Agriculture_Quebec

 source: Radio-Canada

THE CANADIAN PRESS May13, 2022

translation: GoogleTranslate/ doxa-louise

Inflation: Food prices will continue to rise in grocery stores

A section of fruits and vegetables in a grocery store.

There will be price increases for food, admitted the president of the Union of agricultural producers, Martin Caron.

Consumers should prepare for an inflationary shock at the grocery store. The food price increases seen so far are only a small glimpse of what is to come.

Unless there is major and rapid government assistance, households will not benefit this summer from the inflationary respite that local products usually represent, quite the contrary. And the situation will be even worse in remote areas where transport costs will inflate the bill even more.

The players in the agricultural community consulted over the past few days by The Canadian Press are unanimous: producers are in a catastrophic situation because almost all their production costs have skyrocketed. And several of them believe that beyond prices, it is the whole issue of food security or sovereignty that risks being called into question in the medium and long term.

Absolutely, there will be food price increases, that's for sure and certain , admits from the outset the president of the Union of agricultural producers, Martin Caron. Of how much? He cannot say, but it will be important.

Fuels

All farm machinery runs on diesel, and although fuel for agricultural production may be less expensive than that sold at retail for transport, its price has more than doubled compared to last year. In the spring of 2021, agricultural diesel was selling for just under $1.00 per litre. Then, it increased during the year to reach an average price of $1.26 in 2021. Following the outbreak of war in Ukraine, this price jumped to reach $2.05 per liter as of Thursday. 

A dairy and grain producer himself, Martin Caron says diesel costs him about $14,000 for the season on his average-sized farm. This year, it will cost me about $10,000 more, minimally , he said. A 71% increase.

Several producers also entrust various operations – seeding, fertilization – to subcontractors, usually paid by the hour, but these now add a fuel surcharge , thus another source of inflation.

Surcharges are also added by the carriers who deliver to them what they need and, for fruits and vegetables, bring fresh products to the major centers. It  takes trucks which, most of the time, belong to the producers , mentions Patrice Léger Bourgouin, General Manager of the Association of Vegetable Producers of Quebec (APMQ).

Fertilizers

Producers here buy their nitrogen fertilizers almost exclusively from Russia. The war in Ukraine thus aggravated an already present problem of overheated prices for fertilizers, because Canadian sanctions imposed a 35% surcharge on Russian fertilizers. Nitrogen fertilizer that sold for $630 a ton last year now costs more than $1,500 a ton, almost triple the base price.

The president of the Producteurs de grains du Québec (PGQ), Christian Overbeek, points out that even before this heavy tax, there was an appreciation in the value of fertilizers for various reasons such as the increase in the price of energy. Also, some industries had stopped making it because it was too expensive for them to produce. They had put their facilities on hold thus creating shortages .

Since the producers had ordered their fertilizer in the summer and fall of 2021, a very large unforeseen surcharge was added. We had experienced inflation throughout 2021 and there, for fertilizers and fuels, the war brought new increases, explains Mr. Overbeek.

Daniel Gobeil, president of the Producteurs de lait du Québec (PLQ), says last year's droughts in South America and flooding in western North America had already pushed grain prices up . There have been many episodes of climate change that have caused the price of grain to overheat, a commodity that is traded on the Chicago Stock Exchange and is very sensitive to variations in supply and demand.

The domino effect of grains on meat and milk

One of the important uses of grains is to feed animals. For animal production, in the last 12 months, we have been talking a lot about feed costs, especially the increase in the cost of grain, explains Mr. Gobeil. With the rise in the price of fertilizers and fuels, this further contributes to the increase in cereal prices. So it is certain that, for us, we are experiencing increases month after month and we do not yet know today when these price increases will stop.

Obviously, therefore, further increases in the cost of meat are to be expected, and when it comes to milk – and by extension, dairy products – last February's record 8.4% rise will certainly pale next to what is to come. The milk market is governed by the supply management system. Each February, the asking price is adjusted based on an analysis of production costs for the previous year ending in October.

However, the prices of fertilizers and fuels soared dramatically after October 2021. Consumers should therefore expect massive increases in the price of dairy products in February 2023, unless the federal government and the Canadian Dairy Commission accede to the demands of the producers. They are calling for a more responsive pricing system with a second annual adjustment, possibly in August. But for the consumer, this simply means that he will absorb a first part of the increase at the end of summer 2022 and another part in February 2023.

This formula should be adjusted at least twice a year, because for farms, the reaction time is too long. We should not come to make harmful decisions for enterprise, argues Mr. Gobeil.

Finally, since we are talking about animal production, we should not forget  bird flu, which is very expensive for poultry and egg producers. This constitutes another source of inflation.

Labor costs

There are many reasons to celebrate the increase in the minimum wage, an income barely enough to survive, but this increase will also be passed on to the consumer. Its impact is significant on the side of market gardeners, horticulture and berries.

Martin Caron points out that a study by the UPAshowed that the most important cost in these sectors is labour. It's 50% of the cost of a strawberry. Every time wages go up, it automatically has a major impact on the cost of food .

In addition, in a context of labor shortage, many producers know full well that they will have to offer more than the minimum wage.

Interest rates and shortages

And as if all that weren't enough, the recent rise in interest rates is hurting producers who have had to pay more than expected for their inputs. We lack liquidity in our agricultural businesses, so our people are looking to increase their credit lines, but at higher rates , reveals Martin Caron.

Each time interest rates increase by 0.5% at the agricultural level, $200 million is withdrawn from the margins of agricultural producers. This worries people a lot because we are talking about future increases of 1.5%. And that will mean that there will be $600 million less in terms of profits  overall in Quebec agriculture , he says.

To top it off, the fragility of supply chains adds headaches, particularly on the fresh produce side. Patrice Léger Bourquoin reports that there is a shortage of food rubber bands used to pack broccoli or asparagus, for example. These rubber bands are from China and orders are not arriving due to COVID. Also, there are no boxes. I shouldn't have any problems stocking up on boxes. North American production of corrugated cardboard is still quite significant. But the explosion of online commerce has meant that there are currently more requests for boxes than the supply is able to fill and there too we have to pay more.

The state to the consumer's rescue?

We should not be surprised to hear producers asking for state aid. They've been doing it for years, for all kinds of reasons usually related to the vagaries of the weather. But even leaving aside the explosion in costs, it would be difficult to call them wrong.

The latest Agricultural Policy  : Monitoring and Evaluation report from the Organization for Economic Co-operation and Development (OECD), published in 2021, reveals that since the late 1980s, Canada has significantly reduced support to agriculture . It was halved between 1988 and 2002 and halved again between 2002 and 2020, and now represents 9% of gross farm receipts, about half the OECD average. In other words, Canada gives its producers half the average for OECD countries .

We may want to be efficient, productive, all that has its limits, says the president of the UPA. If we want to remain competitive, we must have agricultural support at the same level as the others. In the United States, they receive twice as much support as in Canada and they receive even more in Europe.

It is really important that we have support if we want to maintain our agriculture. When the pandemic arrived, Ms. [Federal Agriculture Minister Marie-Claude] Bibeau and Mr. [Quebec Premier François] Legault said: we will not let our people down. We will have funds to support them. We therefore expect to have assistance programs for producers that will perhaps lessen the burden on consumers.

Without government assistance, it is certain that consumers will suffer a large increase, because producers cannot produce at a loss. As well, the purchasing power of the consumer still has its limits, notes Daniel Gobeil. The Canadian government must come to help the sector and limit inflation for the consumer .

Food Safety

What if  increases make them lose their competitiveness against growers in the southern United States, Mexico, or other warm countries that grow year-round with lower labor costs and more lax environmental regulations, the whole industry could be put in jeopardy, says Martin Caron. We are talking about biofood policy in Quebec. At the federal level, we are also talking about agriculture, but there is still another step to take. We are talking about autonomy and it is the sustainability of agriculture that is in question.

I am concerned because this year, there is a somewhat gloomy atmosphere, says Patrice Léger Bourgouin. These days, I have at least a member or two calling me every week saying, "If it's as tough a season as last year, I might start thinking about doing something else. "