Farmers benefit from the troubles of others.
This is one of the often-uncomfortable truths in farming. In a world market, where some countries buy grain and others sell it, we compete with farmers from all over the planet. If Australia has a great crop of wheat and canola, they may steal certain importing markets from us in Canada, such as Indonesia. If Brazil and Argentina grow a massive crop of soybeans, they may steal market share from the United States. This is the economic reality we live in. Growers associations in countries all around the world vie for export markets, some of which are new, but we often fight over the same markets. So, when an export competitor has a poor crop, other exporters benefit.
This doesn’t make the system callous or evil. It’s the nature of economics. In fact, it’s a good thing this happens. If there wasn’t another exporter available to pick up the shortfall, prices in the importing country wouldn’t just rise; food might just be unavailable. This used to happen all the time. Famines of the past were devastating. A drought-ravaged crop in your area could kill you and everyone around you. There were no alternatives. There was limited ability to import food from elsewhere.
Our system today allows for many exporters to fill the market in any given country. When one of them has a bad crop, the other fills in. Some countries specialize in higher-value crops. In Western Canada, we mostly grow bread wheat and durum wheat (as far as wheat is concerned anyway). These products are prized around the world for their consistency and quality. Our hard red spring wheat produces some of the best flour in the world. Our durum produces the most beautiful pasta you can buy. In most other exporting regions, like the European Union and the Unites States, most of the wheat produced is soft, meant for pastries and noodles, not bread or pasta. This is a key advantage for Canada, mostly due to our short, dry growing season.
When I started farming in 2007, my very first crop was hard white wheat (produces a white whole wheat flour – the market never took off unfortunately). At that time, farming was enduring some very hard times. The early 2000’s was an extremely difficult period for Western Canadian farmers, like my dad. Grain inventories were high, and prices were low. Land was so cheap, it was worth about a tenth of today’s prices, and you could rent it for almost nothing. While land prices were unbelievably cheap by today’s standards, banks were uninterested in financing it. “There’s no return on investment in land” was a quote Dad heard many times as he tried to buy land in those years. In our area, 2003 was a brutally difficult year, with a drought slashing our production to almost nothing. In 2004, an August frost killed our crop off before it could finish setting seed. In much of Western Canada, 2002 was a horrible drought as well. And yet, despite all the poor yields and production, grain prices stayed stubbornly low. World stocks were so high, the shortfall in Western Canada was not enough to materially change prices. But something was happening behind the scenes that would change agriculture dramatically.
World stocks were declining. But no one had really noticed it yet.
Like many things, the change in commodity prices happened slow, then all at once. Spring wheat prices peaked at $24 per bushel on the Minneapolis Grain Exchange in 2008. But all good things must come to an end, and the Great Recession killed off the commodity boom prematurely. Prices roared back in 2010-12 with short crops in various countries, especially including the US in 2012, only to fade again in 2013. Since then, grain prices have been generally weak.
One thing farmers are very good at is responding to market signals. As grain prices exploded in the late 2000’s, farmers received a powerful signal to increase production. We amped up our game in agronomy, bought more land and equipment, and worked for every bushel we could get. Farmers worldwide did the very same thing. High prices cure high prices, over time.
Once grain inventories were built up again, the signal to reduce production came – but that signal is not a clear one for farmers. When grain prices are low, what’s the best way to keep revenue up? Increase production. Not exactly the best thing to do when stocks are already high! So, grain stocks just kept rising, and prices kept falling. In 2019, prices on all of our commodities were at decade lows. Things were looking pretty bleak. But, once again, something was happening behind the scenes.
The signal to reduce production was having an effect, and the onset of the Covid pandemic changed everything about how countries viewed food security; suddenly, just in time delivery wasn’t adequate anymore. Now, leaders were worried about empty shelves in the grocery stores. Buying interest picked up. Nations were buying food, not just to keep the shelves full, but to build reserves. At the same time, production challenges were a growing problem. Western Canada recorded its worst crop in decades in 2021. South America had poor soybean and corn crops. China had serious problems with flooding. North Africa had poor production. The US is in a severe drought, one that may be a one in a thousand year event. We have no idea what tomorrow will bring, but suddenly, food security looks like a real threat for billions of people.
After all this disruption comes one of the greatest disruptions of them all: Russia invading Ukraine. The humanitarian crisis unfolding there is heartbreaking. Men, women, and children are dying. What Russia has done, and is doing, is horrifying. And this is not the only crisis from this unprovoked attack.
According to Dan Basse of AgResource Co., “This is the biggest supply shock that we can find, looking backwards at our data to 1914… on a caloric basis.” It could amount to 11% of the world’s annual caloric consumption. “God forbid we have a weather problem this year,” he said gravely (source).
The crisis in Ukraine will become a food crisis for countless people, particularly in poorer countries. But it’s worth remembering it is not the only – or even the primary – reason for high grain prices. Those were around long before the war. The war just took them to a new level.
I think it’s important to mention, too, that these high grain prices aren’t the only reason the cost of food has escalated so quickly here in North America. In fact, my share of the cost of a loaf of bread is just 4%. That’s right – when you buy a loaf of bread for say, $2.49, the wheat farmer is only getting about $0.10 of the money you spend. That is not much, and certainly isn’t demonstrating unrealistic returns for farmers in these times. Indeed, it seems likely that a lot of other factors are having a much larger effect than grain prices.
Usually, for farmers, it’s exciting to see higher prices. Decades of farming at breakeven, barely getting by, makes all of us thrilled to see profitable prices for our grains; for people to see how important food is. Truth be told, without these periodic spikes in prices, farmers would have a hard time surviving. In the last decade since the commodity boom, grain buyers and importers have become a little complacent, believing the catastrophic crop failures of the past were just that – a thing of the past. They’re learning they are not.
The thing is, though, that grain prices are only one piece of the puzzle for us. The other piece of this, of course, is the rising cost of everything: fertilizer, crop protection products, equipment and parts, energy and materials; this will be the most expensive crop we have ever grown, by a long shot, and we were fortunate enough to book and buy a lot of these inputs last fall. What if one of our tractor’s monitors fails? Will we be able to find replacement parts? What if we spear a tractor tire on a deer antler? Can we get a replacement? Will the chemicals and fertilizers we need be available? Who knows? One thing I know for sure, though, is this will be one hell of a stressful planting season. High grain prices are not a cure-all for us.
The thing is, though, that these worries are tiny compared to the threat of an enemy on your doorstep. Of hoping you will have enough food to survive the year. I see the pain these grain prices are causing. It’s not easy to reconcile that with the excitement that comes from higher grain prices. It seems to me, for those of us who were fortunate enough to grow a crop in 2021, we should consider using some of our benefits from these prices to help others.
There are many foundations and charities to donate to that can help people on the ground in Ukraine. There are farmers there, like Kees Huizinga, who are enduring this hardship firsthand. We can share their stories. We can ensure they’re heard. Food banks are a great option these days, too, with rising food costs affecting consumers even in our own communities.
It might not be much. But it’s something.
The other, perhaps more important piece is government policy. For years, non-governmental organizations (NGOs) like GreenPeace and the Sierra Club have slowly convinced people that modern technology is a bad thing. That conventional agriculture, with its reliance on fertilizer, crop protection products, and mechanization is a problem. That fossil fuel use must be immediately stopped. Unfortunately, governments listened. The European Union’s Farm to Fork strategy is a colossal catastrophe, likely reducing European production by 10% or more over the next few years (and will do nothing positive for the environment). Our own government’s 30% emissions reduction target for agriculture is highly concerning. Worldwide, much has been done to stall and delay adoption of genetically engineered or even gene edited crops. Crucial crop protection products, like glyphosate, have been banned in several countries in just the last few years. All of this, combined with the move away from fossil fuels, has helped lay the foundation for the crisis we’re currently facing. These policies, along with monetary policies over the last 15 years, sowed the seeds of a food and energy crisis. The war didn’t cause it – it just made it worse.
Farmers, like me, have the ability to produce safe, healthy, nutritious food for people all around the world that are in desperate need of it this year. Let us do what we do best, and this food crisis will be short-lived.