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Growing Ontario’s Greenest Industry - Agriculture in Perspective 2004

by 5m Editor
10 January 2004, at 12:00am

By the Ontario Federation of Agriculture and published by Ontario Pork - This article looks at how the Agricultural Policy Framework, the BSE crisis and various government taxes affect the Ontario farmer.

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Introduction

Ontario Federation of Agriculture
With 40,000 farm family members across every county, including the GTA, and 36 commodity group members, the Ontario Federation of Agriculture is Canada’s largest farm organization. OFA’s farm members, through their elected county and commodity board representatives, develop OFA policies.

Canadian Farmers and the Economy
Canada’s farmers and their employees produce 8% of our GDP, underpin 1 in 7 jobs and $26.6 billion of exports with a trade surplus of $7.4 billion. Farm exports sustain the dollar and farm production ensures that all Canadians share in the lowest cost food in the developed world.

As the second largest manufacturing sector in Canada, food processing has also enjoyed access to top grade and competitively priced raw materials. Farming benefits all Canadians by providing safe, affordable food, employment, and a clean, sustainable environment. Farming has been our nation’s foundation and still generates $26.6 billion in primary output. In Ontario farm production is very near $8 billion with additional value added in food processing of $15 billion.

Ontario Farmers and the Economy
“There has never been a prosperous, stable and flourishing society that depended on others for its food.” - Ron Bonnett, President, Ontario Federation of Agriculture.

Ontario leads the country in agricultural production with 24% of the total. Ontario’s farm strength is evident in the links that connect farms to our fellow citizens and the Ontario economy. In Ontario, the impact of low food costs provides economic development through higher disposable income, which has had a dramatic impact on Ontario’s economic performance. Reasonably priced food creates reasonable industrial wages and contributes substantially to the competitive position of the province. It makes saving for a home or education easier, and thinking about investments and holidays possible.

Growing the economy of Ontario through agriculture has been an ongoing success. In addition, farm families provide a significant foundation for Ontario’s quality of life by sustaining rural communities that are vital to Ontario.

This success has not been shared with farmers and their families. Costs on Ontario’s farms have risen constantly. In spite of the fact that each acre produces today more than twice what it did when most Ontario farmers got started, costs have kept pace or exceeded productivity with net margins over the past six years varying from $325 million to $540 million. The net income per farmer had a peak of just under $10,000 per year.

This average disguises a great deal of variability, but all farms contribute to Ontario’s prosperity and underpin over 600,000 Ontario jobs on farms and in food processing and low cost food for every family.

Ontario has been losing over 1,000 farms a year for the past ten years. Each year about 1,500 new farmers start, but over 2,500 existing farmers leave because of health, retirement or financial pressure. The net loss is over 1,000 farms a year. Neither the federal nor the provincial programs of the past ten years have halted this erosion in spite of the monumental efforts of Ontario’s farmers work on and off the farm. Over 65% of Ontario’s farmers work off of the farm to keep their farms going. They subsidize themselves, with their own off-farm efforts that yield nearly half of the farm’s cash flow.

“When Ontario farmers’ off-farm income is added to domestic government support received, the total is about equal to the government support enjoyed by farmers in the US and Europe.” - Bill Mailloux, Vice-President, Ontario Federation of Agriculture.

Ontario Farmers and the Environment
Ontario’s drinking water falls as rain on Ontario’s farms and moves its way through our soil to rural and urban wells. Many of our rivers, the Thames, the Grand, the Sauble, the Sydenham, the Credit, the Rouge and the Ottawa all depend, in part, on the ability of Ontario’s farmers to operate in a sustainable, responsible way. Ontario farmers have always been, and are today, positive contributors to sustaining Ontario’s environment.

“Farmers and their families live on the land they work, and drink the water from the wells on their properties, they know how important it is to sustain the environment.” - Geri Kamenz, Vice-President, OFA.

Safe food, water, landscape and over 600,000 jobs all rest on the ability of Ontario’s farmers to compete and meet their obligations to the environment and in the markets.

Ontario Farmers, Caretakers of Ontario’s Landscape
Ontario depends on its farmers not just to grow and provide food, but also to work as the responsible caretakers of the largest part of the land base.

Ontario’s landscape is beautiful. It reassures every person in Ontario that the land supports them. The outlook and independence of Ontario’s residents, rests on their knowledge that they have freedom to make choices because the abundance of the land is supporting them. The new immigrant family in Toronto can think about their own business for next year, because they know they can afford to eat today.

That Ontario farming has come this far is owing to the hard work, careful planning and the care given to our bountiful resources. Farmers did not do this alone. They have been supported by their governments, their customers and fellow citizens. We must ensure the future of farming and farm families is guided by our successful past.

Public Interest, Public Spending grows Ontario Agriculture
“Ontario’s farmers have a very significant role, not only in rural economies, but in overall economic prosperity and well-being of our Province.” – Premier McGuinty.

The Premier is right. Ontario’s economy and well-being does depend on farm output. Farms are an integral part and Ontario would be much poorer without them or without a significant part of them. Government cannot legislate away adverse weather and market conditions, which can and have, contributed so much of the decline in Ontario farms. But we do believe Ontario’s support can evolve and continue to be structured intelligently and strategically to make the most of farm support programs for our industry and for Ontario.

Speaking in June 2003 on BSE, the Honourable Steve Peters, now Minister of Agriculture, demonstrated that he understands that the Province can act on its own or with the federal government to help agriculture when needed and he showed a clear sense that it is needed now. To quote him “our minister does have the authority and the option to enhance, extend or boost the program … if that is what is necessary to save the beef industry in our province. I urge this government and its Minister of Agriculture to commit to this industry that they will immediately take action, get the money into farmers' hands and do what it takes to ensure this vital industry does not disappear from the face of the province.” The Minister’s views in June must hold now.

Agriculture’s future depends on market acceptance, market growth and ongoing product innovation. Each of these areas for expenditure is an area where joint or group action is more efficient than multiple individual efforts. Individual farms cannot address these considerations adequately on their own and government must continue to carry a major share of these responsibilities.

Ontario farmers compete successfully against other countries’ farmers and against other countries’ treasuries. But this success for Ontario and Canada is at the expense of over 1,000 farm families lost each year. In what we would view as a normal year, 25% of farms are in the red. This year the pressures are worse. At the beginning of 2003 there were 28,000 farmers raising beef in Ontario. How many will survive BSE? The number of farms lost in Ontario in 2003 and 2004 can only skyrocket.

The Ontario Federation wishes to enlist the support of the Ontario government to make Ontario a place where farms and farm families thrive. Together, we can reverse the adverse demographics and the cost squeeze to build a stable, sustainable agricultural industry in Ontario.

The OFA advocates a series of fiscal and taxation remedies to assist farm families in Ontario in coping with today’s agricultural markets. This paper discusses the current situation for farmers in Ontario and recommends actions the Ontario Federation of Agriculture (OFA) believes would improve the overall economic circumstances of Ontario farm families.

A Property Assessment

  1. Define ‘Farm’ and ‘Farming Operation’:
    OFA asks that the Ministry of Finance organize a group of government and farm representatives to prepare a commonly acceptable definition of farming for assessment purposes on an urgent basis.

    The Municipal Property Assessment Corporation now assesses farming operations such as maple syrup operations and grain dryers as industrial facilities. The subsequent property taxes for these farm assets can rise four to ten times. Chick hatcheries have been wrongly assessed as industrial and some municipalities suggest that pork and poultry barns and fruit and vegetable washing and packing houses should also be ‘industrial’. This abuses the definition of farming. The President of MPAC stated in a letter to the OFA dated January 5, that MPAC would participate in an effort to define farming for assessment purposes. OFA strongly endorses such an effort undertaken jointly by OMAF, the Ministry of Finance, MPAC, OFA and various farm commodity groups. In addition OFA asks that there be no further such reclassifications for such value added farm facilities and the changes of the past six months be reversed.

  2. Assessment Basis:
    A second assessment concern relates to the method by which farm are assessed. The Assessment Act intended that farmers should have farmland assessed as farmland not as development or recreational land. The Act provides that farms are to be assessed based on the value of farmer-to-farmer sales. MPAC does its best to do this. However there are not enough farmer to farmer sales in any one year in Ontario to provide a statistically valid assessment base and if a farmer buys the land his price must include development value; so non-farm values inevitably enter into farm assessments. This is contrary to the intent of the A ct, but given the present assessment rules is the best possible.

    OFA asks that the farm assessment rules be re-examined with a view to developing an assessment method that would value farm land based on its most probable value in production using data sets that provide statistically better information such as Agricorp Crop Insurance filings or possibly farm rental agreements. This change would not change total farm taxes, though it might alter one farmer’s taxes relative to another. It would ensure that non-farm values do not enter into farm assessments and better meet the intent of the Act and provide more equitable treatment.

  3. Changes to Farm Property Class Administration
    Every year the farm property class treatment lapses for some farmers either because of illness at the time the paper work is to be done or because neither the new owners of a farm or their real estate agent or legal advisers made certain that all the paper work was done for property taxes.

    The present legislation and regulations do not provide OMAF with any discretion in administration. This can lead to situations where all parties agree that an injustice will result and a farmer will have to pay residential taxes on the whole farm for at least one year. A change to the rules to allow OMAF discretion to include farmland in the Farmland Property Class up to December 31 of the tax year would eliminate these injustices. This action was promised in the 2003 budget but was not enacted prior to the proroguing of the Legislature.

B Retail Sales Tax

OFA advocates two changes to RST administration to assist Ontario farmers.

  1. Competitive RST Exemption:
    The OFA continues to recommend the RST rules to be modified so that all items which are tax free for farmers in the RST/GST harmonized provinces are also RST free for farmers in Ontario.

    OFA believes that exempting farm inputs from RST on the same basis as in Quebec would improve farm income by more than $20 million per year and remove a handicap on Ontario’s competitive position vis-à-vis agriculture in Quebec.

  2. Efficient Administration:
    Membership cards issued in conjunction with the Farm Business Registration process should be recognized as proof of being a farmer for purposes of the Purchase Exemption for farm use purchases.

    This would simplify the process for farmers, retailers and government auditors. The Government’s Small Business Advisory Committee has spoken positively on this suggestion and simplification was promised in the 2000 and 2003 budgets, but action has not yet followed.

    The OFA is well prepared to provide recommendations and assistance on the administration of such a simplified and efficient system.

C Land Transfer Tax

  1. OFA seeks changes to Land Transfer Tax to ease young farmers’ entrance to farming.
    Farms sold in a family must be exempt from Land Transfer Tax. These transfers occur when a new generation takes over the farm. Tax is paid by the buyer. This is a tax on start-up farmers and is inequitable compared to transfer of farm land to a corporation.

    The proposed change had been adopted by the Ontario government and noted in its 2003 budget. As a result, succession planning decisions have been enacted based on a reasonable anticipation of this reasonable and fair change.

    Of the 4,000 farm property sales per year about half are within families. Farms sold by a farmer to the farmer’s farm corporation are not subject to the tax, nor is there land transfer tax when the corporation changes hands in the family. But farms sold to an individual within a family are subject to Land Transfer Tax. All in-family transfers of farms should be exempt whether they are done by transferring shares or by transferring the land. Making all in family transfer of farms exempt from land transfer tax would affect less than 2,000 farm transfers a year for a total of $5,000,000 made available mostly to new entrants.

D Income Tax

The Income Tax Act is the most potent economic tool available to government. Its intelligent use is key to the future of agriculture. OFA wishes to address the just treatment of people and the need to build and maintain a viable business climate for farmers.

  1. Capital Cost Allowance Rates
    OFA asks that the Ministry petition the Federal government and have Capital Cost Allowance rates for farm equipment and buildings reviewed. These rates have not been adjusted in over ten years. Rates for barns and equipment in barns no longer reflect their economic life. This can lead to investment for tax reasons rather than production reasons and to ‘second best’ outcomes for farmers and Canada.

  2. Restricted Farms Losses Provision
    The OFA again asks that the Federal government be petitioned so that the $8,750 restricted farm losses provision is increased to reflect inflation since it was last changed. The restricted farm losses provision is essential to start-up farmers.

    Adjusted for inflation the restricted losses provision should be $12,800. To cover past inflation and higher farm costs, $16,000 to $20,000 is needed. This change would allow more effective capitalization of new farms and reduce risks for start-up and expanding farms, while assisting older farmers with a more adequate retirement.

E The Impact of BSE

Cattle and other ruminant livestock producers have had tremendously difficult times since the confirmed single case of BSE in Alberta this May and the second case in Washington State in December. The loss of markets has destroyed farm income for Ontario’s 28,000 cattle producers and roughly 5,000 sheep, goat and deer producers.

Producers who had to sell large parts of their herds at reduced prices cannot purchase replacement animals. Without replacement animals, many will face high income tax. Foreseeing this burden, we ask you to petition the Federal government to extend the Prescribed Drought Regions Deferral Program to livestock producers affected by BSE.

Currently the Prescribed Drought Regions Deferral Program allows farmers, with at least a 15% reduction of their breeding herd, the option to defer part of their revenue for a tax year in prescribed drought regions. OFA, along with the Ontario Cattlemen’s Association, have asked the federal government that the program be extended to allow all Canadian farmers, with at least a 15% reduction in their total ruminant livestock numbers including feeder stock, the option to defer part of their livestock revenue for one year. This will allow producers one year to replenish their livestock inventory and will avoid the hardship of forcing farmers to buy animals now even though there is no market for it.

There is immediate need for a cull cow program to aid cattle producers. This program must recognize that processing capacity is limited and fund farmers, not provide discounts for processors.

Ontario’s livestock commodity groups have worked on Minister Peter’s BSE Task Force that has identified key issues and measures to address them. (The Task Force Reporting Letter is attached.) Specifically the Task Force requests that:

  • Funding to be directed in a way other than cheques to individual producers, as pooling these funds would allow critical, longer-term issues to be addressed.
  • Support for new packing capacity in Ontario such as GENCOR’s
  • Support for additional cooler space in Ontario processing plants
  • Funding to ensure that national identification tags program continues
  • Funding for marketing, emergency feed and dead stock removal

Ontario can lend its voice to the federal government’s in asking that the US reopen its market. Should the market stay closed through the coming election in the USA, the opportunity for domestic leverage in the US will be past and Canada will likely face a very long closure and the loss of one third or more of the Ontario beef market that currently sustains 33,000 producers.

F Nutrient Management

The farm community is represented on technical matters relating to nutrient management and has long understood that the phase-in of regulations will be tied to provincial funding support to assist with compliance. In the course of developing Bill 81, the Nutrient Management Act, all parties of the Legislature committed to providing financial support to farmers who incurred costs to meet the requirements of the Act and its Regulations.

It is clear in normal times and, particularly now, given the devastation wrought by BSE that Ontario’s cattle, sheep, and other livestock producers cannot afford any new capital outlay to meet the new regulations. Farm community support for Nutrient Management is wholly dependent on there being adequate funding.

The Ministry of Finance must work collaboratively with OMAF and MOE so that financial support is made available over the period of years that the regulations come into force and to ensure sensible costs are remunerated. Without the promised support, Nutrient Management compliance costs will force many thousands of Ontario’s farms out of production. The cost of support can be limited by phasing in regulations once it is known which measures would produce real benefits. This money must flow at least 18 months in advance of enforcement of the regulations to allow compliance time.

To date, neither OMAF or MOE has done any work to determine if the benefits achieved by nutrient management will outweigh the costs. It is likely, for example, where natural stream buffering etc. protects watercourses, existing practices are completely acceptable and nutrient management spending, compelled by law, will not produce any improvement. If costs are required, even where there will be no net benefit, the funds whether public or private, will be totally wasted. As a first step, the Government should move to a practical position where spending will only be required where it will produce a net improvement.

G Agricultural Policy Framework

OFA and Ontario’s commodity organizations supported Ontario signing the Agricultural Policy Framework (APF). Much effort by OFA and OMAF will be needed to ensure the orderly transition from NISA and other earlier programs to the new CAISP, along with an effective Ontario implementation of the other pillars.

Ontario’s agreement to the terms of the APF provides “wedge” funding to extend Market Revenue Insurance (MRI) and Self-Directed Risk Management (SDRM) programs.

The MRI and SDRM programs have two years to run. OFA and OMAF with support from the Ministry of Finance will have to develop the programs to replace these and other farm support programs that will lapse in the coming two to three years.

Production Insurance components of the APF remain incompletely defined. Provision must be made to fully accommodate the needs of the livestock sector as well as grain and horticultural producers.

The Environmental, Food Safety, Research and Renewal aspects of the APF remain inadequately defined. These four pillars will entail substantial private and public spending. It is imperative that Ontario commits to a planning effort to ensure that the components of the four pillars are well thought out and that they contribute positively to Ontario agriculture. OFA asks that the Minister of Finance asks his colleagues in OMAF, MOE and other ministries involved with the APF to work with OFA and farm commodity groups to develop effective plans for implementing useful programs in each area.

H Research

In real terms, provincial and federal support for agricultural research in Ontario has fallen by over 30% in the past ten years. Research fueled the 18% per year growth in productivity that has kept our industry competitive and at least partially able to keep pace with rising costs. Reduced research threatens our future.

In the long term, agronomic and agricultural research is the most cost effective support for agriculture as it directly affects the need for other support. In addition, new requirements for compliance with Nutrient Management legislation and other emerging environmental issues demand increased levels of research to enable efficient compliance. For example, the horticultural industry lacks information on nutrient usage by crops and therefore is hardpressed to effectively comply with Nutrient Management dictates.

Past cuts to agricultural research have been counterproductive and should be reversed. Provincial support to agricultural research at the University of Guelph and its colleges has been cut from over $ 75 million to $ 55 million at present. Had support kept pace with inflation the total would now be over $ 100 million.

OFA asks that the Provincial government restore financial support to agricultural research to a level of at least $ 90 million per year to provide for essential maintenance of facilities and replacement of laboratory and related equipment and allow agricultural research to return to its levels of effort of 10 to 15 years ago. Realizing that the Province faces financial constraints and that the University could not necessarily effectively harness a massive increase, OFA suggests the increase be phased in at the rate of $ 7 million each year for five years.

Research is essential to our future and the research cuts of the past ten years have been a tax on the future of farming in Ontario. Please repeal that tax.

Source: Ontario Pork, December 2003