Thank you very much for inviting me.
I do have a presentation, copies of which will be circulated later. I didn't have time to have it translated.
We look at competitiveness from a business school perspective. I also farmed for 20 years, so I also look at it from that perspective. One of the things we do is try to figure out what farming is going to look like in the future and whether farmers are going to be competitive on the global scale, and we then think about the implications of that for Growing Forward. So I'll go through what I think things are going to look like in the future, and then I'll talk about the implications.
To be competitive, Canadian farmers and food companies—and I think we should think about all of that—need to be much more market-focused than they have been in the past. They need to be more international—and that is continuing. They also need to be more connected to their customers, to each other, and to the public. The people sitting beside me are a very good example of how you can build a good business on the basis of that.
We're seeing much more diversified operations in agriculture than we've seen in the past, and not all of that diversification is agriculture related. We're also seeing a shift in the use of resources, because farming is now becoming a multi-million-dollar business, and some farmers are looking at it from the perspective that other businesses do, namely, that they don't have to own all of the resources they use to actually run their business. We're also seeing farmers really looking at becoming much more accountable and much more sustainable. That will continue in the future.
Farmers also have responsibilities to society, and with those come opportunities. On the one hand, we look at feeding nine billion people, and that means there are new markets that are exploding around the world, particularly India and China. There are elements of those that are really attractive. We're finding out a lot more about the relationship between food and health, and that means new opportunities both for farmers and food companies—and that continues to expand.
The whole area of replacing oil is a factor, and not so much in the biofuel space but actually with some really interesting stuff that's is happening in the bioproduct space and with biochemicals, because then you can insert biomass early in the process and you don't have to change the rest of the supply chain.
Then other major factors concern farmers' adaptations as part of the solution to reducing climate change.
If we think about farmers—successful, competitive farmers in the future—we lump them into a couple of categories. Farmers in those categories will have to be very clear and understand how they're competing. Some are playing in global commodity markets: they're in industrial products markets or in energy markets. You're a commodity in that space, and so you need to be cost-focused, very productive, and also responsive to shifts in the global markets. On the other side, you see farmers who are operating in high-value niche markets. In that case, you need to be differentiating your product and you need to be highly innovative. That means continually connecting with consumers, figuring out what they need, and really getting it to them. Both groups are going to have to be sustainable, more sustainable and more accountable than they've been in the past, and health will play a big role, particularly in the niche.
The other thing that is going to make a difference in the future—and I'm not sure everybody gets it in the sector—is that there are really three levels of management that are happening in agriculture. One is traditional farm business management, which I did when I ran my farm and that farmers do right now. We're pretty good at that space, but when it gets up to moving into creating co-operatives, creating networks to connect with organic customers or local food customers, that's a whole different space, because the realities change, and so being able to manage networks and being effective in managing networks...[Inaudible--Editor].
The one piece that's absolutely critical is this whole piece of industry leadership, because the industry leaders are the people who define research strategies, who define trade strategies, and who interact with you as policy-makers to try to influence policy. From the research we see and in my experience, farmers sometimes have a hard time shifting from being farmers to industry leaders. That's actually one of the reasons we are starting a one-week “I the Executive” development program, strictly aimed at directors of agricultural organizations, because we just see that as a huge need.
What will help farmers compete in the future? It will be market research to understand their customers, both at home and abroad, and then focused market development initiatives.
Some of the policies right now do the following. If you go into a new market, we'll support you; but if you're just developing in the same market, we're not going to. That doesn't make any sense, if you're trying to really extract value from a Chinese market, for example.
We need support for innovation in both products and processes, and the process piece is one we don't tend to pick up as much. The work we've done with food processors shows they're doing of an equal amount of both.
I recommend investment in new technology, new products, and risk management tools that address real risks quickly and effectively, and maybe don't waste money on other things.
To me, one of the things that I would like to see is a shift in focus and investment, from putting almost all of our money into BRM programs, to really talking about some of the new opportunities. Whenever we talk as a group, what you hear are all kinds of discussions about new opportunities, new markets, and issues with regulation. When people look ahead, they don't think farm income. They think it's a basis, but they don't think this is where their future is going to be determined.
We've done a fair amount of looking at farm income. Just to give you a sample of the sorts of differences involved between large and small farms, if you take the smallest farms under $100,000—there are 73,000 of them—and compare them to the 2,000 biggest at $2.5 million and over, you will see the shrinking of the smallest and big growth in the largest. One of the things that you see from those 73,000 farmers is that they sold about $2.9 billion in product. The 2,000 biggest ones sold almost $12 billion. For the smaller farmers, it takes almost $18 of assets to produce $1 of revenue; for the larger ones, it's takes $2.31 to produce a $1 of revenue. From a competitiveness perspective, that's a significant imbalance. Also, when we look at off-farm income, the smallest farmers as a percentage of sales are at about 111%. They earn more off-farm than they actually sell on-farm. For the largest farms, it's about 0.5%. So there's a very big difference there.
That means you really need to think differently about policy, because there's no way in you-know-what that one policy will address the competitiveness of both those groups. We do see small farmers who are competitive, if they connect to attractive markets; but, as a class, they basically always lose money. There's this population curve that looks like this, and there's an income curve that looks like this.
Also, if you think ahead in terms of investment and how this is going to change in the future, you will see that the largest farms—the ones over $1 million—are investing almost $300,000. The biggest ones are investing over $500,000. The smallest farms are investing $7,000 to $10,000 a year on average. So you know that difference is going to continue.
We're getting a little concerned about the level of debt that farms are taking on, and the extent to which land is being bid up.
What should we do to be more competitive? I think we need to ask ourselves if we want to put all of our money, or most of our money, into BRM programs. I think we should shift some of it into investing more in innovation, into improving productivity at all levels, and into research and development. By this I mean some of the basic research like crop research and animal research. We're moving out of that space, but I still think that's an important underpinning. We need to invest in new market development and also in food industrial processing.
What works? It's really a matter of focusing on key objectives and key markets. We've seen some good examples of that. I'll talk about them later.
It's important to be regionally connected within a national framework. One of the things we've noticed is that national frameworks are great for setting policy, but that the regional or provincial adaptation councils, and things like that, seem to be a very good model, because you have industry players who know the sector, who know the businesses and can help direct investment.
I'm a researcher. I'm well-funded, but there's a small pool of money, about $1.25 million, that goes to fund five networks across the country. I know that's up to be cut. I wonder why you wouldn't want some of the smartest people in the country doing research on policy questions relating to agriculture. I don't quite see that it makes a lot of sense.
We also need improved access to StatsCanada data. That place is a big problem in terms of its funding....
Some of the challenges include the lack of a national strategy; industry structure, which I mentioned; lagging innovation and productivity. Regulation and interprovincial barriers to trade, I think, are important issues, and they've been raised before. I'm encouraged by the Regulatory Cooperation Council trying to coordinate better with the States. I think that's really good. As for the singular focus on BRM programs, right now is not a bad time to make a switch, since everybody is doing better than they've done for quite a few years. There's a lack of distribution networks to help smaller farmers access organic, local opportunities. We need to build some of those networks. Another challenge is leadership at the industry level. Also of significant risk to the future of competitiveness is the high value of land and the high value of quotas.
Thank you very much.