Under the Agridome

In Ontario The Veggie Market Apocalypse Has Been Avoided

Thursday, August 25th, 2016

tomato
This past week we’ve actually seen the corn market go up five straight days since the very bearish USDA market report on August 12th.  Now, if we can get it to go up another 50 days many of us will be happy.  We shall see.  A bushel of corn is the same whether I grow it in Dresden Ontario or one of my American friends grows it in El Reno Oklahoma, that’s why it’s called a commodity.  We are all price takers.   I think you know the rest of the story.

There will be more USDA reports and lots more of debate among farmers and analysts regarding the price of corn.  I hope the price of corn goes up too, but of course that is a very long story.  Our commodity markets are large global animals, which get a lot of headlines, but are so far away from the consumer’s plate.  Not so for many vegetable producers in Ontario, who often see their vegetables go straight from the farm to the consumers plate.

The best vantage point I have for this in the tomato fields of my neighbors.  Chatham Kent and Essex County in Ontario are the home to our tomato processing industry.  It is the most southern part of Canada, with the longest growing season, which gives tomatoes a tremendous advantage.  I always have a bird’s eye view of the production and an interest in tomato marketing.  Each year, the Ontario Processing Vegetable Growers sit down with processors and negotiate prices.  Ditto for many other vegetables in Ontario.  It might be a free market, but there are certain parameters within that free market that foster production.  With these vegetable crops being so close to the consumer’s plate, guaranteed production to satisfy processors demand is very important.  This is not like marketing corn.  Marketing vegetables in Ontario is a much more complex issue.

Simply put, when you’re dealing with perishable products with extremely large production costs and limited markets, there is much risk on the table.  Processors want their vegetables cheap, but they also want vegetables.  Guaranteeing that result has led to bargaining agreements in Ontario negotiated every year.  Vegetable contracts limit acres produced, which also meet the demand of processors.  It is a delicate balance, but one that is very necessary for both parties.

This is why it was a so shocking move on June 28th when the Ontario Farm Products Marketing Commission proposed the end of all that.  In fact they proposed that the negotiating authority of the Ontario Processing Vegetables Growers Marketing Board would turn into an industry advisory committee.  It was a complete face plant of a proposal.  When I first heard of it, I couldn’t believe it. The Ontario Farm Products Marketing Commission regulates farm markets in Ontario and is made up of political appointments.  This June 28th proposal seemed to be bizarre at best.  It was certainly bereft of good agricultural economics.

To his credit, Ontario agriculture Minister Jeff Leal stepped in on August 18th and put a stop to it.  He has opened up the process in these words “establishing an open, collaborative and transparent process for considering the impact of any proposed regulatory amendments”.  In other words, he wants a marketing system, which makes sense and works.  The original proposal by a rogue Ontario Farm Products Marketing Commission didn’t make sense and it wouldn’t work.

You can argue this is about “cheap”.  In fact, in almost all of our agricultural commodity markets, it’s about the end-users getting the product as cheap as they can.  In Ontario, with our processors it is really no different.  In my opinion, the rogue Ontario Farm Products Marketing Commission implied free markets means cheaper tomatoes, just like cheap corn, etc.  However, in that highly perishable world close to the consumer’s plate, good agricultural economics don’t work that way.

Some might argue the same cheap argument doesn’t work for dairy and feathers in Canada as well.  However, all they need to do is look at Europe and Australasia to find out what cheap milk is.  Our vegetable and dairy markets are different for a number of reasons.  On the other hand, our grain markets are about cheap.  There are corn, soybeans and wheat everywhere.

Often on cold October mornings, processors tell Ontario producers they don’t want any more tomatoes.  That often means by afternoon, those tomatoes are being disked under.  Demand has been met and that supply left over, is simply noise.  Market equilibrium has been reached.

For those of us who grow grain, this can seem very strange.  However, tomato (or vegetable) economics are so different from the economics of grain.  In Ontario, it looks like the Minister of Agriculture reached into a market to ensure it will continue to work.  In grain, there is nothing like that, it’s simply a potpourri of chaos theory.  With Ontario vegetables, the same would simply be chaos.  For now, that veggie market apocalypse has been avoided.