Recapturing wealth of the Canadian prairies

Lawrence Solomon

October 25, 2000

After Larry Solomon spoke in Brandon, Manitoba, about the future of Canadian farming, the views he presented reverberated throughout agricultural communities across the country. Numerous farm journals, along with broadcast media, covered and commented on his presentation, given on October 27, 2000, at the Recapturing Wealth of the Canadian Prairies conference.

The conference organizers’ transcript of Larry’s speech, unedited, appears below.

Recapturing Wealth on the Canadian Prairies – Bullpit Session

There are two things that you should know about me at the outset. First of all, of all the people in this room, I am probably the one who is most critical of farmers for the subsidies that they receive, and also most critical of farmers for their environmental record. I am also critical of farmers for the arguments that many farmers make. And for those of you who haven’t read my columns be warned, you may not like everything that I say.

Now the second thing that you should know about me is that I am probably the most optimistic person in this room about the survival of the family farm. And about the potential for the Canadian farmer. The reason that I am optimistic is that I see a shake out coming.

The status quo won’t last, and it won’t last for several reasons. Let there be no doubt, that there will be a shake out in agriculture. In this era of globalization the consumer is king and governments can no longer protect producers against consumers. This is not a unique experience, as you can look at the list of industries that have lost their government protection. The electric monopolies are falling around the world; some are private, some are public. The government was powerless to protect them, even when the government itself owned them. Same for the natural gas monopolies, the mining companies, telephone monopolies, and for the airlines. The walls holding back international trade are crumbling.

Consumers want more value, they want more choice, more safety and they also want environmental protection considered. Examples abound; from the auto sector, the North American Auto Pact is being scrapped with the Big Three losing their power to keep imports out. In the financial services sector, consumers want better access to financial markets so the big brokerage houses, such as Merrill Lynch, have lost their grip and now discount brokers dominate the market. Soon the music industry will also lose its hold because of Internet technology, such as Napster. And other protected industries, like textiles, will also lose their traditional industry grip. Don’t think for a moment that agriculture is any different.

Consumers want choice and governments can’t help you. Agriculture will lose its grip. Globalization has taken power out of the hands of governments, out of the hands of producers, and given it to consumers. Globalization has changed the world irreversibly and it has also changed how Canadians see ourselves.

And that is another reason that the status quo won’t last. We no longer see ourselves as hewers of wood and drawers of water. The Internet is spearheading the new economy and Canadians are realizing that the new economy, not the old economy is important to us. Montreal, Toronto, Vancouver are among the leaders in the continent for the new economy. The Toronto stock exchange is now seen as a high tech exchange. It is no longer appreciated for the primary industries that it lists. Because agriculture is passe and the new economy is hip, politicians are rushing to cash in on the new economy. The trend appears to be cashing out of the old economy, which can be read in Paul Martin’s speeches. They are now all about the new economy, the subsidized old economy will be squeezed. That is why the “old economy” has been losing its subsidies and that is why agriculture will continue to lose its subsidies and its protections. Paul Martin’s recent mini-budget was all about the new economy because that is where the government wants to make its mark. And this occurred even prior to an election when you would think they would be trying to court the farm vote.

Now in this room, in this part of Manitoba, you might think that agriculture looms large in the national economy. Let me give you the actual statistics, the actual size of agriculture in the Canadian economy is …… 1.6 percent of GDP. Agriculture is small, the entire resource sector in Canada, in fact, is less than six percent of GDP.

The new economy is big. Nortel had a bad day earlier this week; it lost a quarter of its value. The Globe reported that a quarter of its value amounts to 9% of the country’s GDP. They could also have reported that Nortel’s one-quarter loss is also six times the size of the entire agricultural sector in Canada. Agriculture is not an economic powerhouse. It is a niche in the Canadian economy.

The status quo will not last for another reason too. City industries, and not rural industries, are now seen as the engines of the economy. Some farmers like to argue that people have to eat. As if that argument makes farmers more important than other producers; who provide housing materials, the fuel we need, the clothes we need, the cars we need and the services we all require. We do need to eat, but we also need other goods and services. The agriculture sector provides 1.6 percent of Canada’s goods and services. Farmers don’t take precedence over other sectors and politicians know where their bread is buttered.

Now the status quo won’t last for another reason as well, because of the environment. I work for an environmental group called Energy Probe Research Foundation. It has thirty thousand supporters in Canada, but my friends and colleagues also work for other environmental groups, such as Sierra Club, or for Greenpeace. The general public may think that farming is benign environmentally, but environmentalists know better. We don’t like the energy intensity of a lot of agricultural practices, nor the pesticide and fertilizer use, the resulting soil degradation and/or resulting water pollution and fish kills in PEI. Right now farmers are far too popular for environmentalists to go public with their concerns. But that’s for now, and that can change very quickly.

I think we are beginning to see the changes now. You’ve all heard about Walkerton. Where a farm operation, I think it is eighty head of cattle, contaminated the water supply of a town of five thousand people with E-coli. The result was seven dead, two thousand people made ill, in a town population of five thousand. Some fear that the town will not recover. Public hearings are under way at Walkerton, and my organization is one of several that are intervening in those hearings. The Sierra Club, Pollution Probe, and the Canadian Environmental Law Association are also representing clients with a large environmental component there as well. The environmental groups are now criticizing intensive farming, but they are not criticizing the family farm, because they feel that there would be a public backlash.

Eighty head of cattle is not exactly large. E-coli 015787 has been identified as the culprit at Walkerton, and it’s the only deadly form of E-coli. Until recently it was thought to be fairly rare. Well, it turns out that E-coli 015787 is in 90% of cattle at one point of their life, and at any point 30 to 40% of cattle have E-coli 015787. The general public doesn’t know this yet, as the information is relatively new. In fact public health officers across the country don’t yet know it.

But soon the public will know it, and there is going to be a lot more concern about farm practices. When that happens, public attitudes will change. There is also a case of a child contracting E-coli from a petting zoo. This problem exists wherever manure exists, how it is handled; and there is a lot of manure, which has to be dealt with responsibly in the country.

The status quo will not last for another reason as well. Farmers are stepping on a lot of rural toes. The right to farm laws, I believe, are a big mistake. You’re out numbered in the rural areas, you’re upsetting your own neighbours, you’re setting your self up for a big back lash.

The status quo can change and it can change overnight. On my drive here to Brandon, Dr. Rene van Acker told me a story about someone he knows in Ontario who doesn’t like to hear farmers always complaining. He says that it reminds him of Quebecers. Now, that was the first I’d heard of that. I’m from Toronto and I hadn’t heard of that before. Actually I was a little bit surprised, because farmers have enormous respect in Toronto. There is just an enormous wellspring of appreciation for farmers. My colleagues are often flabbergasted at my columns that criticize farmers. In fact, even at the National Post, (and newspapers are famous for cynical journalists), they have said, “Why don’t you take it a little easier on the farmers?”

There is a lot of good will for farmers but the public is fickle, and public sympathy can change very rapidly. I see it in perhaps a different way than others because my organization gets its funds from direct mail fund raising. We mail out tens of thousands of pieces of mail to fundraise and send our information out. We used to be one of the biggest direct mailers in the country.

But we would see that in one year the environment would be hot. Fundraising revenues could potentially triple or quadruple. All kinds of new environmental groups would get into the business. The next year the environment issue would be cool and some environmentalists would go out of business. And then another fad would come in. Remember that it happened with the animal rights movement. It was big business for a year or two, then the Ethiopian famine hit and those pretty seal pups couldn’t compete with those little Ethiopian kids. All the money and sympathy for the animals shifted to the children in Ethiopia.

The public is fickle. A few years ago there was tremendous sympathy for Native people. Today I think the public’s mood towards Native people has soured. Natives are now seen as wanting special rights and special treatment. The Natives got their sympathy several years ago and now the public has turned on them. Environmental groups are charities. Animal rights groups are charities. Famine relief agencies are charities. Natives presented themselves as charity cases.

The public only has so much time for charity cases. Farm protests may be a good short-term strategy but I think it under-mines you very seriously in the long run. You don’t want to present yourself as a charity case to your customer. Customers don’t like to mix business with charity and you don’t want to strong-arm your customers either; to tell them they have to buy from you and at your price. You want to treat your customers as equals. You’ve got something to sell; they’ve got something to buy. I’ve heard people here say that customers always want the lowest price. Well if they did, there wouldn’t be such a large market for organic food. Customers want quality, they want safety, they want choice. Some want to feel like they are protecting the environment. If all you are offering is a commodity, well then yes, they will go for price. But if you have something else to offer with the commodity, the public will gladly pay for it.

Farmers have one fundamental decision to make and one decision only. You have to decide who is your customer. If your customer is the government, then you are going to do everything you can to win over the government. You are going to lobby, you are going to threaten, and you are going to compromise. You will ask for lower transportation costs, lower inputs, more subsidies. You will get good at that, but you will ignore your real customer. And one day the real customer will say, ‘Who needs you?’, and when that happens the government will also ask the same question. Now if your customer isn’t the government, but the consumer, you will do everything you can to win over the consumer. But you can’t chase both at the same time, and expect to be competitive.

I think we can learn from the U.S. and from the European Union but I don’t think that’s where the real lessons are. I think the real lessons for Canadian farmers are in New Zealand. New Zealand is a farming country. It is small, unlike Canada, but I think there is a lot that we can learn from it. New Zealand has a lot of farmers and not a lot of people. It doesn’t have a large domestic market for farmers to sell into, which is the same situation as here. Like Canada, New Zealand farmers depend on export markets. You complain about being far from your market, but just think about New Zealand farmers. They are selling to us.

Now like farmers in Canada, New Zealand used to be heavily dependent on government. And that heavy dependence hurt the economy, it hurt the environment and it hurt the farmer. In the early 1980’s, New Zealand faced an incredible economic crisis that we can’t even relate to. Almost overnight, the government was forced to end all subsidies. To give you an example, in 1984, farmers received 40% of their gross income from government subsidy. In 1985 it was gone, and this happened overnight.

I’m not recommending this for Canada. We are not in the dire straits that New Zealand was, but I am recommending that we look at the effects of the subsidies on New Zealand and how removing the subsidies transformed New Zealand. With the subsidies, agriculture didn’t need to be sustainable. Exports were so highly subsidized that marginal lands were converted to agriculture use. Trees were cut down, with farming occupying some of the steep slopes of the hills and valleys in the countryside. Today over half the country suffers from soil erosion and the erosion is extreme in about 10% of the country. There isn’t systematic data for other types of soil degradation, but the antidotal evidence is strong. There is carbon depletion, nutrient depletion, and acidification. There are many other problems, such as soil compaction and several thousand of the country’s eighty thousand farms have contaminated sites.

Now, farmers are rational and economic based individuals who respond to economic signals. Fertilizer was subsidized but fencing was not, so farmers saved money on fencing by fertilizing new pasture areas instead of using the grass efficiently where it was already growing. As a result, the farmer’s products also deteriorated as the volume of sheep increased, the quality decreased. Because of the volume of sheep and their demand on pasture and rangeland, they became so scrawny that they were unfit for western markets. New Zealanders had to sell them into the Middle East, where they are used to bony animals, like goats. Sheep were basically being sold as goats. In one year, a large number of lambs even had to be rendered down and used as blood and bone fertilizer. Now that was the world under subsidies.

Now for New Zealand without subsidies. The environment bounced back, the erosion prone lands have been taken out of production, and some of the land has gone back to its natural state. About 2 million hectares have gone into commercial forestry. Farmers use fertilizer and other chemicals far more sparingly, and water quality has improved immensely.

It wasn’t just the environment that bounced back, farming bounced back. In the last 10 years the farm sector is up 24 percent in constant dollars with farming about 6 percent of GDP. That is about three and one half times of Canada’s proportion and the agriculture sector as a whole is about 16 percent of GDP. Farming is now more important in the New Zealand economy than it was in the early 1980’s.

In fact, the economic growth and improved efficiency in the agriculture sector is out-pacing the rest of the growth in New Zealand. Before the subsidies came off, productivity increases in New Zealand averaged 1% a year. Once the subsidies came off, productivity increases were 6% a year.

Now what does this mean at the individual farm level? Well in the last 10 years, lamb carcass weights have increased 2 kilograms or 16%. The average diary cow produces 35 kilograms or 25% more milk fat per year. When the farm subsidies first came off everyone predicted disaster. Massive de-stocking of livestock did occur with the changes and is down 7%. Total numbers of sheep are down 27%, but lambs are up 3% and cattle are also up 11%.

There are other changes. Land use became diversified and farmers started to maintain cost structures that reflected the real earning capability of their farms. New products were developed and farmers got closer to their customers. The French have a certain kind of cut that they like for their rack of lambs. In New Zealand they process it now and ship that value-added product. But most of all, the most dramatic change in New Zealand has been that organically grown produce is up, and it is up dramatically.

Now this wasn’t bed of roses, as there were a lot of disruptions. When New Zealand brought in those free market reforms, one of the things that happened was the New Zealand dollar went up. Well, that made it all that much more hard to export any of the country’s products. Interest rates climbed sharply and they stayed high for years. That led to land values plummeting, as they had been artificially high. People predicted that 8,000 farms would fail; that’s 10% of New Zealand’s farms.

But actually farmers stuck it out and saw the potential in the free market. In the end 800 farms failed, that’s 1%. Those land values, which tanked before, are now back to where they were in the early 80’s and that’s after inflation. Those farmers now are sitting on gold; but not fool’s gold.

And here’s another bottom line. There are 10% fewer farmers in New Zealand, but the rural economy is up. The overall rural population is up 9% over what it was. If you care about rural life; if you care about sustainable farming; if you care about getting off the government dole, being independent and efficient; New Zealand points the way.

You can wait for the rest of the world to change. For the U.S. and the E.U. to drop their subsidies. You can wait for the Canadian government to raise their subsidies. Or you can take control in your own hands as farmers did in New Zealand. Now if you bite the bullet here, I don’t know the end result, I don’t know if the farm population will drop by 10% or 20%. But I do know that the farm population has been dropping with all the subsidies that you are getting.

And I don’t know if land prices will bounce back in 5 years or 10 years. But I do know that when they do bounce back, they will be real land values. And here’s something else that I do know; we can do better to provide a real safety net for our farmers than the New Zealand government. Which by the way, the Labour government did not do in New Zealand in the 1980s. Because when New Zealand cut off the subsidies to the farmers overnight, it provided almost no support. There was a one-time grant to farmers who where leaving the farm sector and that was base on 2/3’s of the previous years income. And apart from that there was some sort of grief counseling that the government offered with some welfare support, but virtually nothing.

We can do a lot better. What I would propose doing, is to leave the subsidies intact for the farmers nearing retirement. I think that it is a blessing that there are so few young farmers in the system. It means that the transition can be easy. For existing farmers, the younger ones I would phase out subsidies perhaps say over 10 years. But for new farmers, people who haven’t yet entered the farm business, not a penny. No one should need encouragement to farm, or to do anything else. And one other thing I’d do is I’d protect existing asset values, as a government insurance policy to protect against land values dropping, so that people can feel secure that they won’t lose their main asset.

Now some parts of the farm economy will shrink but others will grow. And I’d like to tell you about the most successful regions in Canada, called Toronto, the Greater Toronto Area. Drive 30 minutes from Toronto and you are out of the GTA. It isn’t a whole lot of territory, yet the GTA produces 50% more farm output than Nova Scotia, 67% more than PEI, and 80% more than New Brunswick. The GTA as you know it is an industrial powerhouse, but it is also an agricultural powerhouse. And that’s because it services a large urban population, which has given it the most diversified agricultural economy in Canada.

GTA farmers are close to their customers and those customers don’t want just commodities. They want organic produce, they want herbs for the health food stores, and they want exotic grains for the restaurants. The specialty-farming sector in Toronto is fast growing; in fact it now matches the traditional farm production of poultry, pigs and diary. There is a bright future for farming but it doesn’t include government. You will wilt on the vine with government, but throw government off your back, get close to your customers, get back to your roots, and you will thrive.


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