Saturday, December 22, 2007

Alberta and Saskatchewan are the provinces hit hardest by the drought

The rural economy in Alberta and Saskatchewan has been shaken at its very roots.

Like many of his neighbours ranching near Kinsella, AB., Barry Irving has been going through some tough times. Eight consecutive years of drought have wreaked havoc on the 7,000-acre cattle operation he runs.

"This year has been the worst by far because of the cumulative effects. It'll take three or four or five years to recover," he said.

For years, his operation has turned a profit or broken even. But this year, for the first time, Irving expects the ranch he runs--the University of Alberta Kinsella Research Ranch--will suffer a financial loss.

In January 2002, sensing hard times ahead, Irving sold off 60 calves about seven months earlier than he’d originally planned to. And he got a decent price for them, too, but that was before BSE hit hard.

"I should have sold the whole works--we would have done better," he said.

By the end of May 2002, he’d sold off 340 more calves. "We'd sell them in lots of 100 or 120. We'd sell 100 and go a couple of weeks without rain and sell 100 more. We are continually gambling on price and moisture."

The odds have been stacked against prairie farmers for the past eight years now. And even if precipitation levels returned to normal when the snow melts, the impact of the drought will be felt in rural communities for the next few years. According to Dr. Jim Unterschultz, professor of rural economics at the U of A, the average consumer won’t feel the blow inflicted by this summer’s record dry spell, but the result of that lost revenue is going to ripple through farm communities for the next few years.

The map on the provincial government's Drought Watch Web site needs little elaboration. A sizable swath of red across central Alberta indicates a record-setting dry spell between last September and this August. The drought devastated the region's wheat and barley crops.

"I read recently what the expected production would be—it's way down for Alberta," Unterschultz said. "So overall in the prairies, we're looking at the lowest wheat crop in 30 years and the lowest barley crop in 30 years."

Alberta is the biggest barley producer in Western Canada and "some areas are getting nothing" in terms of production, Unterschultz said.

"Cash sales at the farm level are about $7 billion a year, give or take, and of that $7 billion over half of that comes from livestock and the biggest portion of that is cattle. So in this province we have cash sales at the farm level related to cattle of, say, $3 billion. The shortage of feed has a huge impact on primary agriculture in Alberta."

A shortage of feed grain has resulted in cattle farmers selling off their herds. Unterschultz says that up to 25 per cent of the two million cows in Alberta may be sold this year because there simply isn't anything to feed them.

The sale of cattle for slaughter means ranchers, like Irving, will have a few years of playing catch up just to get their herds back to where they were.

"The following year, when people start to consider rebuilding their cow herds, there will be fewer calves going to market. The decision to expand the herd takes three years if you’re doing it, so that can have a huge impact."

But Unterschultz says this impact won't be felt at the supermarket--meat stocks are up because so many farmers are selling off their livestock for slaughter--but the impact will affect rural communities, where the economy is oriented around agriculture-oriented products and services.

"You've got a lot fewer dollars coming from primary agriculture [in rural communities], so as a result there are fewer dollars flowing into agriculture-related business, there's less money going to service industries that serve agriculture, such as machinery dealerships, and fertilizer suppliers. This will translate into fewer jobs. You're also going to have less handling of grain, which means less work for the railways."

One estimate, from the Canada West Equipment Dealers Association, foresees a 50 – 70 per cent drop-off in drought-afflicted areas for the sales of parts and services of farm equipment, because farmers may postpone repairs or sell off equipment to compensate for revenue losses.

Unterschultz says crop insurance and the Net Income Stabilization Account, which works as a sort of RRSP account for producers, as well as aid from financial institutions in the form of deferred loan payments, may ease the cash crunch this year, but they won’t necessarily put farmers on solid ground to rebuild in better times.

"If you get to defer your payments, it doesn’t get easier even in better times to make up the difference. So yes, it's useful in terms of cash flow and in terms of the farmer surviving and staying in business, but it does come with some hardships in terms of cutting into future cash flow."

But Dr. Mel Lerohl, a professor or rural economy at the U of A, says the drought isn't the Biblical catastrophe it is being made out to be in the media. What has changed, he notes, is that the people suffering this year haven't experienced drought conditions like these before and may not have been prepared for them.

"It is bad in specific situations for people who have no crop insurance and no forage insurance; and it is especially bad for those people whose dugouts and water courses have dried up," Lerohl said.

"But the difficulties are specific to the people facing these circumstances...There is no disaster brewing. This is not the end of agriculture. This is something that happens from time to time."

Dr. Debra Davidson, a professor of environmental sociology at the U of A, says the emotional state of those hit by the drought is often overlooked but is of paramount importance.

Those farmers who failed to insure their crops and have found themselves in dire straights stand to lose more than money. Losses will be felt personally as surely as they will be felt economically.

"There is a sense of identity in farming, so losing the farm isn't purely an economic event," Davidson said. "There is family wrapped up in this; there is community wrapped up in this. Agriculture is a source of identity."

If there is a positive side to the ongoing drought, it’s that no one can hide their problems -- communities are suffering and coping together, and perhaps growing stronger as a result.

Davidson doubts that efforts such as the national Hay West project, which has seen Ontario farmers donating hay to their Alberta counterparts, accomplish much in the long run.

"I'm no economist but--farmers helping farmers? Most of them are already economically stressed."

Irving admits to feeling the stress himself. The cattle he didn't sell have been feeding on pasture intended for use next spring, "So I've kind of mortgaged our future a bit to take care of this herd," he said.

"It's pretty depressing," he added. "But I'm a bit different--we make decisions for academic reasons. We know we need to keep 350 – 380 cows to support research."

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