Now in closing can we all join together in singing another chorus of "except for the injustice of supply management..."
Comment modified by editors.
Razor thin profit and no loyalty come on give me a break. Where I live we have 3 loblaws 3 nofrills 1 value mart all of which are owned by Weston's. Then we have 2 metros 3 food basic which are all owned by Sobeys. You don't have to be loyal, you have no choice but to buy from the big guys and they did not get big by giving this food away.
Only a MBA can say "Retailing, especially food retailing, is even tougher than farming - what with razor-thin margins".
What utter nonsense.
The Weston family moved from the third richest family in Canada to the second richest this year.
Mr. Weston’s wealth grew by 31.3% last year to $8.5-billion.
He can buy-out every farmer in Canada and still have change left over.
In the CFFO recount "Wilkinson said three keys across the globe for successful farming are: the creation of markets that work; sufficient rewards within the system for farmers; and ridding governments of corruption. He urged farmers to never give up collective efforts in securing a better return from the marketplace."
Is the corruption he referrers to ag ministers and programs unable to serve the opposing goals of producers vs. agri-food? It might seem so after a parade of enough rhythmic ag ministers to start a small marching band unable to effect measurable change.
Wilkinson global insight falls short of new domestic approaches and solutions, something desperately needed, other than his suggestion of corruption.
Corruption is usually associated with some wrong doing. Urging farmers to never give up is like advocating for insanity, continuing to do what has failed.
When will our representation call for inquests into what is clearly not working or sustainable as opposed to whispering comments from the sidelines at yet another meeting ?
As a former farm leader how much you want to think Jack does run as a province or feds future MP? Wayne Easter did it,
Many questions need to be answered by farmers, farmer leaders and government, are the best results of a good continueing safe food supply for future generations possible ,when few young Canadian people can no longer learn and afford to start farming!The big question is can farmers with good management make a reasonable safeo profit in average and most years
Who has the right to control food, and the class of people who produce it?
Is an increasing age of farmers, a sign of declining farm rural agriculture, one characteristic that ordinary people are unaware of what is happening. Mr average Retiring age farmer is comfortable in his own complacency and is not asking the right questions. Has the modern Ontario Canadian farmer become a spectator of world events, observing on his television without becoming involved in what he can do in his own field of agriculture. We farmers watch the ominous events of our times, while we sip on a beer in our comfortable chairs. Farmers dont seem to understand what is happening to our world of agriculture, that our agriculture (changes) and the world is on fire and we are about to be burned up with it. Were are we farmers and farm leaders goingfor future and present positve results for the COMMOM GOOD?
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