FCC optimistic for ag. sector

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January 6, 2015 9:00 AM

Despite a number of challenges, Farm Credit Canada (FCC) predicts that the Canadian agriculture industry will be in a “strong position” in 2015.

The most important issues facing Canadian agriculture are a lack of workers, the decreased value of farmland, the effects of lower crop prices, the reliance on Chinese and American markets, and inflated food prices, according to FCC chief agricultural economist J.P. Gervais.

“The one thing which really will be impacting the Lloydminster area is farmland values,” said Don Anderson, FCC vice-president of operations for Prairie North, which oversees the agriculture industry around Lloydminster.

“You’re right on the border. Saskatchewan and Alberta have both seen very high growth in farmland values over the last 10 years. With the reduced commodity prices, we’re expecting more of a soft landing.”

As these land prices fall, it puts the question to prospective investors.

“Producers and other players will be looking at it from an economic side. What is the return on this land? Is it economically viable for me to purchase this land at this price? That’s going to be a change that will come into play for Lloydminster,” he said.

International economic trends are also expected to affect Canadian agriculture. Gervais said that despite improved job numbers, wages in the United States remain stagnant. Furthermore, the Chinese GDP growth is predicted to drop from 7.4 to seven per cent in 2015 and a weaker Chinese economy may impact food consumption as well.

As for food consumption at home, high beef and pork sales are pushing the cost of food above the rate of inflation for the second straight year. Food inflation is expected to reach the two to four per cent mark, compared to the Bank of Canada’s predicted inflation rate of 1.6 per cent.

Along with the rising cost of food, the number of Canadian agriculture workers is expected to decline, and offering higher salaries may not be enough to keep those workers on the job.

“If you’re looking at how these impacts may come back through to the Lloydminster area, the things we see in that marketplace is labour. It’s an issue today and will continue to be one down the road,” Anderson said.

Anderson said that the industry is seeing a diminishing pool of seasonal workers, like retired farmers who work occasionally in order to keep busy.

This poses a challenge for employers, who may find that they are training new people each year, only to see them leave once they have the knowledge that is required for farm work.

“We’ve been working with a number of producers, to have a hard look at their operations,” Anderson said. “Producers are having to become more creative in their strategies with regards to attracting and then retaining the skilled labour. It’s pretty hard. You’re a little nervous putting someone on a half-million-dollar piece of equipment.”

Anderson said some employers now offer bonuses, including bankable hours for seasonal work, and even some part-ownership options for long-term employees. Others have retooled their equipment to accommodate fewer workers.

“While some of (these issues) may be more familiar to producers than others, all have an impact on the business of agriculture and demonstrate the complexity and interconnectedness of today’s industry,” said Gervais in a press release.

An example of this interconnectedness is the effect that commodity prices have across the industry. Not only can crop prices dictate the value of farmland, they can also influence certain equipment sales. According to FCC, reductions in the value of crops have resulted in a 20 per cent drop in sales for large, four-wheel-drive tractors and combines. Gervais said this could lead to a heavier reliance on used equipment.

Yet despite these hurdles, Anderson said the overall outlook is optimistic for agriculture in the Lloydminster area in the coming year.

“We are still seeing things in a very positive light,” he said. “We expect 2015 to be a solid year overall for agriculture.”

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