Even pundits and non-profit organizations are pressuring the government into taking specific actions on food prices. 

This begs the question: Should governments take steps to reduce food prices? And more importantly — can they?

This is not to say that food inflation doesn’t matter. It has clear impacts on food security in North America and across the world. While some argue there is little that can be done, there are some steps the government can take.

The most obvious step the government could take is regulating food prices using price ceilings. This is virtually unheard of in North America, but has happened elsewhere, most recently in Malaysia where the government has announced price control measures for key staples.

While this might initially seem like a good idea, price ceilings actually end up taking money out of the system. If that money isn’t replaced (i.e. through government subsidies), products either stop being produced or make their way to other, more profitable markets. Currently, the Canadian government can’t afford these kinds of subsidies because of the debt accumulated from COVID-19 relief.

There are some products, like dairy and poultry, that have domestic production controls. Farm prices are set based on a cost-of-production model, meaning farmers earn back the amount of money it costs to produce their products. If grocery prices were capped, retailers and processors would make less money and less dairy products would make it to store shelves.

Price ceilings are impractical for food. They are unlikely to achieve much and end up hitting farmers, processors and retailers the hardest. In the long run, they end up reducing access to products and stifling innovation and research investment.

In some countries, governments have chosen to limit exports — meaning goods must be sold domestically — as a way of reducing food prices. Argentina did this recently after wheat prices increased following Russia’s invasion of Ukraine. While this is good for domestic consumers, it puts the burden on farmers who could stop production in favour of selling unregulated products.

Export taxes can also be used in place of export controls. While these stabilize domestic prices, they end up hurting domestic producers, who get lower prices, and importing countries, who face higher prices.

Canada, as a significant exporter of food products, cannot afford to let its reputation as a trusted exporter be compromised. In addition, limiting or taxing exports would only have small impacts on domestic prices, but would negatively impact Canadian producers and export customers.

For countries that import food, like India, the reduction of import duties can also help to reduce domestic prices. Import duties are often used to protect domestic producers. For the most part, Canada does not have high tariffs on food products, with the exception of supply-managed products, so this approach is not broadly applicable.

Some U.S. states are considering waiving food taxes. In Canada, most retail food items are not taxed, so this is not an option, although a similar tax is being used in Alberta to reduce the cost of transportation. One critique of this approach is that it benefits those that spend the most, rather than those that need it most.

Another option could be to deal with the root causes of the inflation. However, many of these factors — like drought and extreme weather events, the war in Ukraine and supply chain disruptions — are beyond the control of the Canadian government.

There has been discussions from CEOs and political parties about implementing a grocery code of conduct for regulating how large grocery companies interact with their suppliers. While a code might benefit grocers and their suppliers, it is unclear if it would actually lower food prices for consumers.

While there is not a lot that governments can do about food prices, policy makers can still provide broader economic relief. Those with the lowest incomes are feeling the pinch of inflation more than others — they are being squeezed not only by food price increases, but by rising rent and fuel prices.

Income support for those with lowest incomes would help reduce the burden of rising costs of living. Broader tax relief could also take the pressure off for the middle class, but tax relief is less effective for low income earners that pay little tax. Targeted programs, like the school food programs announced in the 2022 federal budget, could also increase food access for vulnerable populations.

Politicians who criticize incumbent government for rising food prices should be challenged to provide real proposals that would differentiate them. This is not an easy fix and we shouldn’t be pretending it is.

– Michael von Massow is an associate professor of food economics at the University of Guelph. 

This article first appeared in The Conversation and is reprinted under a Creative Commons license.

The post Opinion: When it comes to food prices, the Canadian government’s hands are tied appeared first on Farmtario.

I continue to be struck by the fact that many in agriculture think that if we just tell the public how good we are, they will trust and like us and give us the “licence,” or approval, to proceed.

I believe the truth is more likely that we have to come to an agreement on a set of acceptable practices for food production, which will involve compromise on both sides. 

I so often hear farmers say they don’t want consumers telling them how to farm. That is fair. But what I think we are also hearing is that consumers don’t want farmers to tell them how to eat. 

I remember a story in which Henry Ford is quoted saying that Model T customers could have any colour they wanted, so long as it was black. Henry Ford was focused on the efficiency of the production line and didn’t want to compromise on that. 

It seems to me that farmers are doing the same thing to consumers today, in a time where consumers have more and more choice. Can you imagine a car company today saying you could only have a black car — or having no choices of options for that matter? They simply wouldn’t succeed.

The best approach (and those that know me know I’ve been saying this for a long time) is to enter a conversation with consumers and to develop an agreement, a social contract, on what is acceptable to both sides of the transaction. 

There may be different contracts for different market segments and supply chains built around those specific production practices. This could even be positive for producers because it will anchor those supply chains and cement those relationships. 

In those circumstances it will be more difficult for consumers or processors to switch for a few pennies (the reality of today’s commodity market).

There will be those who say I am dreaming. They will say that consumers should just suck it up, look at the science (if the attribute is science related), and take what they get. My fear, however, is that consumers will say “no thank you” in some circumstances. 

We’ve done work at the University of Guelph in which we found that as consumers learned about gestation crates for sows (something that is being phased out) they had a negative valuation for those products. 

That means you would have to pay them to eat it. Producers need to decide if they want to produce something that consumers will actually buy.

There are those that will come back with “but we just need to educate them about what we do and why we do it.” In some cases that is true. 

In a recent piece of work with two graduate students (and my colleague John Cranfield who was also involved in the gestation crate work above) we found that when consumers understood the use of antibiotics and the fact that there was regulation, chicken and beef produced with responsible antibiotic use was almost as appealing as that raised without. And both were more appealing than conventionally produced product. 

Clearly education will help but in this circumstance, there remain some consumers who simply will only buy the raised without antibiotic product.

That’s OK. I also recently read of some work at the University of British Columbia in which they asked consumers their attitudes about some practices related to dairy production. 

They then explained dairy production to them in more detail and for some things the perceptions worsened. In that case education didn’t help.

The truth is we need to engage with consumers and have a discussion about what is happening. We need to provide an increasingly diverse set of consumers with the types of products they want. We can’t just offer black Model Ts and expect to keep all consumers happy. 

If both sides compromise and come to an agreement, a social contract, we will stabilize supply chains, improve predictability, improve returns, and maintain consumers.

If we choose not to, consumers will find someone who will give them what they want. It’s the reality of markets.

To me the choice is clear.

This first appeared at foodfocusguelph.ca.

Mike von Massow, Department of Food, Agricultural and Resource Economics, University of Guelph.

The post Opinion: Agriculture needs a social contract with consumers appeared first on Farmtario.

This is often presented in the context of a threat to food security but in reality the issue is more critical for farm security than food security. That is, we are not seeing issues with respect to food access for Canadians (or North Americans) but there is pressure on farm viability and profitability.

While the food security argument might resonate more with policy makers and the general public (through the media), it is not clear that either the long term or currently worsened crisis has had any substantial effect on food security.

In the spring, we were all concerned about empty shelves but the system responded to the demand shocks and the disruptions were fairly short term.

We heard concerns about the temporary foreign workers program. Farmers felt vulnerable to missing the planting and early harvest season. There were reports of crops left in the field (such as asparagus) because of a lack of available labour to harvest.

At no time was there a concern about the ability to feed Canadians or Americans. There may have been small increases in price and small decreases in availability of some crops but overall we still had food available. There may have been less choice but there was lots available.

There was a more acute labour disruption when the large Cargill beef processing plant temporarily closed near Calgary due to a COVID outbreak.

There was some disruption to North American supply chains that were made worse by the concentration in the meat packing industry.

McDonalds had to leave Canada temporarily for beef supply. The key point was that they were able to get other beef and came back to Canada as the plant reopened.

The integrated beef supply chain in North America shifted product around to ensure that there was no interruption in supply for consumers. Prices went up a bit but we expect that to a degree in the summer too due to barbecue season, which was likely bigger this year because we were staying home.

There was, however, significant pain at the beef producer level. Cattle backed up with nowhere to go. Costs increased and prices decreased. The concentration of beef packing combined with the shortages of labour makes farmers vulnerable when processing is disrupted. It has not to date had a significant impact on consumers.

Labour and other issues have hurt the food processing sector in Canada. We struggle to add value to our farm products even though we export a significant proportion of our production of many commodities. This is not new.

We’ve lost some processing infrastructure in recent years but it has not reduced selection in Canadian food retailers and restaurants. Food prices have not likely increased as processors are often hurt by cheap imports. The loss of processing (and the constraint on growth) does hurt farmers though, leaving them with less choice to market and reducing the potential for higher returns in value added markets.

There is an opportunity to prioritize growth in processing. It will give Canadians who want it more local choices. More importantly, it will provide much greater stability and opportunity for farmers.

The narrative that labour and other constraints on both food production or processing will affect Canadian food security is overblown. There are, however, real and significant implications for producers in this country. It’s worth prioritizing. Let’s just understand the reason why. We can get food from trade and will always do that. Preserving a robust and resilient production sector in Canada is also critically important.

Mike von Massow is an associate professor in the Department of Food and Resource Economics at the University of Guelph. This first appeared at foodfocusguelph.ca.

The post Opinion: Labour crisis is about farm security, not food security appeared first on Farmtario.

Overall, we have come out of it reasonably well. We have seen short-term shortages on grocery store shelves (flour and other products) and some rationing when product was there (milk, eggs).

At the same time, we have heard stories of milk being dumped in Canada and produce being plowed down in Florida.

These food challenges are mostly expected to be short-term as we make adjustments and catch up to the high level of demand. At the end of this crisis, we will have to reassess our priorities for the food supply chain and decide if changes are required. These decisions should be made carefully and with consideration for more than just the issues that arose in the past few weeks.

One suggestion I have heard is to shorten supply chains and enhance regional or local food systems to improve resiliency. While there may be some supply chains that will benefit from shortening, there is also associated risk. This highlights the need for careful consideration and for balancing different factors when making final decisions and applying them universally.

Integration of our supply chain provides diversification of supply chains, which increases resiliency.

We are hearing that the union representing workers at the Cargill beef processing plant south of Calgary is calling for a shutdown as several workers have been diagnosed with COVID-19.

This plant represents about 40 per cent of the processing capacity in Canada. If our system was not integrated with the United States a long-term closure would be catastrophic for both producers and consumers.

As it is, any closure or capacity reduction would be painful, particularly for producers, but capacity in other areas of North America is likely to buffer the impact on consumers and producers until production scales up again.

This is more difficult to do in cases where markets are isolated. There may be value in adding processing capacity and lowering the volume in individual plants, but this also increases the cost of processing. These factors need to be considered.

Agricultural production is a biological process. It depends on weather conditions during the growing season. While localized food systems provide insurance against border closures or interruptions in international shipping, they are much more susceptible to adverse production seasons, which are becoming increasingly likely as climate change advances.

Diversified regional production buffers world supplies of food by reducing the risk associated with weather-related yield losses in local markets.

Lastly, Canada is an exporter of food. We export $56 billion a year in agriculture and food products and the plan is to grow this significantly. The Canadian Agriculture and Food Trade Alliance highlights several key points relative to our exports:

• We export half of our beef and cattle, 70 per cent of our soybeans, 70 per cent of our pork, 75 per cent of our wheat, 90 per cent of our canola and 95 per cent of our pulses.
• More than 90 per cent of Canada’s farmers are dependent on exports, as well as about 40 per cent of our food processing sector.
• One in two jobs in crop production depend on exports, and one in four jobs in food manufacturing.
• Export opportunities help us grow: over the last 10 years in Canada, agriculture and agri-food exports have grown by 103 per cent, boosting farm cash receipts by 46 per cent over the same period.

If we insulate our domestic market, we will lose diversity in our diet (produce in winter, for example) and also risk alienating other markets that buy some of our exports. Trade has been a significant driver of economic growth in Canada and also improved food security around the world.

There is real value in doing an evaluation of food supply chain performance after our current crisis. That evaluation may even suggest increasing both domestic production and processing in some value chains to increase resiliency. It is, however, dangerous to draw these conclusions in the absence of both analysis and consideration of other supply chain risks.

The writer is an associate professor in Food Agriculture and Resource Economics at the University of Guelph.

The post OPINION: In a COVID-19 world, is local better? appeared first on Farmtario.

This is difficult to understand in a time where we are seeing empty grocery stores shelves. Supply chains are complex systems.

Many supply chains are built for efficiency and stability and when there is a significant shock to the system it takes some time adjust. That’s exactly what is happening here. While not directly involved in the diary supply chain, I do have some understanding of how it works and have spoken with a number of people who are directly involved. Here is my perspective of why this is happening.

There have been significant disruptions to demand. In many cases this has led to shortages at the grocery store. Grocery store demand has increased for several reasons:

• Consumers are concerned about availability in a time of uncertainty. This is exacerbated by the fact that they see empty shelves.
• Food service demand has been severely curtailed as restaurants close and consumers exercise physical distancing. We still need to eat and, as such, are buying larger volumes at the grocery store.
• Many consumers are shopping less frequently to reduce their risk of exposure to COVID-19. When we shop less frequently, we buy more in each shop.

These shortages are demand driven rather than supply driven. We continue to have stocks of food and to produce more of it. The supply chains are driven by forecasts (predictions of demand) and product is processed and shipped in anticipation of those forecasts. When there are demand spikes such as we are seeing now, we may have short term shortages like those we are seeing, but the system catches up. The system is catching up.

That then begs the question of why we would be dumping raw milk. While grocery demand has increased, food service demand has gone down. These different markets have distinct distribution systems. That means they are often served by different processors and distributors. Redirecting product takes some time and coordination.

This is compounded by the fact that the product mix and packaging is different in these distinct supply chain. We drink more fluid milk at home than in restaurants. We eat more cheese (think pizza, for example) in restaurants than we do at home. We not only need to divert from one supply chain to another, we also need to change the product the milk turns in to. That doesn’t happen with the snap of a finger, but it is happening, and we are adjusting. This dumping of milk is a short-term phenomenon. The system is adjusting.

There are suggestions that the supply management marketing system for dairy contributed to the requirement to dump some raw milk on a short-term basis. I believe that this suggestion is misguided. While there may be value in a discussion of supply management broadly, I believe that this issue is not a supply management one. There are two main reasons for this.

First, this is not unique to milk. There are reports of large volumes of produce being ploughed down in Florida due to loss of restaurant demand.

Produce has a narrow window within which it needs to be sold. Farmers who produce for a specific customer (in this case restaurant distribution) must scramble to find other customers when demand for their primary customer disappears. This takes time. Those adjustments will happen. They just take time.

Second, milk is being dumped in other countries that don’t have supply management. There are reports from several states that producers and processors are having to dump milk because of demand disruptions. The state of Wisconsin produces large volumes of milk and most of it is processed into cheese.

As food service cheese demand decreases the demand for Wisconsin milk decreases. Given this concentration of production and the difficulty in transporting milk long distances, it may well be that the need to dump milk will be more long term in markets like Wisconsin where there is less processing diversity.

People may argue that the milk allocation process under supply management constrains the ability to divert milk to processors making products and serving customers who have increased demand.

On the other hand, the central coordination of both marketing and transportation may facilitate diversion to demand. At the very least it will protect individual farmers. In markets like Wisconsin, individual farmers have relationships with individual plants. When that plant reduces production or shuts down altogether, that farmer must scramble to find another market. That market may not exist the farms direct vicinity.

We are seeing some raw milk being dumped. This is likely short term. The system is responding to an unprecedented shock and is adjusting. It is not the time to point fingers or make rash assessments as to blame without some fulsome understanding. Try to imagine the anguish that farmers feel when they open the valve and see their hard work flowing away. No one is happy about this and blaming is not helping.

The writer is an associate professor in Food Agriculture and Resource Economics at the University of Guelph.

The post OPINION: Thoughts on dumping milk during COVID-19 appeared first on Farmtario.

I see frequent reports that the family farm is disappearing and “corporate farms” are taking over. It is true that agriculture is changing, but the changes are a reflection of changing technology more than a fundamental change in ownership.

Why it matters: There continues to be a strong family presence in agriculture, which shows that local ownership and sense of community play leading roles on Canadian farms.

There are clearly fewer farms in Canada. The figure below from from Statistics Canada highlights a couple of key points:

• there are still many small farms in this country;
• as small farms decrease, the number of large farms grows but at a slower rate.

The trend is clear. There are fewer small farms. That does not, however, reflect a change in ownership structure. More than 96 per cent of those farms were family owned. It is true that 23 per cent of the total number of farms are family corporations.

Families incorporate farms to reduce risk, leverage tax advantages, and to facilitate the transfer of the farm between generations. Many small businesses incorporate for the same reasons that farmers do.

The share of non-family corporate ownership in primary agriculture is lower than most other sectors. This is likely due to the risk associated with farming. While farms are usually asset rich (land holdings), they often suffer from low margins (a theme across the food system) and highly variable returns. Large corporate shareholders shy away from that kind of high risk.

If “families” are still producing food in Canada, why is there the perception that the family farm is disappearing?

First, the figure previously mentioned highlights that there are fewer farms generally and much fewer smaller farms. That means fewer family farms but not a smaller proportion of family farms. Family farms are not being gobbled up by large corporations.

Second, the nature of farming is changing. Technology allows us to produce more with less labour. Real prices (adjusted for inflation) have been decreasing over time. This means that farmers are getting paid less per unit of output over time and need to produce more per acre to survive. This has nothing to do with how the food is produced.

Many people have a perception of small organic farms that produce for local farmers’ markets. There are, however, organic farms that produce on large acreages. One Saskatchewan farm with 40,000 acres is converting to organic. Interestingly, this farm is not a traditional family farm but a partnership between a land investor and a new farmer — again probably counter to the perception of what an organic farm is.

Third, farmers are different today than they were 50 years ago. I look at many of the young people who graduate from the University of Guelph who go home to farm. These people are managers. They embrace technology. They evaluate their options and make strategic changes based on sound business analysis. In short, they are businesspeople; more manager than traditional producer.

To me, this is a good thing. Modern agriculture is progressive and management intensive, but it is still in the hands of committed families.

Size is not a reflection of quality. Large farms are not heartless factories but well run efficient food producing family businesses.

There is considerable variability in how food is produced. Farm structure, practices and approaches vary greatly. What doesn’t vary much is that these businesses are run by families. The family farm still dominates Canadian agriculture and that isn’t likely to change soon.

This first appeared at foodfocusguelph.ca.

Mike von Massow is an association professor in the Department of Food, Agricultural and Resource Economics, University of Guelph.

The post Opinion: The family farm is changing but not dying appeared first on Farmtario.