May 10, 2001
Value Added Builds Rural Communities
Times are tough on the land and the image of desperate grain farmers on the steps of the Legislature lingers with many of us. But governments are correct in being reluctant to increase agricultural subsidies. Traditionally they have tended to link the viability of our rural communities with policies that seek to find ways to raise grain farmers' incomes. In a world where richer countries continue to keep prices artificially low through production subsidies, the wiser approach for us is to focus on the entire rural economy and develop policies to improve take-home incomes for all the people.
In fact, there are many "good news" stories out there, but they lack the drama of the crisis besetting smaller grain farmers. More rural people are prospering within their own communities as the economy adjusts naturally to new opportunities. We find good jobs emerging in emerging value-added ag processing industries that transform raw commodities into more profitable products further up the food chain. Consider these four typical rural diversification stories:
1. Potatoes. Only Prince Edward Island surpasses Manitoba's 73,000 potato acres. In 1999, our province marketed 14.8 million hundredweight -- 84 percent to processors on contract, 10 percent for table stock and 6 percent as certified seed. Manitoba is home to four major processors. Carberry-based Midwest Foods, a mammoth operation employing 600 people, processes over 600 million pounds annually. That's one job for every million pounds, resulting in over 1,200 rural processing jobs for the entire sector. Producers, suppliers, truckers and spin-off employment are all on top of that figure. The industry is set to expand with the recent announcement of the new Simplot processing plant in Portage la Prairie. The major factor limiting expansion is water availability, since industry demands the consistent quality available from irrigated potatoes. More focused water-allocation policies will unlock more growth and more jobs.
2. Oats. In 1988 the federal government lifted the Canadian Wheat Board's oat-marketing monopoly. With this regulatory impediment removed, investors flocked to capitalize on the oats craze that was sweeping North America. Both the federal and provincial governments of the day decided to support such a venture and the result was Can-Oat Milling (www.can-oat.com). This wholly owned subsidiary of the Saskatchewan Wheat Pool has facilities in Portage la Prairie and Saskatoon, and has become the largest industrial supplier of oat products in the world, with the capacity to process more than one million pounds daily over its range of 18 different products. The plant in Portage la Prairie currently employs 135 full- and part-time employees.
3. Hogs. Manitoba is Canada's third largest hog-producing province. The industry is growing at 12 percent per year, thanks to two crucial public policy changes. First, the federal Liberals removed the Crow Rate that had artificially promoted raw grain exports. Second, the Filmon government replaced single-desk marketing with a flexible system that allowed producers to deal directly with processors. These changes spurred the construction of Maple Leaf Pork's new facilities in Brandon and the Springhill Farms expansion in Neepawa. Manitoba produces about 5.3 million hogs annually or about 16% of the value of our total agricultural production. Over 12,000 people owe their jobs to hog production, including growers, services such as veterinary, trucking, feed, meat-packing and tertiary service personnel. Depending on how much processing is carried out in Manitoba, every lot of 1000 hogs creates two to three jobs. There is substantial scope for further growth since about 1.44 million weanlings were shipped out of province last year to be fed and processed elsewhere. Environmental concerns, both perceived and real, are the main impediment to more jobs in an expanding hog industry. If these are addressed properly, the future will be even brighter.
4. Hay/Forage. Another rural, value-added success story is found in Russell, where local entrepreneur Gary Halwas and his firm Sunridge Forage decided to profit from the shortage of timothy hay faced by the Japanese and Korean livestock industries. This grass grows well in the wetter soils of the Russell area. Since normal bales are far too expensive to ship, Halwas built a plant that takes the unwieldy 900-pounders, dries them, slices them into sections and compacts each segment into a very dense bale for shipment to the Far East. The plant employs 14 people and contracts over 6000 acres of land that had previously been dedicated to low-return cereals. Net returns for the growers are now about $250.00 per acre versus near non-existent net returns for grains. Timothy is an environmental winner, too, since it prevents soil loss and provides nesting habitat for ducks. In a growing market, Sunridge's future looks bright.
Grain prices are going to stay low. That is beyond our control. It makes sense for our governments, therefore, to shift the focus of agriculture policy from encouraging the export of low value raw grains to promoting high value-added agriculture processing.
Diversification works and saves rural communities in the bargain.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."