How can Canada remain viable as one of the world’s largest agricultural exporters? Producers have options to maintain profitability in the immediate economic environment and over the long haul. Kristjan Hebert of Hebert Grain Ventures advocates following the “5% rule” — or paying attention to both productivity and efficiency. Focusing on one over the other won’t reap the same benefits.
Using the 5% Rule
The “golden rule” of farm management: a 5% improvement in productivity (e.g., yield gains on a canola farm), plus a 5% increase from marketing savviness, plus a 5% gain in efficiency (lowered production costs) does not equal a 15% gain to the bottom line. It’s a 117% improvement to the bottom line.
The 5% Rule
| Base Farm | A 5% improvement | |
| Canola yield | 40 bu/ac | 42 bu/ac |
| Price | $10/bu | $10.50/bu |
| Gross return | $400/ac | $441/ac |
| Total costs | $350/ac | $332.50/ac |
| Net return | $50/ac | $108.50/ac |
Some suggestions to get there:
- Using the “right blend” of inputs to maximize yield growth
- Investing in education to understand futures or basis contracts and improve marketing
- Mechanical improvements (e.g., overlap difference on auto-steer)
Productivity and efficiency: two ways to remain competitive
Efficiency improves profits through the use of the right combination of inputs to minimize costs. Productivity, on the other hand, often requires investments that won’t necessarily pay off immediately, but that will provide competitiveness in the longer run.
Investments in productivity ensure that at times when demand is increasing, as it’s doing now in world markets, Canadian producers can meet that demand in ways that will maintain our export performance even in the face of growing global competition.
Global agriculture trade continues to evolve
The global economic landscape is changing, bringing challenges and opportunities to Canada’s agriculture producers and agribusinesses. Overall global trade declined for a second straight year, contracting in 2015 by more than 16% for the first time since 2009’s Great Recession. Political changes in 2016 disrupted markets further, throwing into question the future shape of globalization.
Despite these developments, the trade of ag commodities and agri-food will continue to increase, even as rates of growth slow. The OECD forecasts increased global exports to 2025 as the world population grows and many countries will be unable to meet their own food demand. Global production will also increase, driven by widespread productivity gains, and production growth in emerging markets. To maintain Canada’s current leadership role as an exporter, a focus on minimizing costs and maximizing future returns will help Canadian producers and agribusinesses stay competitive.
