Monday, 28 February 2011

Daily Bread

You've just spent a hundred and twenty dollars buying groceries, the cart has been slipping and sliding through the parking lot to your vehicle,  and the car only warms up when you're turning into the driveway at home. It's not easy in the middle of a cold Canadian winter to feel thankful for the food we eat.  If you take a pace back though it's a pretty good deal. We shop in clean, well stocked stores, with products from around the world, and while it may be hard to believe, Canadians pay a smaller percentage of their disposable income on food than anyone in the world.  There's extraordinary value at Canadian supermarkets, with a handful of retailers beating their brains out to keep your business, frantic to keep the biggest retail dog in the business, Walmart, out of the neighborhood.  The business pages are full of cautionary tales from big retailers like Loblaws, which operates the Superstores in the Maritimes.

New president for Loblaw
Loblaw Cos. Ltd. today named a new president to replace Allan Leigton later this year.
Vincente Trius is a seasoned international retail executive who will move to Canada in the coming months and join the company in the second half of the year, Globe and Mail retail writer Marina Strauss reports today.
Mr. Leighton, who arrived at Loblaw as deputy chairman in 2006, is a British retail veteran who has spearheaded Loblaw’s turnaround over the past four years.
Loblaw's announcement today came as the giant grocer also reported its fourth-quarter profit fell to $151-million or 54 cents a share from $165-million or 60 cents a year earlier. Sales slipped to $7.16-billion from $7.31-billion.
“In the year ahead, we expect to continue our focus on executing the plan in a market environment that remains unpredictable and competitively intense,” Loblaw executive chairman Galen G. Weston said in a statement.

Most farmers in the Maritimes would argue "At least they're making a profit!" It's hard for people who work for a paycheck to appreciate the concept of negative incomes.  You might not make as much money as you think you're worth, and you're boss is definitely getting overpaid, but you  get up every day,   get to work on time, and put your hours in.  While the money might not stick around very long, you expect your bank account to be increased every second Thursday.  It's different for farmers, fishermen, and other small business people. You can put a lot of time and effort into your work, do everything you're supposed to, and be worse off financially at the end of the year. As a group this is what Maritime farmers have been going through for almost a decade now  (not every farmer, and not every year).  If you want more on this right away  (because I promise you'll be getting more from me in the months ahead)  check out this excellent analysis by a Nova Scotia group.

An agricultural economist once told me that in any given year, because of luck, planning, management, growing conditions in other parts of the world, and so on, about 30% of Canadian farmers make money, and 30% lose money.  So as a reporter you could always find someone who's in trouble, and given the nature of the media to sniff out bad news wherever it might be, those are the farmers the public generally gets to see. It's the basis of all those bad jokes of farmers going to the grave with their hand still out.   What's changed in the last decade is the 40% in the middle, the usually solid citizens who inch ahead over time, and seldomly complain.  These are the farm families who, on paper, were often millionaires a decade ago, but are now being told by their banks to go somewhere else.  Even worse they are now insisting that their children do anything but farm. I'll explore some of the reasons this has happened in the days ahead.

But you may ask,  if farmers have been steadily losing money for the last decade, why doesn't the public see more farm bankruptcies, or abandoned farms. Pride and stubbornness is part of it, but it's the nature of equity that creates a false impression of well being in the summer, when the cattle are out in the field, and brand new tractors and balers are making hay.  (No doubt the equipment is leased , with the dealer wanting to move product and hoping to make money selling it used in a year or two.)

Many Canadians are becoming familiar with home equity loans, low interest money based on the value homeowners have built up as they pay off their mortgage. Farmers do the same thing with their farmland,  buildings and equipment. One of the reasons banks and other lenders move so cautiously on essentially broke farmers is that putting too much land on the market too quickly will depress farmland values, and  lower the equity position of all their other clients, putting more loans at risk.  So equity can act like a cash machine that allows farmers to keep going one more year, the provincial economy benefits from all the expenditures and costs farmers rack up to produce a crop,  and the outward appearance to anyone who drives by the farm, is that everything is jim dandy. 

Many farmers have told me that there's a moment when debt levels get so high that it  becomes virtually meaningless. You keep writing cheques to pay your bills, and as long as the bank honours them, you stay in business.  Average debt levels on PEI farms have gone up by more than four hundred percent (400%) in the last thirty years, and while economists like Jeff Rubin continue to argue that Canadian farmers are in for boom times, farmers keep wondering when that day will come. 

This isn't to say anyone should feel sorry for farmers. They're grown people operating very sophisticated businesses, with the potential year by year to make a bundle. It is an argument to recognize that at this moment, the food business is rewarding consumers with exceptional value, and that  food processors and retailers will improve their bottom line not by charging more at the cash register, but by squeezing their suppliers (ie. farmers), and they have more than enough economic power to do it.

1 comment:

  1. thank you ian, for taking the time to write about these issues. i look forward to reading the many posts that will follow.