AGRI Committee Report

CHAPTER 2: RURAL DEVELOPMENT AND AGRICULTURE

A. Rural Development: Should or Shouldn’t Targeted Support Programs be Adopted Based on Farm Size?

One school of thought among the architects of agricultural programs holds that government transfers should be targeted to farms with the highest average production in the country. According to Agriculture and Agri-Food Canada data, approximately 20% of farms account for 80% of total annual agricultural production. At the national level, large farms, that is those with sales of $100,000 or more (31% of all farms) receive 96% of net farm income and 80% of payments from government programs; small and medium-size farms, those with sales between $10,000 and $99,999 (35%), account for 10% of net farm income and receive 19% of payments from government programs; lastly, hobby farms, that is those with annual sales of less than $10,000 (34% of the total) receive 1% of government payments and represent 6% of net farm income.

In light of the statistics, it is readily understood why certain analysts are tempted to allocate public funds to the largest farming operations. However, if government were to proceed in this manner, it would disregard the diverse nature of Canadian agriculture and the importance of smaller agricultural operations for the viability of rural regions. None of the witnesses who appeared before the Committee suggested that agricultural policy should exclusively target a particular group of farmers. For that reason:

RECOMMENDATION 4

The Committee recommends that present and future government agricultural support programs remain accessible to everyone who qualifies as a farmer so that the diverse nature of agriculture and the importance of all types of farms, large and small, for the viability of rural areas be taken into account.

B. Rural Development: Establishing Infrastructure and Tax Incentives for Agriculture

In rural areas where the economy is mainly based on agriculture, there can be no doubt that farm profitability is still the best guarantee of success in maintaining viable development. However, profitability in recent years, particularly in cereals and oilseeds, has considerably declined and constitutes a negative factor for rural renewal. If grain prices were to remain at low levels for much longer, there might not be a next generation of farmers, a situation that would result in a major restructuring of the sector. Of course production could become more concentrated in the hands of a limited number of producers without there being any significant change in total output, but that might mean the deterioration, and even dismantling, of certain rural communities.

For rural communities to be sustainable, active participation is imperative.  One should not underestimate programs, such as the 4-H, which promote projects that develop real life skills, such as leadership and social skills.  As mentioned by one witness: “the 4-Hers are the foundation of any future in our country” (Ms. Velna Dickson, Standing Committee on Agriculture and Agri‑Food, Evidence, 1st session, 37th Parliament, n^o 60, Miramichi, March 21, 2002).  Programs that promote participation and extension services in rural communities are an integral part a agricultural policy.  Agriculture and Agri-Food Canada should continue, and even increase, its support to such programs.

A number of witnesses expressed their concerns about the future of their communities, but also stated that there was no single solution or panacea for rural renewal. Some European countries have taken measures to retain a critical mass of farmers in the countryside, but, in a country as vast and diversified as Canada, a European-type approach to agriculture seems more difficult to establish. As there are many aspects to rural development, government intervention should always be carried out in partnership with local authorities, failing which its impact will be diluted. The Rural Secretariat follows this partnership approach, and positive results are being felt. Here too government must be innovative and dare at times to go off the beaten path. If direct government expenditures on infrastructure, venture capital investment and new business development are good ways to stimulate rural development, any other measure that promotes agricultural profitability should not be neglected. Farm tourism, the creation of value added in rural areas and the establishment of non-traditional industries such as the biofuel industry are often better served by tax incentives. For this reason:

RECOMMENDATION 5

The Committee recommends that the government give special attention to tax incentives that may promote the development of rural communities — in particular through value added, biofuels and farm tourism — and be innovative in its use and application of tax measures.

In addition, witnesses from across Canada told the Committee that government investment in infrastructure was inadequate. To keep young farmers and their families on their farms, or even maintain a critical mass of population, and to attract new investment for higher value-added processing or the development of new products and services, farm communities must be able to provide a range of services such as medical centres, schools, a telecommunications network and roads, all in an integrated whole. Infrastructure development is sometimes more of a response to political issues than to the actual needs of rural populations. It is imperative that the various levels of government work together to a common end: the viability of rural regions. To this end, Rural Dialogue, which is under way as part of the Canadian Rural Partnership and is now in its fourth year, has made it possible to harmonize and better understand the needs of communities. Consequently:

RECOMMENDATION 6

Whereas the federal government must draw on the lessons learned over the past four years of Rural Dialogue, the Committee recommends that funds be invested in the development of infrastructures that meet the demands of farmers and other rural stakeholders.

C. Rural Development: Grain Transportation and the Road System

 The reform of grain transportation in western Canada was discussed on a number of occasions. Farmers are still adjusting to ongoing changes, but the promise of greater efficiency in grain transportation has not yet been fulfilled. In fact, secondary effects of the reform are beginning to be felt, for example, in the form of safety of the road system. And yet there are solutions to these problems, such as producer cars, the loading methods for which have evolved and adapted to producer needs. In certain regions, these cars are a competitive and effective solution to primary silo operations, without putting pressure on the road system. However, witnesses disagreed on how producer car loading facilities should be regulated. The Canadian Grain Commission perceives those facilities more as primary silos under the act and for the purpose of granting operating licences, even if they are only used to load producer cars. Consequently:

RECOMMENDATION 7

The Committee recommends that the government, with the provincial governments, invest more in the road system in western Canada.

Furthermore, since the use of producer cars is an effective and competitive method for transporting cereals, the Committee recommends that the government and the Canadian Grain Commission facilitate the use of this method, in particular by protecting producers from financial losses which could result from damage to grain in transport or bad elevator debts.

D. Rural Development: Farmers are Stewards of the Land

A number of farmers stated that their role as stewards of the land was becoming more complex as the government regulated species at risk, habitat and other environmental measures. Furthermore, the environmental plans proposed in the new Agricultural Policy Framework raised not only concerns about the costs they will incur, but also questions as to whether Canada is not in fact pursuing an approach in which farmers play an official role as stewards of the land without providing them with the compensation that must be offered under such a strategy. To clarify the situation:

RECOMMENDATION 8

The Committee recommends that the rural Secretariat’s next action plan, which will be developed from 2002 to 2004, include a specific component on agriculture and the environment so that the important role of farmers is defined and recognized. The Committee further recommends adequate compensation for measures aimed at protecting the environment and the landscape in recognition that farmers play an important role in the stewardship of the land.

E. Rural development: Urban Sprawl

The disappearance of rich farmlands in favour of non-agricultural uses has always been a concern. The profitability of agriculture still remains the best tool for countering this phenomenon, but certain rural regions are suffering the consequences of the fact that prices of certain commodities have remained at low levels for some time, thus leaving the door open to urban sprawl. Unless there is a serious reversal in the price of
cereals — which few analysts anticipate in the more or less near future — certain agricultural regions could lose a relatively large percentage of their agricultural lands. Consequently:

RECOMMENDATION 9

The Committee recommends that Agriculture and Agri‑Food Canada discuss with the provinces on a regular basis the problem of urban sprawl.

F. Rural Development: The Role of Cooperatives

The Committee met a number of stakeholders who emphasized the importance of the cooperative movement in rural communities. At a time when there is a convergence of businesses and market concentration, forcing large businesses to rationalize their operations, cooperatives remain more integrated in their communities. Agriculture and Agri-Food’s Cooperatives Secretariat aims precisely to help citizens create cooperatives and ensure their development and promotion. However, stakeholders informed the Committee that cooperatives, which must innovate in order to develop niche markets, are coming up against bureaucratic resistance in the areas of new product design, tax changes and the interpretation of certain regulations. Other witnesses told the Committee that cooperatives, unlike large public businesses, have more trouble financing themselves and that the government should play a role in facilitating their capitalization.

Bureaucratic resistance in acknowledging farmers’ true needs was a recurring theme of the Committee’s hearings across Canada, and it appears to indicate a certain lack of understanding on the government’s part of the agricultural economic reality. There can be no doubt that agricultural cooperatives can be powerful tools for agricultural development and rural communities. The government must keep an open mind, remain flexible in its regulations and be as innovative in its policies as the craftsmen and entrepreneurs who work hard to establish economic activities in rural areas. Consequently:

RECOMMENDATION 10

Whereas agricultural cooperatives are powerful tools for rural development, the Committee urges the government to be flexible in enforcing its regulations and to be as innovative in its policies as the cooperatives are in product development. The Committee further recommends that the government examine and adopt tax incentives such as the carry-over of tax on patronage dividend paid, that can facilitate the capitalization of cooperatives.

G. Rural Development: Intergenerational Transfer of Farms

The intergenerational transfer of farms was a major theme of the Committee’s meetings in all regions of the country. Farmers are very much concerned with this issue because many of them see their businesses as a work that must be passed on. Many witnesses represented the third, fourth and even fifth generation to occupy their farms, and just as many feared for the next generation. Although they hope their operations will survive them, farmers today show a certain degree of resignation. For a number of them, the risks inherent in farming are now too high, and they understand why their children are reluctant to take over. At the same time, however, they are not giving up and are continuing their efforts to facilitate the transfer of their farms to the next generation and to find solutions enabling them to do so. According to Statistics Canada, the average age of farmers in Canada is over 55, and an estimated 125,000 farmers could retire in the next decade. The debate over the transfer of farms helps in understanding how interconnected Canadian agriculture is. Farm profitability is on the downswing because of foreign subsidies which depress commodities prices; to counter this phenomenon, farms are expanded through capital injections and technology; as a result, the countryside has slowly depopulated, which is reminiscent of what has occurred in certain regions of the American Midwest, where there is still agricultural production, but a lack of rural life.

The Committee’s hearings clearly showed that this is not an option for Canada. The discussions focused more on ways of attracting young people to take over, rather than to enable current farmers to leave the sector. We cannot afford to create programs to help a cohort of more than 100,000 individuals leave the sector without also attempting to replace it. To maintain a balance, we must work on both sides of the equation. All stakeholders admit that policies and programs that improve the economic viability of farms or improve market prices are the best ways to keep or attract the next generation. However, while waiting for better economic times, the government has a role to play to facilitate the transfer of farms. Consequently:

RECOMMENDATION 11

Whereas the emphasis must be placed on agricultural succession, the Committee recommends that the government examine all tax incentives that will facilitate the intergenerational transfer of farms, in particular by raising the capital gains exemption to $1 million.

Operating a modern farm business requires a set of technical knowledge of matters ranging from planting seedlings to marketing. Statistics show that new farmers who have sound technical knowledge and have taken advantage of some form of learning are better equipped than others for success. Witnesses maintained that training should not be a prerequisite for setting up in farming, but that it appears to be necessary. For that reason:

RECOMMENDATION 12

The Committee recommends that current government budgets earmarked for agricultural training be increased each year to meet farmers’ growing need for technical knowledge.