BUSINESS/ECONOMY/COVER

PARCHED

D'ARCY JENISH June 27 1988
BUSINESS/ECONOMY/COVER

PARCHED

D'ARCY JENISH June 27 1988

PARCHED

BUSINESS/ECONOMY/COVER

George Frerichs drives an 11year-old car, he has been using the same tractor for 15 years, and his grain truck is 21 years old. A wheat farmer from Rosetown, Sask., 70 miles southwest of Saskatoon, Frerichs said that 41 per cent of his income last year came from government subsidies. He has given up his membership at the local curling club to save money, and his wife, Joyce, has taken a full-time job as a clerk at a regional college. Now, with one of the driest springs on record in Western Canada and continuing low wheat prices, Frerichs and his wife are facing another year of austerity and struggle just to break even. Said Frerichs: “There’s got to be an easier way to make a living. You hope some day you’ll make enough to retire.”

Devastating: Frerichs is like hundreds of other western Canadian farmers who have been defeated by a devastating combination of drought and low wheat prices. Drought created havoc across the three Prairie provinces in 1980, 1984 and again in 1985. Over the past two years, worldwide grain surpluses and a subsidy war between the United States and the European Community caused a catastrophic drop in wheat prices. At the same time, the spring was one of the driest on record across the Prairies. And last week, the scattered showers that drifted across the prairie did little to help. Said Environment Canada spokesman John Bendell: “It is too little, too late, for a lot of crops.” Although the rain showers buoyed the spirits of some farmers, they did little to erase the disastrous legacy of the 1980s across the Prairies: rising debt, huge mortgage arrears, a collapse in land values, farm failures and a growing dependence on government subsidies.

As well, there are no clear indications that an economic recovery is imminent. Grant Vipond, a Winnipeg-based wheat market analyst with the federal government’s National Grains Bureau, said that wheat stocks worldwide are declining and that wheat consumption this year will exceed production for the first time since 1982. With supplies becoming tighter, prices have begun to improve, said John Morriss, director of information with the Winnipeg-based Canadian Wheat Board. He added that prices

would almost have to double to recoup the farm-income losses of the past two years. And if prices rise substantially, government subsidies will likely drop, which could leave farmers with little or no gain in net income.

Although grain farming has always been a cyclical business, the depth and duration of the current downturn has forced many farmers and agricultural economists to question the future of the industry on the Prairies. Indeed, federal Agriculture Minister John Wise said that his department has considered proposals that would encourage farmers

across the country to abandon marginal land. But that policy would probably be unworkable on the southern Prairies because of the vast tracts of barely arable land there. Said Wise: “It would just be too costly, economically and socially.” But maintaining grain farms may become increasingly costly. Some meteorologists and scientists say that the recurring droughts are a cosmic signal of worldwide climatic change caused by atmospheric pollution (page 39).

Heat: American farmers are reporting even more extensive crop damage from prolonged heat and dry weather. Some experts predict that U.S. corn and wheat yields will be down by as much as 20 per cent in the current year. Economists say that the result will be higher consumer prices and inflation next year.

Donald Ratajczak, director of economic forecasting at Georgia State University, said that he now anticipates that food prices will increase by six per cent next year rather than the 4.5 per cent he predicted. One indication of the drought’s severity was the drop in the level of the Mississippi to its lowest levels in history, stranding several hundred barges.

Aggravated: The drought in the Canadian West this spring has been aggravated by below-average precipitation last fall and winter. Brian Paruk, an Environment Canada meteorologist in Edmonton, said that Alberta received only 40 per cent of its normal average precipitation over the winter months. As a result, there was almost no spring runoff to replenish the dugouts and sloughs used as drinking water for cattle and other livestock, said Barry Grace, an agricultural meteorologist with Agriculture Canada in Lethbridge.

Then, April and May turned out to be two of the driest months on record. Grace said that there was no measurable rainfall in the Lethbridge area in April, which has never happened during the 86 years for which records have been kept. As well, in May, the area received less than half its normal 1 rainfall. Similarly, Agriculture s Canada’s Swift Current, Sask., research station recorded only 2.2 inches of precipitation from last September until the end of April. Meteorologist Herbert Cutforth said that was the lowest amount of rainfall for those months in 102 years.

The drought had an immediate impact on livestock producers, who normally allow their cattle to graze on pastureland during the spring and summer. Earl Geddes, who raises cattle on a 1,000-acre spread near Pilot Mound, Man., 170 miles southwest of Winnipeg, said that hay for his animals had doubled in price to about $90 per ton this year. Richard Rees, manager of a Saskatchewan Wheat Pool elevator in Swift Current, said that cattlemen in his area were buying feed at equally inflated prices. Others let their animals feed on winter wheat, which was sowed last fall and which the drought had already se-

verely damaged. Glenn Logan, a cattle rancher and grain grower from Lomond, Alta., 100 miles southeast of Calgary, said that cattlemen in his area had shipped 25 70-head truckloads of cows and calves to government pastures in Alberta’s Peace River district. Logan said that the 800-mile trip was costing up to $1,600 per truckload.

Although cattlemen were the first to feel the effects of the drought, they may also be the last to benefit from the light rain that has fallen. Dennis Laycraft, general manager of the Calgary-based Alberta Cattle Commission, said that burned pasturelands will recover only after repeated rainfalls and that they cannot be used for grazing for months. For grain growers, the sprinkling of rainfall eased damage already inflicted by the drought, but most observers remained pessimistic about the potential yields this year. Said Garfield Stevenson, president of the Regina-based Saskatchewan Wheat Pool, a farmer-owned cooperative that runs some 500 grain elevators across the province: “I don’t think there’s much hope of even an average harvest.”

Extreme: According to Stevenson, the drought seriously affected more than 40 per cent of Saskatchewan’s grain-growing districts, and farmers in those areas have reported irreversible crop damage. Normally, wheat plants do not begin forming heads of seeds until reaching a height of eight to 10 inches. A healthy, full-grown plant produces four to six heads, each containing as many as 40 seeds. But extreme heat and dryness this spring are causing immature plants to form seed heads at a height of only three to four inches, Stevenson said. Those plants may attain full height but will produce only a single head containing a mere five to six seeds. A similar problem has occurred in southern Manitoba, which also felt the full impact of the drought. Said William Craddock, a Manitoba grain grower and floor trader on the Winnipeg to Commodity Exchange: “There’s no question that there will not 9 be a large crop in Western Cana| da this year.”

I The prospect of lower yields z has had one potentially positive i side effect: futures contract

prices for feed grains and such oilseeds as canola and flax have skyrocketed on the Winnipeg Commodity Exchange and U.S. commodities markets. Craddock said that farmers can take advantage of those price increases by having their grain sold on the open market rather than through the Canadian Wheat Board when they deliver to a local elevator. But farmers have been holding back deliveries because a small crop this year might leave them with little or no grain to sell over the next year.

Layoffs: The uncertainty over this year’s crop has disrupted the flow of grain destined for foreign markets and resulted in temporary layoffs for 450 grain handlers at Thunder Bay, Ont.

The wheat board’s Morriss said that the board had planned to send 5,200 grain cars to Thunder Bay last week but could fill only 3,000. And, just over 4,400 left the Prairies for West Coast ports, although the board had allocated 5,000 cars.

But even ideal growing conditions and an average harvest this year will not eliminate the economic problems that have developed over the past four years (page 36). The most obvious problem confronting western farmers has been loss of income. Wayne Jones, a federal agriculture department economist, said that grain and oilseed growers earned $4.6 billion last year from the sale of their crops, down from a yearly average of $6.8 billion from 1981 to 1984. At the same time, Jones added, direct government subsidies increased to an estimated $2.7 billion last year from an average of $300 million a year between 1981 and 1984.

Losses: Despite the size of the subsidies, farmers have still suffered enormous financial losses. The federal government estimates that the value of land and buildings has fallen by $25.6 billion since 1981 to $86.7 billion. Banks and government farm-credit agencies are holding more than 500,000 acres of land repossessed from western farmers. And the federally owned Farm Credit Corp. reported last month that 21 per cent of its loans to prairie farmers were in arrears. By comparison, only 7.7 per cent were overdue in May, 1982.

The cumulative effect has been economic paralysis. Harvey Schick, president of Fireside Agencies Ltd., a Regina real estate company which specializes in rural properties, said that there is almost no demand for farmland. Financially troubled farmers cannot sell to reduce their debts because the mortgages against their land frequent-

ly exceed the current market value.

Still, there are signs that world wheat stocks are dwindling and that sellers are regaining some influence in international markets. Market analyst Vipond said that for the crop year end-

ing on July 31, world wheat stocks are expected to fall 31.9 million tons to 161 million tons, or 27.6 per cent of world wheat consumption this year. That is the lowest stock-to-consumption rate in six years. Vipond added that, historically, prices have risen sharply when world stocks fall below 21 per cent of consumption. Indeed, Morriss said that foreign customers are now purchasing wheat two to three months

in advance of the actual delivery date.

But even the most optimistic observers of the world wheat trade concede that a turnaround will be a slow process. Inevitably, there will be more grain growers who are either forced out

or who quit in dejection. For prairie grain growers, the 1980s have brought financial turbulence and upheaval. Unless there are dramatic changes to adjust to a changing climate, the closing years of the century promise many more cases of individual humiliation and defeat.

D'ARCY JENISH

BRIAN BURTON

GARRY MOIR

DAN PAGE

THE DISASTROUS DRYLANDS

Satellite shots taken in 1987 (left) and 1988 illustrate the severity of the drought that has gripped south-

ern Saskatchewan. The arid areas, which appear as green, have widened far beyond their 1987 boundaries.