The Farm Crisis & Corporate Profits
A Report by Canada’s National Farmers Union, November 30, 2005
The farm income crisis has reached excruciating intensity. For Canadian farm families and their net incomes, 2004 was the second-worst year in history. But for agribusiness, 2004 was the best year in history. Is there a link? This report uses 2004 as a case study and takes a detailed look at the profitability of the dominant agribusiness corporations. This report follows the money.
Dollars per farm (adjusted to 2005 dollars)
The worst of times
In 2004, Canadian farmers’ Realized Net Income from the markets (Market Net Income)—a measure that subtracts out government payments—fell to negative $10,000 per farm.1 The only year worse than 2004 was 2003, when per-farm Market Net Income was negative $16,000.
By subtracting government payments, Figure 1: Market Net Income: 1926-2005 Market Net Income removes their $40,000 masking effects, and thus reveals the full
$30,000
extent of declines in the net returns that the markets pay to farmers. Figure 1 graphs per-farm Market Net Income, $20,000 adjusted for inflation. $10,000
After 40 years of relative stability (the
$0
white dots in Figure 1), Market Net Income plunged to near-zero in the mid--$10,000 1980s and remained near that level for
-$20,000
the balance of that decade and much of the 1990s (the black dots at the right in Figure 1).
Most recently, Market Net Income has fallen deep into negative territory, oscillating between negative $10,000 and negative $16,000 per farm per year.
Market Net Income levels for 2003 and ’04 were far below those of the 1930s. But this sub-Depression-level net income is not confined to the past two or three years: for the past 20 years, net income has been
2001 1996 1991 1986 1981 1976 1971 1966 1961 1956 1951 1946 1941 1936 1931 1926
near or below 1930s’ levels. Per-farm Market Net Income fell below $5,000 in seven years during the Depression; it has been below $5,000 in 15 of the last 20 years. Market Net Income for the ten years of the 1930s averaged $3,897 per farm. The average for the most recent ten years is negative $323 per farm. Today, farmers are paying to produce. Were it not for taxpayer-funded support, off-farm income, depletion of savings, and access to debt, farming in Canada would have to cease.
These worse-than-the-Depression net incomes have driven farmers off the land—cutting their number by 11% in the five years between the latest agricultural censuses (1996 and 2001). If this rate of loss persists (and it is probably accelerating), it will cut the current number of farmers in half by 2025. And the negative effects are not confined to our farms. Many rural communities are withering. After more than a century of developing and populating rural Canada, today we’re boarding up stores, closing schools, and ripping up railway tracks. The Canadian economy suffers as it loses the profits from food production. Taxpayers suffer as they are made to pay four to five billion dollars per year to support farmers. And the country suffers as these billions are taken away from education, healthcare, environmental protection, the arts, and infrastructure. All parts of Canadian society suffer as a result of this unprecedented disintegration of the systems that previously returned adequate prices, revenues, and profits to the families and communities that produce our food.
The best of times
Clearly, our family farms are in crisis. But to understand this crisis, we must understand these farms in their economic context—as the central link in an agri-food chain that reaches from energy, fertilizer, seed, and chemical companies and banks at one end, to processors, packers, retailers, and restaurants at the other. Our agri-food chain extends from the oil well to the drive-through window.
Compared to our family farms, the profit picture for the other links in the chain could not be more different. For the agribusiness corporations dominant in Canada, 2004 was the best year in history; overall, profits hit record highs. Of the 75 companies profiled in the following pages and for which profit data is available, 41 posted record profits, and another 16 had near-record profits or their second- or third-best year ever. Thus, 57 of 75 companies—76%—had their best year, or nearly their best. None of the listed corporations experienced a record or near-record loss. No other sector experienced losses overall, and certainly none experienced losses comparable to those of farmers. 2004 was as good for agribusiness as it was bad for farmers.
A brief tour is in order (detailed information on corporate profitability is included as Table 1, pages 5-8). At the beginning of the agri-food chain, we find the energy companies. Four companies refine and retail the lion’s share of Canada’s gasoline and diesel fuel—together owning nearly ¾ of our refinery capacity.2 Revenue and profit data are available for three of these companies: Imperial Oil, Petro-Canada, and Shell Canada. The fourth, Irving Oil, is a private company and, thus, does not release financial information. The three companies for which we have data all posted record profits in 2004. It is probable that Irving Oil similarly posted a record profit. In 2004, Return on Equity rates for the three companies for which we have data ranged from 19% to 32%.
At the next link in the chain, energy in the form of natural gas is converted into nitrogen fertilizer. Four companies control the bulk of Canada’s nitrogen fertilizer production capacity: Agrium, Saskferco, Canadian Fertilizer Ltd., and J. R. Simplot. Together, these four own nearly 94% of urea (nitrogen) production capacity.3 Some of these corporate entities are, in turn, owned by other transnationals. Saskferco, for instance, is 50% owned by Mosaic (created through the merger of Cargill Crop Nutrition and IMC Global). Overall, the fertilizer sector was characterized by record profits: major nitrogen producers Agrium and Saskferco posted record profits, as did Saskferco’s parent Mosaic and Mosaic’s parent Cargill. Terra Corporation posted its best profit in the past seven years. And record or near-record profits are probable at Canadian Fertilizers Ltd. The profit situation at Simplot is unknown. In 2004, major nitrogen fertilizer producers posted Return on Equity rates ranging from approximately 5% to approximately 24%.
In addition to these record profits among nitrogen producers, Potash Corporation of Saskatchewan— the world’s largest4 fertilizer company and a major producer of potassium, phosphate, and nitrogen fertilizers (but with no nitrogen production capacity in Canada)—also posted a record profit.
Agri-chemical companies posted healthy profits; Dow came close to a record, but others enjoyed only “normal” profit levels. Return on Equity rates ranged from approximately 5% for Bayer to nearly 23% for Dow.
Seed companies were likewise profitable. Every one of the dominant companies posted strong profits with 2004 Return on Equity rates ranging from approximately 5% for Bayer to nearly 16% for DuPont (Pioneer Hi-Bred).
Veterinary drug makers Pfizer and Novartis posted record profits, while the rest merely posted large ones. 2004 Return on Equity (ROE) rates ranged from approximately 5% up to 34%. Merck (Merial) posted a 34% ROE and over $7.5 billion in profits, but did not post a record profit—not bad for an average year. But this is the point: huge profits and impressive ROE rates are the norm at the non-farm links in the agri-food chain. [All currency amounts in this brief are in Canadian dollars.]
At the machinery link, John Deere and CNH posted record profits and AGCO posted a near-record. ROE rates ranged from about 2½ % to 22%.
Three of Canada’s five major banks posted record profits, and the other two had their second-best years. ROE rates ranged from about 15% to 20%. Profits for the big five banks totalled more than $12 billion.
Then, in the middle of the agri-food chain, comes
Farmers’ profits and Return on Equity
Farmers’ net income numbers are bad, but their “profit” numbers are worse. Realized Net Income is not the same as corporate profit, which is calculated after every worker is paid. Thus, to calculate farmers’ profits, we must first subtract from Realized Net Income the value of farm family labour and management.
Unfortunately, there are no figures for the value of farm family labour and management. For the purpose of this report, we will use the following estimate: $5.57 billion per year. That estimate is calculated by assigning the following values:
For the 130,450 Canadian farms with gross revenues
below $50,000 (based on the 2001 Census of
Agriculture), we assign a value for labour and
management of zero; For the 35,255 farms with revenues between
$50,000 and $100,000, we assign $20,000 per
year; For the 47,079 farms with revenues between
$100,000 and $250,000, we assign $40,000 per
year; For the 21,396 farms with revenues between
$250,000 and $500,000, we assign $80,000 per
year; and For the 12,743 farms with revenues above $500,000,
we assign $100,000 per year.
These salary estimates are certainly arbitrary, but just as certainly conservative. Consider this: $5.57 billion would cover just 124,000 management salaries (at $45,000 per year). There are about 230,000 farms in Canada today and many of the medium-sized and large ones rely on the labour and management of two or three family members.
Taking $5.57 billion per year as the value of labour and management, we can calculate farmers’ profit from the markets: negative$7.75 billion for 2004 ($5.57 billion subtracted from farmers’ Market Net Income of negative $2.17 billion).
Using this negative $7.75 billion figure, we can calculate a Return on Equity number for farmers comparable to numbers used by corporations. That number—farmers’ 2004 Return on Equity from the markets (Market ROE)—is negative 5.09%.
As Table 1, below, shows, Return on Equity is a critical measure: it allows direct comparison between the profitability of relatively-small farms and the profitability of the largest corporations.
farmers. Farmers’ 2004 Return on Equity from the markets was negative 5.09% (see “Farmers’ profits” sidebar on page 3). Their ROE rate was similarly negative in 2003, and will be again negative in 2005. And farmers’ ROE from the markets has been negative in every year of the last 20. Overall, Canadian farmers have not earned a single dollar of profits from the markets since 1984. Over the same period, agribusiness has accumulated profits almost certainly reaching into the trillions.
Moving down the agri-food chain, we see corporate profit numbers comparable to those on the input side. In 2004, grain handler Cargill posted a record profit and Saskatchewan Wheat Pool posted its best profit since 1998.
CN rail posted a record profit and CP made a healthy profit.
Food processors Tyson, Pepsico (Pepsi and Quaker Oats), ConAgra, Anheuser-Busch, General Mills, Coca-Cola, Kellogg’s, and Cargill all posted record profits. Altria (Kraft), Nestlé, Sara Lee, and Heinz had near-record or their second- or third-best profits. Of the 15 dominant food-processing corporations listed, only two failed to post record or near-record profits: Heinz and Unilever. (There is no data for Mars.) But Heinz earned a 74% ROE and $841 million in profits; Unilever earned a 42% ROE and over $3 billion in profits. The fourteen companies for which data is available racked up combined profits of nearly $48 billion. Processing food is among the most profitable sectors of the global economy.
Beef packers Cargill and Tyson both had record profits, as did pork packer Maple Leaf.
The three largest breakfast cereal makers all posted record profits, as did the three largest brewers and the three largest soft drink makers. The largest retailers posted record or near-record profits, as did most of the restaurant chains and food service corporations listed.
Table 1, below, provides details.
Data quality and disclaimer
Researching this report posed two problems: determining which companies dominate each link in the agri-food chain, and compiling and calculating financial indicators for each of those companies.
Determining the names of the dominant players is complicated—made more so by corporate secrecy and government unwillingness to publish data that mentions corporations by name. When it comes to market share data, there is almost no publicly available information, this despite the fact that the corporations themselves have detailed market share data on their competitors (purchased from companies such as AC Neilson) and despite the fact that governments compile similarly detailed market share data. While the NFU has undertaken extensive research over the past year to determine which corporations dominate each link in the chain, the companies listed on the following pages should be seen as representative of the sector, rather than the “top” companies in each link. In many cases, the companies listed are the top companies and they are listed in order of rank of market share, but in some sectors this is not the case.
The financial data listed for each company has been compiled and calculated from a wide range of sources. Because of the possibility of human or mechanical error, errors in source documents, as well as other factors, such information is provided "as is" without warranty of any kind.
The NFU is committed to accuracy and welcomes comments on the data presented in this report. Please contact us at nfu@nfu.ca .
Table 1: Agribusiness corporations’ revenues, profits, and Returns on Equity
| Sector | Company | Revenue: 2004 (Cdn. millions) | Profit: 2004 (Cdn. millions) | Return on Stockholders Equity: 2004 | Return on Stockholders Equity: 5year average | Record Profit in 2004? |
| Fuel and oil | ||||||
| Imperial Oil Limited (Esso) | $22,460 | $2,052 | 32.46% | 29.85% | Record Profit | |
| Petro-Canada | $14,377 | $1,757 | 20.11% | 18.89% | Record Profit | |
| Shell Canada Limited | $11,228 | $1,286 | 19.70% | 17.75% | Record Profit | |
| Irving Oil Limited | Private | Private | Private | Private | ? | |
| Nitrogen Fertilizer | ||||||
| Agrium Inc. | $3,690 | $359 | 24.51% | 5.07% | Record Profit | |
| Saskferco Products Inc. | $3,848 | $39 | Private | Private | Record Profit | |
| Canadian Fertilizers Ltd. | Co-op | Co-op | Co-op | Co-op | Co-op | |
| J. R. Simplot Company | $4,030 | Private | Private | Private | Private | |
| The Mosaic Company | $5,716 | $215 | 5.15% | 4.31% | Record Profit | |
| Potash Corp. of Sask. Inc. | $4,217 | $388 | 12.49% | 4.86% | Record Profit | |
| Terra Industries Inc. | $1,962 | $88 | 14.71% | -21.56% | Highest since '97 | |
| Chemicals | ||||||
| Syngenta International AG | $9,450 | $598 | 8.13% | 5.08% | Not a Record | |
| Bayer AG | $48,090 | $974 | 4.92% | 3.53% | Not a Record | |
| BASF AG | $60,661 | $3,043 | 11.94% | 13.73% | Not a Record | |
| Monsanto Company | $7,094 | $347 | 5.08% | -4.42% | Not a Record | |
| The Dow Chemical Co. | $52,211 | $3,636 | 22.80% | 9.50% | Near Record | |
| DuPont | $35,543 | $2,314 | 15.65% | 12.17% | Not a Record | |
| Seeds | ||||||
| DuPont (Pioneer Hi-Bred) | $35,543 | $2,314 | 15.65% | 12.17% | Not a Record | |
| Monsanto Company | $7,094 | $347 | 5.08% | -4.42% | Not a Record | |
| Syngenta International AG | $9,450 | $598 | 8.13% | 5.08% | Not a Record | |
| Bayer AG | $48,090 | $974 | 4.92% | 3.53% | Not a Record | |
| Vet drugs | ||||||
| Bayer AG | $48,090 | $974 | 4.92% | 3.53% | Not a Record | |
| Pfizer Inc. | $68,274 | $14,770 | 16.64% | 26.82% | Record Profit | |
| Merck & Co. Inc. (Merial) | $29,821 | $7,558 | 34.00% | 42.00% | Not a Record | |
| Eli Lilly and Co. (Elanco) | $18,016 | $2,353 | 16.58% | 33.04% | Not a Record | |
| Novartis International AG | $36,723 | $7,497 | 18.00% | 17.12% | Record Profit | |
| Machinery | ||||||
| Deere & Company | $25,983 | $1,828 | 21.99% | 11.57% | Record Profit | |
| CNH Global N.V. | $15,833 | $163 | 2.46% | -9.74% | Record Profit | |
| AGCO Corporation | $6,856 | $206 | 11.16% | 2.18% | Near Record | |
| Banking | ||||||
| Royal Bank of Canada | $25,204 | $2,817 | 15.47% | 15.32% | Second Highest | |
| Bank of Montreal | $13,208 | $2,351 | 17.83% | 14.74% | Record Profit | |
| Toronto-Dominion Bank | $16,015 | $2,310 | 16.53% | 8.60% | Second Highest | |
| Can. Imp. Bank of Com. | $16,705 | $2,199 | 16.63% | 13.84% | Record Profit | |
| Bank of Nova Scotia | $16,497 | $2,931 | 19.24% | 15.61% | Record Profit | |
| Sector | Company | Revenue: 2004 (Cdn. millions) | Profit: 2004 (Cdn. millions) | Return on Stockholders Equity: 2004 | Return on Stockholders Equity: 5year average | Record Profit in 2004? |
| Farmers | ||||||
| Returns from the marketsÆ | $31,641 | -$7,750 | -5.09% | Near-Record Loss | ||
| Grain Handling | ||||||
| Agricore United | $3,048 | -$14 | -2.86% | -2.64% | Not a Record | |
| Saskatchewan Wheat Pool | $1,407 | $5 | 2.63% | -13.70% | Highest since '98 | |
| James Richardson & Sons Ltd. (Pioneer) | $1,722 | Private | Private | Private | Private | |
| Cargill Inc. | $92,389 | $2,734 | 17.16% | 11.44% | Record Profit | |
| Railways | ||||||
| Canadian National Railway Co. | $6,581 | $1,297 | 13.55% | 12.65% | Record Profit | |
| Canadian Pacific Railway Ltd. | $3,903 | $413 | 10.37% | 12.47% | Not a Record | |
| Food Processors: General | ||||||
| Tyson Foods Inc. | $34,375 | $524 | 9.39% | 7.59% | Record Profit | |
| Altria Group Inc. (Kraft) | $116,498 | $12,241 | 30.66% | 44.94% | Second Highest | |
| Pepsico Inc. (Quaker Oats) | $38,041 | $5,476 | 31.03% | 32.18% | Record Profit | |
| Nestlé S.A. | $93,969 | $7,031 | 17.13% | 18.96% | Third Highest | |
| ConAgra Foods Inc | $18,307 | $1,055 | 18.00% | 16.16% | Record Profit | |
| Anheuser-Busch Cos. Inc | $22,309 | $2,913 | 83.96% | 60.67% | Record Profit | |
| Sara Lee Corporation | $24856 | $1,654 | 43.00% | 92.32% | Second Highest | |
| Mars Inc. | Private | Private | Private | Private | Private | |
| General Mills Inc | $14,392 | $1,372 | 20.00% | 100.00%+ | Record Profit | |
| H. J. Heinz Company | $10,940 | $1,045 | 42.00% | 45.75% | Third Highest | |
| Campbell Soup Company | $9,242 | $841 | 74.00% | 100.00%+ | Not a Record | |
| The Coca-Cola Company | $28,552 | $6,301 | 30.42% | 29.08% | Record Profit | |
| Kellogg Company | $12,499 | $1,158 | 39.00% | 58.87% | Record Profit | |
| Unilever N.V. | $64,914 | $3,032 | 42.50% | 8.40% | Not a Record | |
| Cargill Inc | $92,389 | $2,734 | 17.16% | 11.44% | Record Profit | |
| Beef Packing | ||||||
| Cargill Inc | $92,389 | $2,734 | 17.16% | 11.44% | Record Profit | |
| Tyson Foods Inc. | $34,375 | $524 | 9.39% | 7.59% | Record Profit | |