Hursh Consulting & Communications Inc.

Get ready for a heated debate over royalty payments on farm saved seed. This contentious issue will be a centre of attention for the Canadian grain sector over the winter.

All the players in the seed industry make a strong case for why more funding is needed for wheat and other cereals and the same model could end up being applied to other crops as well.

Canola is the exception. With canola, the vast majority of seed is purchased every year. Hybrids dominate, which eliminates saving your own seed even if you were allowed. On top of that, seed treatments for canola must be commercially applied.

Presto, there’s a lucrative revenue stream and companies tripping over themselves to come out with better varieties. Producers gripe about the ever increasing cost of canola seed, but they keep buying because the crop is typically a top money earner, even after paying dearly for the seed every year.

In contrast, industry estimates put certified seed use at only 20 or 25 per cent for wheat. Producers will buy certified seed of a new variety and save their own seed for a number of subsequent years before trying out a new variety.

According to researchers and seed companies, there just isn’t enough money to fund good breeding programs. This has spurred the development of proposals on how to collect royalties on farm-saved seed.

Newer varieties covered under the updated Plant Breeders’ Rights Act would be covered. The money would flow to both private and public plant breeding institutions.

Two potential models have been forwarded to focus discussions. Model one allows for a national non-refundable levy on all the newer varieties. These royalties would then be forwarded to the breeders based on their market share.

The proposal calls for the existing provincial check-off systems to be leveraged for collection. Many wonder about check-off fatigue.

It’s interesting to note that while the Plant Breeders’ Rights Act allows for end point royalties, you can’t have an end point royalty in a year when you’ve charged a royalty on the certified seed.

Model two is royalty collection enabled by contracts. When buying seed of a new variety, a producer would have to sign a contract agreeing to pay a trailing royalty on farm-saved seed. Part of the contractual obligation would be reporting the annual use of the farm-saved seed.

This sort of contractual arrangement could be done without any amendments to the regulations of the act. However, many in the seed sector believe it would be best to have regulations to bring about some consistency and standardization.

When Canada updated its Plant Breeders’ Rights Act to be compliant with the international standard called UPOV 91, the right for farmers to save their own seed was enshrined in the legislation. In fact, the provision was used to diffuse opposition.

The seed sector should expect the opposition to be reinvigorated and broader now that there’s money at stake.

The federal government has continued to put money into wheat breeding and hopefully that will continue. However, it’s naïve to believe that public money will greatly increase in the years ahead.

There’s no free lunch.

Private companies will only invest in wheat and barley if they have a way to generate sufficient revenue. Unfortunately, for farmers who feel that everyone has a hand in their pocket, that’s a tough pill to swallow.

It has become fashionable to complain about the high price of farmland and how it’s difficult or even impossible for young people to get a start in farming these days. However, if you look at the selling price of older farm equipment, this is a great time to start farming. You can be very well equipped at a reasonable price.

At a recent consignment auction sale in my neck of the woods, I watched a 2002 Morris Maxim 11 39 foot air drill with a 240 bushel two-compartment tank sell for a mere $7,000. The unit appeared to be in great shape, the one knock against it being that it was single shoot.

Older units that are 15 or 20 years old sell relatively cheap whether they are Morris, Flexicoil or Bourgault, even if they have double shoot capability.

And cheap horsepower is available to pull older drills. If you’re willing to run something that isn’t fancy, but still has years of life left, you can find a seeding tractor for under $25,000.

Most producers have moved to high-clearance sprayers and as a result pull type sprayers are a dime a dozen. At this particular auction, some very serviceable rigs sold for under $1,000.
There may be jobs for which you would want to hire a custom high clearance operator, but on a small to medium acreage, you can get by without the expense of owning one.

And if your budget allows, there are smaller and older high clearance sprayers for under $30,000. They won’t be as fast as your neighbour’s newer model, but it will still cover a lot of acres in a day.

Used combines are available to fit almost any budget. They might not have the newest technology, but the basic principles of thrashing grain haven’t changed.

Of course, equipment needs don’t stop there. You’ll need another tractor for the pull type sprayer, a grain truck or two, augers, water tanks, tools and a bunch of other stuff. However, a 2,000 acre farm can be quite nicely equipped for less than the cost of one brand new combine.

We’re in an era where the biggest tractors hooked to the biggest and best new air drills have a price tag in the range of $1.5 million. You can look at that and say beginning farmers don’t have a chance, but in reality good used equipment is available at a wide range of price points.

This doesn’t overcome the record high price of buying farmland, but many get their start by renting land. You always hear about the sky-high rental rates. In Saskatchewan, there are cash rents in the $100 to $130 an acre range, but there are also areas where the cash rent on good farmland is less than half those amounts.

Don’t get me wrong. It isn’t cheap or easy to build a farming operation from scratch. Almost all farmers get their start within a family operation. That’s the way it’s been since this region was originally homesteaded.

But there are enterprising individuals who continue to develop very successful farms with hard work, good budgeting and incremental growth.

There’s no shame in running older equipment, but it is a shame to run into financial trouble because you want to run the newest and best when you can’t afford it.

Indian tariffs on pulse crops have received a great deal of attention. Less well known, but arguably more offside are the measures keeping Canadian durum out of Italy.

Indian tariffs are blamed for decimating pulse prices in Canada, particularly for red lentils. Truth is, pulse exports had practically stalled before the tariffs were applied last fall due to the much larger than normal crop produced by Indian farmers.

With India typically buying a billion dollars a year worth of Canadian pulse crops, this has been a major blow to the industry. But Canada isn’t alone. Australian farmers have also been hurt and Kenyan farmers who were previously encouraged by India to grow pigeon peas are now stuck with no viable market.

We may not like it, but India is not breaching any trade agreements with its high pulse crop tariffs. In fact, under World Trade Organization rules, the tariff on lentils could increase from the current 33 per cent to 100 per cent.

Domestically, India has a difficult balancing act. It has millions of small, struggling farmers complaining about low grain prices and threatening to grow something other than pulse crops. On the other hand, the population is prone to rioting over any increase in staple food prices.

Sooner or later, Indian pulse production will drop due to a reduction in planted acres and/or weather concern. Tariffs will disappear and trade will resume. The question is when.

Contrast this to what’s happening in Italy. That country typically imports about two million tonnes per year of durum to augment its domestic production. About one million tonnes of high protein, high quality durum usually comes from Canada.

Canada doesn’t have a trade agreement with India, but the Comprehensive Economic Trade Agreement with the European Union came into force last fall. Despite CETA, Italy has initiated country-of-origin labeling. Segregation of durum and labeling of pasta products has added significant cost to imported durum.

For months, Cereals Canada has been calling for a formal trade challenge. Why do we develop trade agreements unless we’re willing to enforce them? Some Italian officials have readily admitted that their labeling laws are meant to disadvantage imports.

Beyond labeling, Canadian durum has been vilified by Italian farmers over glyphosate residue.

Barilla, a worldwide leader in pasta manufacturing, has stopped buying Canadian durum for its Italian pasta plants. Emilio Ferrari of Barilla explained to the recent Canadian Global Crops Symposium in Toronto that back in 2016, the Italian government banned the use of pre-harvest glyphosate in wheat. According to Ferrari, this wasn’t a big deal because it wasn’t used anyway.

However, Italian farmers began pointing to imported wheat and durum as poison because it had a measurable glyphosate residue. Barilla now has contracts for durum imports that stipulate no pre-harvest glyphosate. However, Canada has been singled out and no Canadian durum is being imported.

No exact numbers are available, but most durum acres in southern Saskatchewan and Alberta don’t receive pre-harvest glyphosate. However, if you measure glyphosate residue down to parts per billion, you can find a residue in almost every crop, probably even organically produced crops.

As a result, Canadian durum that’s ten or 20 times lower than Europe’s maximum residue limit for glyphosate still isn’t good enough for Italian consumers.

There are more reasons to be upset with Italy than there are with India when it comes to trade issues.

Forecasting the economy is a lot like forecasting the weather. Both are reliably unreliable.

For predictions of the agricultural economy, you need to forecast both the weather and the general economy, not only at home, but also in key importing and exporting regions around the world. Needless to say, there are poor odds of getting it right, particularly if you try to forecast an entire year.

But here’s what we know.

Most of the Western Canada has a sizable moisture deficit. Average rainfall this spring and summer will not be enough to produce an average crop, especially in southern regions.

In many years of the past decade, too much moisture has been an overriding concern. Other times, it has started out dry in the spring and everything has turned out just fine. So there’s no use panicking, but soil moisture levels are a concern nonetheless.

(Interestingly, the mainstream media gives about the same credence to The Farmers’ Almanac as it does to The Weather Network or Environment Canada when it comes to long-range forecasts.)

We also know that lentil and pea prices have fallen dramatically and show few signs of a timely recovery. Lentils have been a big money-maker, the go-to crop for many farmers in the southern and central grain belt of Saskatchewan. Lentils look far less attractive for 2018 and there will be a significant switch to other crops.

Canola will likely capture much of the acreage switching out of peas and lentils. While canola prices continue to grind lower, the crop still looks favourable compared to competing options.

Crop insurance coverage will be good for most crops. Since the prices used for crop insurance are based off estimates made in December, any further decline in canola prices won’t be captured. However, producers have a tendency to misinterpret their crop insurance protection.

Let’s say your average canola yield is 40 bushels per acre. At 80 per cent coverage, your crop insurance yield guarantee is 32 bushels an acre. Let’s assume the crop insurance price for canola is set at $10 a bushel providing coverage of $320 an acre.

Too many producers look at this number as the worst-case scenario. No matter what happens in the growing season, be it drought, hail or flood, they think they’ll have $320 for each acre of canola to work with.

But of course, crop insurance is production insurance, not price insurance. What if you grow a 32 bushel per acre crop and the market price is only $8.50 a bushel? There’s no crop insurance payout and your gross return is only $272 an acre.

While weather and economic forecasts are fraught with inaccuracy, one forecast that’s true eight or nine years out of 10 is that nitrogen fertilizer prices will rise in the months leading up to seeding.

True to form, the market is showing signs of marching higher. Alberta Agriculture’s farm input price survey shows a substantial rise in urea prices from October to November. It’ll be interesting to see the numbers posted for December.

Forecasting interest rates has been a pretty safe bet for a lot of years. Even if they do edge upwards in 2018, the impact on farm income shouldn’t be significant.

The value of the Canadian dollar is another matter. A Canadian dollar that rises about 80 cents would significantly curtail grain prices and farm income levels.

Moisture, crop prices, Trump, Trudeau. Overall, there are many good reasons for caution as we head into 2018.

Despite all the emphasis on climate change, it isn’t at all clear what it will mean for Prairie agriculture.

Yes, the frost free period appears to be increasing in many parts of the Prairies, but there’s huge variability. According to Paul Bullock, a soil scientist at the University of Manitoba, the frost free period can vary by a month from one year to the next.

Bullock gave a presentation at the recent Prairie Grain Development Committee meeting in Winnipeg. PGDC is where new lines of many types of crops are assessed for whether they will be supported for registration. Like farmers, plant breeders would love to know the implications of climate change.

I was especially interested in hearing Bullock’s presentation because we were ag college classmates. With his farm background and continuing ties to a farm in northwestern Saskatchewan, he has a practicality often lacking by those trying to make sense of climate change and agriculture.

But Bullock isn’t a climate change denier by any means. He believes the extensive global measurements showing 2016 was the warmest year on record. In fact, most of the warmest years have been in the last decade.

He says southern Canada has seen a one to two degree temperature rise over the last 100 years. The change is most notable in higher minimum temperatures and since 1950 the main effect has been in the winter.

But when it comes to characterizing the weather tendencies for growing crops in Western Canada, the picture is not at all clear.

Since Canadian agriculture is at the northern extreme of crop production with a short frost free period and limited heat unit accumulation, a warming climate might mean we can grow bigger crops and a wider range of crops including soybeans and corn.

Bullock’s work and the work of other scientists shows any increase in frost free period is spatially inconsistent, meaning it’s longer at some reporting locations and actually shorter at others. Crop heat units have increased only sporadically and some have actually decreased. Overall, there is actually little change over the past 10 years.

What about precipitation? Bullock says this isn’t monitored well and it’s even tougher to draw conclusions.

In general, there has been an increase in spring rain. While snowfall is difficult to measure accurately, it has gone down.

Following the widespread Prairie drought in 2002, many big projects geared up to research drought. By the time those projects were up and running in 2005, the wet years had started. Bullock remembers 2011 in Manitoba when there were a record number of unseeded acres due to flooding and this was followed by a lack of rain that hurt the crops which had been seeded.

Will increased levels of carbon dioxide in the atmosphere actually aid plant growth? More uncertainty. And then there are the indirect effects of changing weed, disease and insect pressure. It’s reasonable to expect a broader range of pests.

An increase in severe weather seems likely. More global heat should mean more low-level moisture and the greater potential for storm energy.

In the end, even someone with Paul Bullock’s credentials can’t provide much practical guidance for farmers and plant breeders. The potential exists for increased floods as well as droughts in addition to more severe weather.

“Can we push coping mechanisms wider?” asks Bullock. Increasing crop production resilience to weather extremes may sound like a strategy, but it won’t be easy to accomplish.