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Dangerous times for grain farmers

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Dangerous times for grain farmers
Despite the optimism that high grain prices bring, the Ontario Agri-Food Policy Institute is worried that we may be headed for economic disaster. The current conditions are very similar to those of the 1970s, which led to a crash in prices and skyrocketing interest rates.


June 4, 2008
By Ontario Agri-Food Policy Institute

May 29, 2009

Guelph,
Ont. – Although planting is occurring in Ontario this spring with unusual
optimism triggered by higher grain prices, the Ontario Agri-Food Policy
Institute is worried that current conditions are too similar to those of the
1970’s, which led directly to economic disaster for thousands of farmers a few
years later.

In the 1970’s, grain price spikes were triggered by the combination of
increased global demand for grains crops, and high oil prices. Many countries introduced
export embargoes, oil costs skyrocketed and, in inflation-adjusted dollars,
price peaks for both gasoline and grains were at least as high as they are
today.

The after-shocks for agriculture were catastrophic. Grain production increased,
but global demand didn’t by nearly as much as projected. Grain stocks jumped
and prices crashed. Many farmers who had borrowed money to expand lost their
farms as prices plummeted and interest rates soared. Indeed, for Canadian
agriculture, the 1980s were mainly about recovering from the after effects of
the Seventies.

Terry Daynard, Managing Director of the Institute says we need to pay close
attention to lessons from the past. He cautions Ontario farmers to be cautious and to
resist the urge to borrow major sums of money simply to do more of the same.
“Rather, current profits should be used to reduce burdensome debt, invest in
new technologies, and develop new ventures and market opportunities which will
be critical for survival when prices drop. Already, world wheat prices have
dropped substantially from recent peaks.”

Of special concern to farmers should be the attack on the development of
biofuels, and other non-food markets. Farmers and politicians need to remember
why biofuels development occurred in the first place. Biofuels provide an
environmentally neutral octane enhancer for gasoline, reduce net greenhouse gas
emissions and reduce oil imports for many countries.

Daynard agrees that the world population continues to grow and needs more food.
“However,” he says, “the growth is almost all in developing countries, and
increased production there, rather than increased imports from us, is the most
likely source of the additional food needed in future years. Grain producers in
the western world, especially Canada and the United States, will continue to need all of the
market opportunities they can muster.”

“The use of renewable, bio-based feed-stocks to partially replace declining
supplies of petroleum-based products still makes complete sense – if only we can
survive this current negative frenzy,” says Daynard.