national farmers union

AUGUST 15, 2000

NFU PROPOSES SOLUTION TO FARM INCOME CRISIS

WINNIPEG, Man.--Today, in news conferences in several cities, the NFU unveiled a plan that could play a significant role in ending the farm income crisis. The plan is for the world's five major grain exporters--Canada, the U.S., the European Union (EU), Argentina, and Australia--to take 3% of their land out of production, each year, until the price of grain doubles.

"Despite tight world grain supplies, prices are low. And despite huge profits among processors and grain companies, farmers cannot extract fair revenues or profits. However, it is exactly these low grain supplies and huge pools of money in the food production chain that give me hope," Said NFU Vice-President Fred Tait.

He continued: "With supplies low, small changes in supplies can have large positive effects on prices. And the vast profits among processors and retailers demonstrate that they could easily pay higher prices to farmers. Solutions to the farm income crisis are tantalizingly close."

"Given tight supplies, a credible agreement to reduce production could lead to swift results. The mere announcement that the five major exporters were negotiating such an agreement might lead to significant price increases," said Tait.

Higher prices to farmers need not mean higher prices for consumers. Tait noted: "Twenty years ago, the farmer got 7" out of a 74" loaf of bread. Today, that farmer gets 5" out of a $1.33 loaf. Bread went up 59" while the farmers' share went down 2". Millers and retailers raise prices to consumers, and lower prices to farmers--profiting handsomely while exploiting both. The farmers needs another 5" per loaf, but this need not come out of consumers pockets. We think it can come out of the 59" increase that millers and retailers are pocketing. In an attempt to protect their large profits, processors and retailers will try to pit consumers against farmers--we mustn't let them succeed."

The NFU plan would also decrease government support payments in the EU, Canada, and around the world. "The Canadian government is pushing to eliminate EU subsidies. The EU has said it won't stop subsidizing. Canada plans to force the issue during WTO negotiations. Even if Canada can succeed, its plan will take at least ten years to yield results. The plan we outlined today would lead to large subsidy reductions in all countries within five years. If governments are serious about reducing subsidy levels in the EU and around the world, a set-aside plan is the quickest way to do so. If governments are serious about ending the farm crisis, a set-aside plan is also an effective way to accomplish that goal," said Tait.

In a letter to Federal Agriculture Minister Lyle Vanclief and Canada's Provincial Ministers of Agriculture, NFU President Cory Ollikka outlined details of a proposed multinational set-aside plan. In Canada, the government could pay farmers $40 per acre to voluntarily take land out of production. With 86 million acres of "land in crops", $344 million per year would be all that is necessary to induce farmers to take 10% of their land out of production. "This will certainly be a money-saving investment in the long term if it restores profitability to farming," said Ollikka.

Ollikka acknowledged that the farm income crisis is a multi-faceted problem related to corporate concentration, trade agreements, control of resources, environmental issues, and a host of other factors. While a set-aside agreement is not a panacea, it would address the most pressing aspect of the crisis: commodity prices far below the cost of production. "Higher prices alone will not save family farms and rural communities. But continued low prices will certainly destroy them," said Ollikka.

Ollikka concluded: "Farmers need to understand that the federal government has many options to end the farm income crisis; that those options can lead to swift results; and that those options are not unreasonably costly. If the farm crisis continues, it will not be because it is unsolvable, it is because the Canadian federal and provincial governments callously choose not to act."

Please see Backgrounder for more details and answers to many questions. The NFU's letter to Federal and Provincial Ministers is available on request.

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For More Information:

Cory Ollikka, NFU President: (780) 383-2148

Fred Tait, Vice-President: (204) 252-2773

Darrin Qualman, Exec. Sec.: (306) 652-9465

Backgrounder to the NFU's August 15, 2000 news release

Question: What are the main components of the NFU's plan?

Answer: The NFU proposes a multinational set-aside and supply reduction agreement:

* The major exporters--Canada, U.S., EU, Argentina, and Australia--each take 3% of their land out of production, and 3% more each year until the price of grain doubles.

* Once prices rise, these countries then monitor prices and manage land set-asides to maintain stable prices.

* Countries with current set-asides would increase their set-aside levels, but at = the rate of other nations, until all nations have approximately equal set-aside levels.

* Each country would determine how to induce farmers to participate.

* In Canada, the federal government would offer farmers $40 per acre to voluntarily idle land--summerfallow, chem-fallow, or green-manure plowdown.

* The federal government may have to adjust the amount of the payment up or down slightly depending on the number of farmers who offer land to the program.

Question: Won't this lead to higher food prices?

Answer: It should not. Grocery store food prices are high despite low and falling farmgate prices. Over the last 25 years, the price of pork chops have more than doubled while pig prices fell; bread prices tripled while wheat prices fell; Corn Flakes rose six-fold while corn prices fell. Grain companies, processors, and retailers have used their market power to extract ever-larger profits. The NFU's proposes redistributing those profits so that farmers get a small but adequate share.

Rather than increasing the already-high prices to consumers, the NFU's plan attempts to equalize the farmers share out of what consumers are already paying. Farmers and consumers are both ill-treated by highly profitable food processors and retailers. The NFU hopes that farmers and consumers can stand together to remedy this situation.

Question: Won't lower food production lead to more hunger?

Answer: Today, people around the world are starving because of an alleged food shortage. At the same time, farmers in Canada and elsewhere are bankrupted because of alleged oversupply. The markets are failing to feed the people or to sustain those who try.

Hunger is not caused by a simple shortage in world food stocks, but by the displacement of farmers and peasants, the destruction of local food production systems, the dollarization of food systems, the concentration of land ownership, destructive trade practices, and a focus on production for export.

Three dollar wheat is forcing Canadian farmers off the land and it is doing the same to farmers in the Philippines, India, and Africa. These farmers end up in slums surrounding cities, with no money to buy food and no land to grow it. Meanwhile, their former land is used to produce export crops.

Low prices destroy local food production systems in Canada and around the world. Fair and reasonable prices can foster local production and self-sufficiency. Where localized famines remain--caused by drought, flood, or lack of land--other nations should respond with food aid; but in a way that does not undermine food production in affected countries.

Question: Is there currently a surplus of grain?

Answer: No. Stocks/use ratios are a fundamental and oft-quoted measure of supply and demand. The ratios compare the stocks on hand (in elevators, storehouses, railcars, farm granaries, etc.) at the end of a given year to the amount used in that year. A low stocks/use ratio denotes low supply and should trigger price increases.

Wheat stocks/use ratios for the last five years have been at, or near, record lows. The lowest wheat stocks/use ratios in the last 40 years occurred in 1995/96: 19.6%. The following year, the ratio increased only slightly. The USDA forecasts that stocks/use ratios for the current year, 2000/01, will remain below 20%. This is far below the levels of the mid-1980s when wheat stocks/use ratios hovered between 25% and 35%. The situation for coarse grains (oats, barley, corn, etc,) is identical to that for wheat.

In 1978/79, the world ended the year with 134.9 million tonnes of wheat in storage. In 1998/99 the world ended the year with 134.3 million tonnes of wheat in storage. Over the intervening twenty years, every pound of grain that farmers produced, people ate. We will end this year with just 113 million tonnes in storage--down 15%. This does not seem like overproduction. Further, current stocks/use ratios indicate a 60 to 70 day supply of wheat and other grains. With a population over 6 billion, increasing uncertainty over climate change, and increasing difficulty wringing more production out of a shrinking land base, this does not seem like a burdensome oversupply.

Question: Isn't there a contradiction in arguing that there is no oversupply and asking for a program which reduces production?

Answer: The NFU's plan would deal with the perception that there is a grain glut. There is no contradiction in pointing out that there is not an oversupply and simultaneously advocating a plan to manage supplies in order to increase market prices. To the contrary, it is because supplies are tight that such a plan would work quickly.

Question: Hasn't this been tried before in Canada?

The LIFT Program is controversial, not because it failed, but because farmers evaluated it in hindsight--from the high wheat prices of 1973/74. Once wheat rose above $4.00/bushel, it appeared that it had been a bad idea for them to summerfallow land for $6 to $10/acre.

Question: Doesn't the U.S. already have a set-aside program?

Answer: The U.S. has had two set-aside programs during the 1990s: the Acreage Reduction Program (ARP) and the Conservation Reserve Program (CRP). The ARP began in the 1960s and ended in 1996. The CRP began in 1985 and continues today. The CRP targets environmentally-fragile farmland, removes it from production, and encourages conservation. It currently includes over 36 million acres.

The EU also has a set-aside program, the Arable Areas Payments Program, established in 1992. The set-aside requirement was 10% in 1999/00 and 5% in the previous two years. The EU set-aside level has ranged as high as 20% over the last decade.

The U.S. and EU governments seem to believe that set-asides work. Because the U.S. and EU have indicated a philosophical willingness to embrace set-asides, it is likely that Canada could persuade these countries to commit to a larger, multinational program.

Question: Won't farmers simply idle marginal land?

Answer: The first land that a farmer will set-aside will be the least productive. However, in the second and third year, as we move toward and beyond a 10% set-aside, farmers will be taking non-marginal land out of production.

Question: Won't farmers simply buy more fertilizer?

Answer: Fertilizer use has increased and it will continue to do so. However, any initial increase in fertilizer use and production would soon be overwhelmed by the extent of the world-wide set-aside.

Question: What about the cost of the program?

Answer: At $40/acre, taking 10% of Canada's 86 million acres of "land in crops" out of production would cost $344 million. Taking 1/3 of Canadian land out of production (no one is proposing such a large amount) would cost $1.15 billion annually. However, a doubling of grain prices would add over $12 billion to farmers' revenues. The federal government would recover "110%" of any expenditure.

Question: Do we need government involvement or can farmers do this themselves?

Answer: The NFU's proposal contains two key elements: multinational co-operation and short-term compensation to farmers--both seem to require government involvement.

Question: What about input costs?

Answer: The NFU's recent brief on the farm income crisis demonstrated that farmers are besieged, on both sides, by agribusiness corporations that use their market power to extract high profits at farmers' expense. Clearly, profiteering by input suppliers is a potential problem.

Once government and farmers have worked together to put in place a mechanism to increase grain prices, the very next thing that we would have to do is to make sure that input costs are monitored and examined.

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