In Ontario we heard last week about something that we thought was long forgotten. With the Ontario government announcing that they will be running a $24 Billion deficit for this fiscal year, the specter of unpaid days off for public employees has raised its head again. It brings me back to the time in 1993 when the same government faced a $12 billion deficit and former Premier Bob Rae asked for $2 billion in wage cuts to the public service. Part of that plan was mandatory unpaid days of leave for civil servants. At the time it was affectionately called, “Rae days. ”
For those of you dodging raindrops across the greater North American corn belt, the specter of actually not being paid for something is laughable. As farmers we have all experienced not getting paid for something. In fact many farmers would say they’ve never been paid properly for what they do. For instance, today I planted my last field of SRW winter wheat. I planted it in less than desirable conditions because I was expecting rain tonight and if I didn’t get it in, it probably wouldn’t get in this year. In many ways it was a “Hail Mary” pass to get my wheat in the ground. Hopefully I will get paid for it next summer but of course as farmers we just never know. Living in a business environment where you don’t necessarily get paid is part of our life in agriculture.
I draw this comparison this week because I want us to think about the greater Canadian economy and how it is affecting our agricultural markets. For instance when the manure hit the fan last fall and government started putting billions into stimulus programs, all good economists knew a day to pay it back would come. In Ontario, the heartland of Canadian manufacturing country the recession hit hard. So seeing Ontario finance Minister, Dwight Duncan stand up today and talk about his 24.7 billion dollar deficit, it seemed payback time had arrived.
The largest deficit in Ontario history before this time was $12 billion in 1993. That resulted in the pilloring of Ontario’s first socialist government led by former premier Bob Rae. It is now twice as bad as that and the province will certainly be looking at ways which may include unpaid leave to bring the deficit down. The finance Minister said that the Ontario economy is operating at a 2005 level and tax revenues have fallen so much that government has no way of replacing those revenues without drastic measures.
The Ontario example is one of many across Canada and across the greater Western world. The question I have is how will our grain markets react to our respective Western governments dealing with paying back all this government debt compiled because of the stimulus funding over the last 18 months? Is it a possibility that farmers will benefit in this era where governments may choose to pay back this debt with cheaper dollars? And what implications are there for Canadian agricultural policy as governments grasp to get a hold of their own purse strings?
The agricultural policy question is an easy one. It’s pretty obvious with agriculture being a shared responsibility between provincial and federal governments in Canada agricultural policy funding will be cut. I cannot see governments sacrificing health care and education so they can support Canadian farmers more. Ontario’s new innovative risk management policy will surely be at risk.
The bigger question on how burgeoning government deficits will affect our grain markets may be playing out right now. I wrote my colleague Darin Newsom last week and playfully asked him to do something about the anemic value of the US dollar. I asked him that because as the US dollar goes down, we all know the loonie goes up and Canadian cash prices for grain goes down. He commented back about the incredible move in the Canadian dollar since March. However keep in mind that the US Federal Reserve and the Bank of Canada are “managing” these values. For instance just yesterday Bank of Canada Gov. Mark Carney publicly said that intervention to weaken the loonie is always an option.
Of course the American question about government deficit is much bigger than the Canadian question because their economy is much bigger and their debt levels are proportionately bigger than ours. If they continue their policy of a weak US dollar it very good for commodities and good for grain farmers. You might even argue that these terrible government deficits may stimulate agricultural growth on rural concessions.
What does this mean? Does it mean consistently higher prices over the next five years? Does it mean increased demand for all that big iron that we need to plant that winter wheat? Does it mean that there will be a renewable of the pent-up grain demand that we saw so strongly come on stream in 2007/2008? In short does increased government debt and deficits mean better times for Canadian and American farmers?
I think so. I’m not willing to say it’s a 1970s style inflation generating economy in the making. I don’t think anybody wants to go back there, although I could do disco with the best of them. It all has to do with how our governments decide to pay back the debt. If that means monetizing the debt and paying it back with cheaper dollars that’s likely to be good for farmers. If governments cut costs and give civil servants unpaid leave like the old “Rae days “, I’m not so sure. We’ll surely have a hard time getting government people on the phone.
At the end of the day, as farmers we find ourselves here. We never asked to be here but we were certainly spectators losing a lot of money when the economic calamity came along last year and governments decided to avoid the apocalypse. So now as governments decide how to pay back those debts, we’re in for another ride. It’s certainly affecting us now. The challenge will be to manage that change and thrive in that change as we move ahead.