farm forum is online
INSIDE: PARITY HITS COMMODITY PRICES
p. 20 Carbon credits enhance no-till
FarmFORUM www.farmforum.cA
Bayer CropScience supporting Canadian farm families SPRING 2008 | $5.00
high-oleic canola is gaining ground Join 4-H and conquer the world PLUS:
Acceptance growing for GMO crops >> Technology: A good succession plan saves you cash >> Business: Ethanol plants gobble grain >> Production: >> Farm Life: Drive and determination lead to success
Farm Forum.cA | 1
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01/08-6922D
FarmFORUM
volume 22 | issue 2 | spring 2008
contents >> PRINT TECHNOLOGY
BUSINESS
PRODUCTION
FARM LIFE
FarmFORUM www.farmforum.ca Publisher Bayer CropScience
COVER STORY
Editor Sherry Butt
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6
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Canola crosses new frontiers
Parity hits commodity prices
Ethanol plants gobble grain
Join 4-H and conquer the world
InVigor Health revs up specialty oil market.
Few crop and livestock producers hedged the Canadian dollar on its way up. Why not, and what’s next?
The ethanol industry is here to stay.
4-H is becoming the latest “must have” on a prospective employee’s resume.
4 Spring is just around the corner: the season of opportunity 14 A good succession plan saves you cash - and kin: start planning early 20 Carbon credits enhance no-till: help reduce greenhouse gas emissions 22 Drive and determination lead to success: OYF national winners
contents >> WEB
FarmFORUM.ca
Associate Editor Dave Wreford Contributors Kieran Brett John Dietz Joy Gregory Kate Rowland Clare Stanfield Graphic Design Aaron Mumby Design Farm Forum is published seasonally by Bayer CropScience. Contact Farm Forum at: Bayer CropScience #100 - 3131 114 Ave. S.E. Calgary, AB T2Z 3X2 T. 1 888-283-6847 F. 1 888-570-9378 E. farmforum@bayercropscience.com www.bayercropscience.ca Contents of this publication are copyrighted and may be reproduced only with written permission of the publisher, Bayer CropScience. The views expressed are not necessarily those of the publisher. Publications Mail Agreement Number 40743517 Registered in Canada Copyright 2008 Website www.farmforum.ca Return undeliverable copies to: Bayer CropScience #100 - 3131 114 Ave. S.E. Calgary, AB T2Z 3X2 On the cover Take canola cultures, add a little ingenuity and voilà, a breakthrough hybrid.
Acceptance growing for GMO crops
Put a cocktail in your tank That’s an order, not an invitation
Europe’s opposition to GMO crops is becoming less relevant www.farmforum.ca/GMOpolitics
Alberta gets serious on carbon offset No-till not the only way to capture carbon
www.farmforum.ca/fillingup
Bayer’s new InVigor Health canola hybrid has revolutionized the specialty oil market. The resulting high-oleic canolas give Canadian growers a fighting chance to gain traction in the competitive food service and food processing sectors.
www.farmforum.ca/abcarbonoffset Farm Forum.ca | 3
s h o r t ta k e s
There is more on farmforum.ca
Look at the end of each article for more on FarmForum.ca You’ll find extra articles and links to more resources.
Spring is just around the corner Welcome to the national edition of Farm Forum. Once a year we distribute a national version to growers across Canada. This is the time of year where optimism is at its highest. Fields and plants are protected in a blanket of snow and commodity prices remain at their highest level. It can’t get any better than this with spring just around the corner. We too are excited about the prospects this season may bring. We have a brand new product, Infinity herbicide, the first new active ingredient to hit the broadleaf weed market in wheat, durum and barley in over 20 years. Not only can this product handle some of the toughest broadleaf weeds, it’s the only active ingredient in cereals belonging to Group 27 chemistries, and is an excellent tool to fight Group 2 weed resistance. Resistance is a word we keep seeing more and more about in the news and in the fields. To help growers with this important issue we have sponsored a new website www.mixitup.com. It provides education and simple tactics to manage herbicide resistance. Check it out. We hope you will enjoy this issue of Farm Forum and we look forward to your input and comments. Have a great spring. FF 4 | Farm Forum | SPRING 2008
Editor’s Note I’m going to go out on a limb here and say that we’ve finally turned the corner on winter. The days are noticeably longer — the sun already up by breakfast and suppers enjoyed in light rather than darkness. With spring’s arrival comes a renewed optimism for what the season will bring. It’s also a great time to look at new opportunities and new ways of doing things. Our cover story, Canola crosses new frontiers, highlights the new higholeic canolas that give growers both high yields and premiuim prices as well as a competitive edge in the food service and food processing sectors. See how 4-H has enhanced opportunities for young people entering the workforce in our farm life feature, Join 4-H and conquer the world. With recent StatsCan figures indicating that tens of thousands of Canadian farmers will reach retirement age by 2010, the need for a succession plan has become urgent. Learn the ins and outs of developing your exit strategy in our business feature, A good succession plan saves you cash — and kin. The ethanol industry is no longer in its infancy — it is here to stay. And as more and more production facilities come on stream, the demand for feedstock is good news for growers looking for a reliable alternative market for their corn and wheat. In Ethanol plants gobble grain, take a look at how ethanol is made and what constitutes acceptable feedstock. With a global push to reduce greenhouse gas emissions, a new buzzword has emerged in farming circles — carbon credits. In our business feature, Carbon credits enhance no-till, we look at the emerging carbon credit game. Discover how carbon credits work, who the major players are and how to get in the game. Finally we profile one of this year’s national co-winners of the Outstanding Young Farmers’ Program. Harry and Leony Koelen built their Ontario farrow-to-finish hog operation on the strength of a dream and a lot of hard work. FF
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01/08-6914-01C
business
PARITY HITS COMMODITY PRICES
The red hot dollar is depressing livestock prices and restraining price increases for crops. But few producers hedged the currency on the way up. Why not and what’s next? By Kieran Brett Why haven’t farmers been more active hedgers? One reason could be that in recent times crop prices globally have generally gained strength in tandem with the Canadian dollar.
6 | Farm Forum | Spring 2008
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armers have every reason to follow the Canadian dollar/U.S. dollar relationship closely. Their financial returns are tied to it. With many globally traded food commodities effectively priced in U.S. dollars, returns to Canadian crop and livestock producers fall when the loonie rises. The only major exception is the supply-managed sector. On the face of it, that should make farmers logical candidates for a currency hedging program. Here’s the rationale: If your business is hurt by a rise in the Canadian dollar, you hedge that risk by making a bet that pays you if the dollar rises. If the dollar goes up, you’ll make less money farming but gain on the hedge. If the dollar goes down, rising returns on the farming side will offset losses from the hedge. That’s the strategy, but according to
market insiders, most farmers are not playing the hedging game. Why most go un-hedged Very few have been using this risk-management strategy, says Errol Anderson, Calgary-based branch manager for broker MF Global Canada Co., and a longtime grain market participant. “Feedlots are more active, but grain growers do very little.” Why haven’t farmers been more active hedgers? One reason could be that in recent times crop prices globally have generally gained strength in tandem with the Canadian dollar. That muffles the impact of the stronger loonie on producers’ income statements, making hedging less appealing. Another reason is that growers find other ways to protect themselves from a rising
Canada’s currency takes off value of cdn$1.00 in us$
us$ 1.10 1.00 0.90
Courtesy Bank of Canada
0.80 0.70 0.60 2003
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dollar. Kevin Simpson, an investment advi- what’s happening with the U.S. and Casor with RBC Dominion Securities in Wa- nadian dollar,” says Jubinville. “You have terloo, ON, provides hedging solutions to to look at the Canadian dollar’s inter-remany farmers, with hog producers being lationships with the (Japanese) yen, the his main market. He also numbers cash (Chinese) yuan and the (Indian) rupee. Also, the U.S. dollar has been croppers among his clients, but weak against everything.” reports that most hedge when Looking forward, Anthey sell crop, not through the derson believes that large financial markets. upward moves in the Cana“Cash croppers in Ontario dian dollar are becoming less tend to deliver to an elevator likely, so producers can relax and forward-contract their a bit. price,” says Simpson. “They “The Bank of Canada has have to sell crop anyway, so made a stand that Canada they figure they might as well can’t afford a $1.10 (U.S.) do it early. The benefit is, it’s loonie,” he says. “This has priced in Canadian dollars, so taken the fun out of the marin effect they access the curDespite the dollar’s ket for speculators. Just look rency hedge this way.” ascent to parity, at your own personal situaDoes hedging still matter? investment advisor tion. Ask yourself, ‘If the CaIf most grain and oilseed pro- Kevin Simpson nadian dollar moves up three ducers slept soundly as the dol- believes an even cents or five cents, would this lar rose from 62 cents (U.S.) to stronger loonie can’t create a problem for me?’” 82 cents to $1.02, is now the be ruled out in 2008. If the answer is yes, an time to start hedging? advisor like Kevin Simpson Mike Jubinville, of Wincould be just the guy to talk nipeg-based market advisory service to. One of his go-to solutions is the ProFarm Canada, doubts it. In his view, Canadian dollar futures contract. In a Canadians enjoy a natural hedge already. nutshell, you make money if the CanaHow? Because we sell in other currencies dian dollar goes up over the life of the that, like ours, tend to gain strength when contract, in theory offsetting the imthe U.S. dollar hits the skids. pact on your farming operation. You “It’s much more complicated than lose money if the Canadian dollar goes
2005
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down. Assorted bells and whistles are available to reduce the risk associated with this possibility, mainly by limiting the upside, too. With the Canadian dollar settling in around par, and producers finding other ways to manage dollar risk, hedging the currency might not be a priority going forward. Still, based on the volatility seen in currency markets from 2002 to 2007, Simpson recommends that Canadian producers think defensively in 2008. “Looking back over the past few years, every major move in the Canadian dollar has taken the market by surprise,” he says. “For all my clients, I’m hoping for a lower dollar, but I still want them to be protected.” FF farmforum.cA
Money photo ©iStockphoto.com/ranplett; Kevin Simpson photo courtesy Kevin Simpson
2002
for more information visit us online online articles Overvalued? Undervalued? Check the moving average www.farmforum.ca/movingaverage Currency risk? Leave it to the professionals www.farmforum.ca/currencyrisk additional resources Webinar on agricultural or commodity-related topics www.farmforum.ca/webinar Master the specialized language of the commodity markets www.farmforum.ca/commoditylanguage Online tutorial for ag producers www.farmforum.ca/tutorial Build and execute a sample strategy www.farmforum.ca/samplestrategy Farm Forum.ca | 7
fa r m l i f e
There are many benefits to getting involved in 4-H including learning the necessary skill sets needed to function effectively in a work environment and of course, having fun!
8 | Farm Forum | SPRING 2008
Join 4-H and conquer the world
Photos courtesy 4-h
By Kate Rowland
an understanding that people make mistakes, and that we are all working toward a common goal,” he says. Ewankiw says 4-H is even more important now than ever before in terms of teaching the necessary skill sets needed to function effectively in a work environment. “I feel grateful that I was able to gain experience with 4-H, and the traits I learned have helped me in my career,” he says. “Bayer CropScience and other companies in the agricultural field serve their best interests by looking for 4-H in prospective employees’ background and experience.” Finally, Marguerite Stark adds, 4-H strives to value fun. “And people learn best when they’re having fun.” FF farmforum.cA
More than simply a national organi- and a volunteer member of the national zation focused on Canada’s rural youth, 4-H council’s board. Rozdeba says employers typically look 4-H is becoming the latest “must have” on a prospective employee’s resume in ag- for three things in a prospective employee’s resume. First, they check the level of riculture and agri-business. While the organization has spent al- education attained, and its applicability to most 100 years teaching important techni- the position. Second, he says, employers cal and agricultural skills, 4-H also builds want to know about other achievements well-rounded adults by developing life and responsibilities taken on. Finally, he skills necessary in today’s business world. says, what a prospective employee does From citizenship, leadership, coopera- with his or her free time is important. tion and responsibility to independence, “When I see 4-H (on a resume), I see a entrepreneurship, financial management certain level of business understanding, and public speaking skills, today’s rural of being able to speak in public, of simple youth are entering the modern world of skill sets,” he says. “Everything in 4-H work far more prepared than those with- has a start and a finish. Every time I see these kids I’m very impressed.” out these key proficiencies. Rozdeba perceives huge value in keep“The 4-H program continues to provide project opportunities that encour- ing rural communities strong, and is conage young people to develop technical vinced 4-H plays a big role in that. “Agriskills,” says Marguerite Stark, head of culture is bigger than the farm,” he says. Alberta’s 4-H branch. As well, she adds, And for Bayer CropScience, investing in 4-H has grown over the years, becoming 4-H benefits both the company and the rural community it serves. increasingly innovative “We invest in 4-H from and creative in terms of a monetary perspective, the interests of both its One of the biggest but also with our time,” youth and their commustrengths of 4-H he says, noting that while nities by looking at such issues as business sense participants is their money is necessary to the lights on, an inand entrepreneurship. “I ability to speak with keep vestment of time is even truly believe, too, that confidence, and to more important because our strength lies in deit’s an investment of reveloping communication have confidence in sources and experience in skills,” she adds. “Those their abilities an organization. “Everyare the skills used in the body wants a long-term workforce.” Offering a highly inclusive environ- commitment for sustainability. If you’ve ment for learning and mentoring, 4-H got your employees involved, it’s a winteaches research skills, public speaking win situation,” he says. A three-year 4-H member from Maniskills, and more. “One of the biggest strengths of 4-H participants is their abil- toba, Brad Ewankiw began his career with ity to speak with confidence, and to have Bayer CropScience five years ago. Now confidence in their abilities,” Stark says. based in Guelph, ON, as portfolio manag“They’re not afraid to try something dif- er, horticulture, he says 4-H offers what he ferent. The program develops leadership terms “some of the largest skills — a sense skills: how to run a meeting, how to share of teamwork, understanding how a group works together, and staying positive.” leadership, and how to work in a team.” As a national group, he says, 4-H also In the working world, such transferable skills are highly sought-after, says gives members a sense of being part of a Derrick Rozdeba, Bayer CropScience’s bigger entity, not unlike a corporation. manager of integrated communications, “It offers an understanding of others,
for more information visit us online online articles 4-H updates its image www.farmforum.ca/4-Himage 4-H pays lifetime dividends www.farmforum.ca/4-Hdividends additional resources Information on Canada’s national 4-H council can be found at www.farmforum.ca/4-Hcouncil For more information on the 4-H Alberta chapter www.farmforum.ca/4-Habchapter For more information on the 4-H Saskatchewan chapter www.farmforum.ca/4-Hskchapter For more information on the 4-H Manitoba chapter www.farmforum.ca/4-Hmbchapter For more information on the 4-H Ontario chapter www.farmforum.ca/4-Honchapter Farm Forum.ca | 9
cover story
Canola crosses
new frontiers By Kieran Brett
Through the development of high-oleic InVigor canola, Bayer has brought to the specialty oil market a winning combination of high yields and premium prices.
10 | Farm Forum | SPRING 2008
©iStockphoto.com/Roger Lim
Photo courtesy bayer cropscience
Genetic progress is picking up speed. The first herbicide-tolerant canola made weed control easier for growers. Now, high-oleic lines are gaining ground in the food industry. Market opportunities for canola are expanding. The new high-oleic canola give Canadian growers a fighting chance to gain traction in the competitive food service and food processing sectors. In terms of the needs of restaurants and food processors, high-oleic canola oil might be as big an improvement on regular canola oil as canola was on rapeseed. In frying applications: no contest It’s Monday morning in an American restaurant. Before service can begin, the cook needs a fryer full of hot oil. That’s where Willie Loh comes in. “If you look at a restaurant, whether it’s part of a 10,000-unit chain or a momand-pop operation, certain things are important to the manager,” says Loh, director of sales and marketing for Cargill Specialty Canola Oils’ business unit in Minneapolis, MN. A key requirement for a frying oil is the ability to enhance taste. In Loh’s experience, restaurants are looking for a hard-to-define capacity to reflect the natural flavour — but at an elevated level — of the food being fried. “High-oleic canola oil has the ability to create a wonderful fried food flavour,” says Loh. “Not all oils can deliver that.” Just as important is the oil’s life expectancy at frying temperatures. If standard canola oil goes into a fryer about 10 a.m., heating up for a lunchtime service, it will start to break down by dinnertime. When conventional canola oil breaks down, foods emerge from the
Switching to high-oleic canola results in a significant reduction in labour and downtime for the food service industry. fryer limp and soggy. Flavours get mixed like absolutely nothing,” says Loh. “You up, too: potato fried after fish comes out don’t want to taste the oil at all.” While tasting like fish. corn oil and conventional canola oil each For these reasons, conventional canola impart their own flavour, high-oleic canooil needs to be changed at least once per la does not: score one for the new guy. day. That might sound easy, but to a food Longevity is another consideration. Just service operator short on staff and time, as restaurants want frying oil that keeps it’s not. First, you drain going and going, food the oil out of the fryer and processors value an oil’s The new high-oleic dispose of it. Next, you ability to stay fresh and clean the fryer. Finally, canolas give Canadian not go rancid. you refill it with fresh oil “A granola bar growers a fighting and heat the oil to frying needs to have a nine- to temperature. chance to gain trac- 12-month shelf life,” says “If we made them High-oleic canola oil, tion in the competitive Loh. with standard canola oil, by contrast, can last for food service and food they would have a fourat least a week. “That is to six-week shelf life. A a huge difference in relaprocessing sectors. granola bar could sit in tive performance,” says your glove compartment Loh. “You’ll be adding oil as you go, but you won’t have to re- for six months, but when you finally open place all of the oil for seven to nine days. it, it had better not be stale.” Trans fats meet some food industry reThe reduction in labour and downtime quirements for stability and long life, but is very significant.” have been a target of health authorities Taste, health, shelf life drive for several years now. Food companies are growth in food processing responding by eliminating trans fats from As large as the food service industry is, the their manufacturing processes. High-oleic food processing sector is just as big. Even canola is a natural replacement. though the demands it places on cookIn Loh’s analysis, the next big food/ ing oil are different, its needs also favour health battleground will be over satuhigh-oleic canola. Whether the product is rated fats in processed foods, especially croutons, granola bars or baked goods, those most consumed by children. Here high-oleic canola is staking its claim. again, Western Canada’s signature oil“In this market, we want oil to taste seed stands poised to gain as saturated fat Farm Forum.cA | 11
cover story Grower Tim Wiens knows it will take more than a price premium to attract production volume in today’s market. “Growers are looking for a total program,” he says, “not only a seed variety, but an attractive price and convenient delivery.” Apart from the buck-abushel premium, Galbraith notes that InVigor Health contracts have several unique Premium package geared features. When growers sign for growers up, they can choose from If restaurants and food comeight different delivery pepanies are to have the highriods and be compensated oleic canola oil they want, for the length of time they someone needs to grow the Lionel Lamont store the crop. In terms of canola. To ensure a consistent supply, risk management, basis levels are locked Cargill and Bayer CropScience have en- in when growers sign contracts. This way, tered into a partnership built around the they’re not vulnerable to basis fluctuations new InVigor Health line of high-oleic over the life of the contract. canola hybrids. With dramatic perforIn recent years, some mance advantages over concanola growers have been health highventional canola oil, reluctant to participate in oleic canola oil seems ready 1141 specialty oil opportunities. to penetrate new markets. While mindful of available health Oil suppliers like Cargill premiums, they doubted that will be looking for a consis1141 the higher price was sufficient tent supply and top quality. to offset what they suspected By developing a high-oleic might be lower yields. InVigor line, Bayer has According to Lionel Lambrought high yields to the ont, marketing manager for specialty oil market. InVigor, the days of the yield The rest, of course, is up penalty are over. to growers. “InVigor Health really Says Galbraith: “We’ve gives you the best of both had continuous demand for worlds,” says Lamont. “You the end-use oil and so we’re earn a premium price for continuing to contract Inyour canola crop, but you also get the Vigor Health. Growers find this opporhigh yields that growers have long associ- tunity very attractive compared to comated with InVigor hybrids.” modity canola.” FF He believes that InVigor Health’s roughly $1 per bushel premium reprefor more information visit us online sents a reasonable reward for a modest online articles amount of additional management. Demographics and environment trump “Whatever you normally do to grow a GMO politics www.farmforum.ca/GMOpolitics good canola crop applies here,” Lamont SmartStax corn says. “Other than keeping crop segrewww.farmforum.ca/smartstax gated in the bin, there are no agronomic additional resources limitations on how you manage your InInternational Service for the Acquisition of Vigor Health canola.” Agri-biotech Applications (ISAAA) www.farmforum.ca/ISAAA With prices for commodity canola Analysis of GMO adoption worldwide north of $10 per bushel, it’s not the easiest www.farmforum.ca/GMOworldwide time to ask growers to consider a specialty Overview of biotechnology in Canada oil contract. Some will take the view that www.farmforum.ca/biotechincanada with commodity canola already a profitAnother perspective on biotech canola www.farmforum.ca/biotechcanola able proposition, there’s little incentive to U.S. soya bean producers and biotech chase an extra dollar per bushel. www.farmforum.ca/ussoyabean Gary Galbraith, Cargill Spcialty CanoInformation on InVigor Health la Oils’ Canadian production manager, www.farmforum.ca/invigorhealth 12 | Farm Forum | SPRING 2008
NOTICE TO BUYER AND USER: TERMS AND CONDITIONS FOR USE
New traits wanted — and step on it When the first wave of herbicide-tolerant canolas hit the market in 1994, they brought a tangible benefit to farmers, simplifying what had been a complex and expensive weed control challenge. This advantage, according to Tim Wiens, was the key to their adoption. “Farmers voted with their pocketbooks and their air drills,” says the Herschel, SK grower, who’s also a board member of the Saskatchewan Canola Development Commission (SCDC). Now, with high-oleic canola taking the crop into new markets, he’ll be looking to see that restaurant owners and food processors aren’t the only beneficiaries of this technology. “A grower will follow the bottom line,” he says. “It comes down to bushels per acre and dollars per bushel. That’s farmer math.” If herbicide-tolerant canola solved a problem for farmers and high-oleic brings new options to oil users, what’s next? Wiens and his colleagues at the SCDC have a wish list of new agronomic traits they’d like to see: better disease resistance, better pod-shattering resistance and better fertilizer use, just for starters. Whether future innovations help producers, end-users or both, Wiens believes the industry needs to realize that other oils are improving at a rapid rate. He’s concerned that unless the pace of innovation in canola picks up, vastly bigger and better-funded competitors like soy oil will seize market share. “Right now,” he says, “we’re like the mouse under the elephant’s foot.” FF
Photos courtesy bayer cropscience; sibebar photo courtesy CanolaInfo
farmforum.cA
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levels are reduced. “What we are doing at Cargill is taking high-oleic canola into other foods, creating shortenings that are low in saturated fat and contain zero trans fat,” he says. “Canola has a natural advantage because we start out at a lower level of saturated fat to begin with.”
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03/08-5840-01J
business
A good succession plan saves you cash — and kin Succession planning is a pain. But dying without a plan makes sure the next generation feels your pain By Joy Gregory
C
anadian farmers aren’t exactly dying to make estate plans. Dying without one, however, guarantees a heap of trouble and legal expense for those you leave behind, says Colin Simmons, a lawyer with Counsel West Law. Margie Hansma agrees. A chartered accountant and partner with Meyers Norris Penny (MNP) Limited, Hansma
says an estate plan is more than “a simple tax reorganization. You need to look at the farm as a business and ask, ‘Is it viable and who does it need to support?’” From where Simmons sits, answers to those questions are usually pretty clear. He says a plan to pass a farm business from one generation to the next needs to do four things: provide parents with fiscal ©iStockphoto.com/iofoto
During those long hours when it’s just you and the land, take advantage of this time alone to think about and clarify the details of your succession plan.
security; treat all the kids with some measure of fairness (not the same as equality); protect business assets so the farm can continue under new ownership; and minimize or eliminate tax. Similarly, MNP uses a three-circle succession planning tool that looks at family, business (who operates the farm and is it viable) and ownership circles (who has the rights and responsibilities of ownership) and where they overlap. Ownership is key, adds Hansma. “Tax is an ownership issue and it’s a mistake to approach succession planning as if it’s all about tax minimization.” Before families meet with legal and accounting professionals, Hansma suggests each family unit active in the business set individual goals. “They should look at where they want to be in five and 10 years.” Once goals are identified, family members involved with the business need to start holding regular meetings that focus on farm governance and address goal changes, says Shawn Bjornsson, a Manitoba rep with Farm Business Consultants that provides income tax and estate planning services to farmers and rural business owners. Like Collins, Bjornsson says “it’s never too late to start. I’ve seen young farmers assume large debts to keep a farm; debts they would have avoided had succession been handled differently.” Simmons recommends these guidelines for farm families: Start early. When your kids are young, your estate plan may focus on making sure they’re taken care of if something happens to you. As the kids grow up, you can spend more time on business succession and inheritance issues. Be honest. Farm spouses and farming children need to be honest with each other. Are you worried about what will happen to the kids who don’t farm? Do you want to make sure the farm can stay
14 | Farm Forum | SPRING 2008
A plan to pass a farm business from one generation to the next needs to do FOUR things:
What about a prenup?
1 2 3 4
What do a lot of Canadian farmers have in common with former Beatle Paul McCartney? They got married without signing a legal prenuptial agreement — and the move could take them down a long and winding road that costs entire families their inheritance or livelihood, says chartered accountant Margie Hansma. A partner with Meyers Norris Penny Limited in Red Deer, Alta., Hansma says too many people think that even talking about a prenuptial agreement shows a lack of trust in their partner. That’s a short-sighted view of what should be a basic business decision, especially when the assets of a family business are at stake. While the practice is slow to catch on in Canada, many of her clients are new immigrants of European descent. Because they come from cultures where farms are expected to pass from generation to generation, they’re more inclined to see prenuptial agreements as routine business practice. Hansma says it’s a matter of time before they catch on with other Canadian farmers. “I know it’s a difficult subject to broach, but it’s got to start happening.” With the rising number of farm couples living in common law relationships, cohabiting partners should also look at formal agreements regarding farm assets, adds Hansma. “Legal definitions of common law relationships have changed over time but the bottom line is the same. There should be provisions in place to protect farm businesses from family members, present and future.” In sum, forget the silly love songs. This is business. FF
Provide parents with fiscal security Treat all the kids with some measure of fairness (not the same as equality) Protect business assets so the farm can continue under new ownership. Minimize or eliminate tax.
that scares them away.” In reality, rollover provisions allow partnerships to protect a farm’s assets from a tax grab. But take heed. These provisions “kick in only if the partnership has been set up for a certain number of years. You may miss this if you don’t have someone who can help with all of the details,” says Dickson. More producers are also using corpoGet help. You will need sound legal rations to ease the transfer of farm assets and accounting advice, but you may also to the next generation. Again, complex need a mediator to get the tax implications make conversation started, or it an option you need to I’ve seen young keep it going (see online explore with a professtory, In praise of mediasional, insists Dickson. farmers assume tion). Bjornsson says me“I still hear farmers large debts to keep diation is sometimes part say they won’t set up a of his job. “I don’t create partnership or corporaa farm; debts they problems, but I definitely tion because of what would have avoided talk about them. I will say they’ve heard at the cofout loud what everyone had succession been fee shop.” That position, else is thinking because Dickson explains, comes handled differently you have to get issues on from not understanding the table.” that land — which tends Decisions about paying into and draw- to be where a lot of the equity exists and ing from Old Age Security, the Canada where personal attachment comes into play Pension Plan and RRSPs need to be made — does not have to go into either of these as the business evolves, adds Scott Dick- business entities. In the end, “that lack of son, a chartered accountant with MNP. information will cost them.” FF These decisions employ pretty simple tax strategies and a “professional advisor can for more information visit us online help you weigh the difference between online articles In praise of mediation getting less money over time, but getting www.farmforum.ca/mediation the money early. Sometimes a bird in the Estate distribution hand is better than two in the bush.” www.farmforum.ca/estatedistribution Information pays. One of Dickson’s biggest concerns with farm estate planning is the lack of understanding about what a formal “partnership” does. “People assume that if there’s a partnership, they have to split assets 50/50 and
additional resources Myers Norris Penny Library www.farmforum.ca/MNPlibrary FBC’s Harvest Estate Planning website www.farmforum.ca/FBCestateplanning Agriculture and Agri-Food Canada Specialized Business Planning Services www.farmforum.ca/AAFCplanningservices
©iStockphoto.com/ra-photos
farmforum.cA
in the family? Do you really know what your kids want and are you letting them be honest about their plans for the future? It’s nice to talk about moving the farm to another generation, but are you willing to make it happen? Remember, too, that not everything you have to pass on is a business asset (see online story: Estate distribution)
Farm Forum.cA | 15
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16 | Farm Forum | SPRING 2008
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Farm Forum.ca | 17
production
Ethanol plants gobble grain Farmers have lived through their fair share of diversification schemes over the years, so they can be forgiven if they look at the promise of ethanol with a slightly jaundiced eye. Will ethanol prices hold? Will demand for grain feedstocks grow? Will this new industry last? Rex Newkirk says yes. “It’s real,” he says. “The production facilities have been built. The government mandates are in place. It’s here to stay.” He should know. Newkirk is director of biofuels and feed with the Canadian International Grains Institute in Winnipeg. “Ethanol is well beyond its infancy as an industry,” he believes. “We’re at a stage now where we’re producing substantial amounts.” Indeed, according to the Canadian Renewable Fuels Association, Canada is producing roughly one billion litres of ethanol per year. Improving availability has helped guide renewable fuel mandates, which dictate that a percentage of gasoline content must come from a renewable source. In January, Manitoba’s 10% mandate kicked
Husky’s Minnedosa ethanol plant is a twin to its Lloyminster operation, pictured here.
18 | Farm Forum | Spring 2008
in. Saskatchewan has a 10% mandate; Ontario 5%. And the federal government proposes a 5% mandate nationally by 2010. That would require 2 billion litres per year. Feeding that market bodes well for grain pricing and growers looking for a reliable alternative market for their corn and wheat. But while the ethanol industry’s need for feedstock is significant, growers shouldn’t think of it as a dumping ground for lowquality grain they can’t sell elsewhere. The requirements are quite specific. High-starch diet “I sometimes cringe at the ‘feed’ term,” says Raymond Dyck. “What I’m looking for are growers who know what needs to be done to produce a good-quality crop.” That’s no small job, either. As the feedstock coordinator at Husky’s newly expanded ethanol plant in Minnedosa, MB, Dyck is looking for 1,000 tonnes of wheat and corn a day, seven days a week, 50 weeks a year. The plant, a twin of Husky’s Lloydminster, SK operation, produces 130
By Clare stanfield
million litres of ethanol per year. Ethanol manufacturers prefer highstarch, low-protein feedstock: starch produces ethanol while protein just gums up the works. Corn, naturally high in starch, is a given, and on the wheat side, says Dyck, many CPS and winter varieties suit the purpose. The wheat he buys must be under 14.5% moisture. “We want it dry,” he says. “We’re looking for starch in the high 50s, low 60s, and a high test weight — a minimum of 58 pounds per bushel in feed wheat.” Corn must be at least 15.5% moisture and a minimum of 54 lb/bu. The good news is that Dyck can, with provisos, accept wheat and corn that would be rejected in the food or feed chain. “Bran frost doesn’t matter,” he says. “And we can take up to 15 per cent sprouting in wheat. With corn, small amounts of caramelized kernels aren’t a problem for us.” However, lighter test weight wheat, or wheat with more than one ppm vomitoxin is rejected — light grain creates processing issues, and the toxin survives fermen-
for more information visit us online online articles Turning grain into ethanol www.farmforum.ca/makingethanol Put a cocktail in your tank www.farmforum.ca/fillingup additional resources Husky’s corporate website (ethanol division) www.farmforum.ca/husky Canadian Renewable Fuels Association site www.farmforum.ca/CRFA List of ethanol plants currently operational, or under construction in Canada, includes feedstock type and capacity www.farmforum.ca/ethanolplants Canadian Renewable Fuels Association FAQs on ethanol production in Canada www.farmforum.ca/ethnolproduction Natural Resources Canada (Government of Canada) website on ethanol www.farmforum.ca/NRCethanol
Ethanol plants currently in operation in Western Canada, Ontario, and Quebec. Permolex, Red Deer
Poundmaker, Lanigan
Husky Energy, Minnedosa Collingwood Ethanol, Collingwood
Husky Energy, Lloydminster
NorAmera Bioenergy, Weyburn
Greenfield Ethanol, Varennes Greenfield Ethanol, Chatham
Photo (left) and diagram courtesy husky energy inc.
How ethanol is made Grain delivered to Plant
Grain Storage
Distillers Dried Grain with Solubles (DDGS) to Market
Milling
Cooking
Suncor, Sarnia
Distillation Columns Fermenting
Evaporation System
Denaturant Storage Molecular Sieve
Ethanol Storage
Ethanol to Market
Dryer Centrifuge
Photo courtesy bayer cropscience
A buyer in the backyard So where is Dyck going to get all this grain? Husky has a contract with Viterra to supply 50% of the plant’s needs, and the rest comes from local growers. “Most of it is contracted,” says Dyck. “We’re signing up supplies on a yearround basis.” Currently, he’s offering fall delivery contracts for $6/bu on wheat and $5/bu on corn. For growers, it’s cash on delivery for minimum 30-tonne lots. It’s a perfect fit for Michael Davis who crops 1,200 acres 16 kilometres out of Minnedosa. He’s been contracting wheat to Husky for about nine years. “There’s no having to wait for contracts to open,” he says, “and payment is fast. I’m seriously considering committing half of my 2008 production on their fall contract.” He’s keeping his options open, though. Last season, Husky got all his feed wheat, an unregistered American variety, while the CWB got his winter wheat. The difference in price was only 20 cents a bushel, and he did it because the CWB’s delivery timing (September) and payment schedule (within three weeks) worked in his favour, so he took advantage of the option.
But his preference is to sell to Husky, so he tends to stick to wheat varieties that keep his off-Board options open. “It just doesn’t suit my cash flow,” he says, of selling to the CWB. “I find that feed and winter wheats tend to yield more. I’m only 16 kilometres from Minnedosa, so why not grow something I can truck in there?” For Davis, it’s a no-brainer. “When you look at it realistically over the past 10 years or so, and you can contract feed wheat at $6 a bushel, well, why wouldn’t you?” FF farmforum.cA
tation, winding up in the distillers grains by-product fed to livestock.
Goodbye grain gluts? The growth of the ethanol industry has created a substantial new market for wheat and corn and that, in turn, has helped drive up prices. The question on a lot of growers’ minds is whether current high prices will hold. Rex Newkirk, director of biofuels and feed with the Canadian International Grains Institute in Winnipeg, is optimistic. It’s true that grain prices depend on many factors beyond this particular industry — everything from world wheat stocks to national and international agricultural trade and policies to acts of Mother Nature. But Newkirk hopes ethanol production might provide some pricing stability due to the sheer volume of grain that the ethanol industry requires now, and will require in the future as more plants come online. “In the past, if prices got too low, everybody outbid each other to get rid of their grain,” says Newkirk. “I’m hoping that growth in the ethanol industry will take out some of those downward price swings.” One important caution, however, is that the ethanol industry currently relies on government subsidies. “Those subsidies help plants determine how much they can pay farmers,” explains Newkirk. “No one is sure how long they will last and how the industry will look without them.” Which is where renewable fuel mandates come into play. With governments effectively legislating use of renewable fuels, like ethanol, demand for the grains to produce them should, in theory, help the industry outgrow its need for subsidies. “Even a small mandate makes a big impact on a crop,” says Newkirk. “A 2 per cent mandate in biodiesel would work out to about 30 per cent of our canola crop.” FF Farm Forum.cA | 19
business
Lawyer and MBA graduate Tom Cumming is developing Flatlander Environmental Services’ carbon credit trading package. “This business needs solid structure,” he says, “and government is taking the steps necessary to put integrity into the system so farmers can feel secure when they trade carbon credits.”
Carbon credits enhance no-till Here’s another advantage for no-till: you can now sell its environmental benefits — for cash. But look before you leap By John Dietz Carbon credit is the latest buzzword on the prairies, especially for no-till farms. This reward for reducing greenhouse gases (GHGs) is a cash payment available to farmers practicing environmentally friendly land management that ties up carbon in the soil instead of allowing it to escape into the air. As international concern about global warming continues to garner headlines, billions of dollars are being invested worldwide to reduce or slow the rate of warming, widely blamed on atmospheric buildup of carbon dioxide and other GHGs generated by burning ever-increasing amounts of fossil fuels. A lot of the effort focuses on reducing GHG emissions and on alternative sources of energy. How carbon credits work Imagine a landscape with a wall. Major industrial GHG emitters are on one side. Anyone taking GHGs such as carbon dioxide out of the air is on the other side. 20 | Farm Forum | SPRING 2008
That’s where farmers sit. No-till captures carbon dioxide and stores it as soil organic matter. Every no-till acre on the prairies now can claim a carbon credit. Two zones, based on soil type, have been established. One northern-zone acre generates twice as much credit as one southern-zone acre. The difference is based on the type of crops grown in the region and the amount of carbon tied up in crop residue. Five years ago industrial-scale GHG emitters began buying carbon credits as a way to encourage “green” practices that reduce emissions, and to “offset” their own emissions. The “wall” in this landscape is where trading happens. Brokers, representing many small suppliers such as farmers, accumulate carbon credits from these suppliers, consolidate the credits into packages of tens of thousands of tonnes, and sell them to power companies and other GHG emitters. How brokers sell these credits is optional. One might deal directly with a single large emitter; another might offer credits for sale to the highest bidder. A broker could have several carbon reduction projects underway at any point in time. Each project is defined by a time pe-
riod, a practice such as no-till, and a geographic region. In addition to finding buyers and sellers, brokers must also have credits verified as authentic before they can sell them. How the game is played Trading of carbon credits in North America began in 2003 on the new Chicago Climate Exchange (CCX). It is the only operating trading system for GHGs in North America. Just as stockbrokers use a stock exchange to bring buyers and sellers of corporate stocks together, accredited carbon credit brokers use the CCX to connect buyers and sellers of carbon credits. For example, CCX-registered C-Green Aggregators Ltd., of Regina, put together a pool of 5.1 million no-till acres as its initial base for this new business. Between 2002 and 2006, that land had sequestered (accumulated as additional organic matter) 6.1 million tonnes of carbon. GHG emitters bought those “credits,” and are continuing to do so. In 2007, Flatlander Environmental Services in Edmonton, became the second prairie broker registered on the CCX. Now, a domestic exchange is emerging in Alberta. This January Alberta Environment launched an online registry project
Don’t grab the first offer
When investigating no-till carbon credit contracts, says Flatlander Environmental Services sales manager Bill Letondre, “be certain you’re dealing with reputable agents who have your best interests at heart and can guide you toward sound trading decisions.”
Con Tanasiuk photography
So now what? If you’re planning on getting into the carbon credits game, be cautious and expect changes. Rules are still being formulated and revised. Always check credentials as there have already been controversies over the claims of individual brokers in the U.S. Understand that contracts are not stan-
dardized yet. Brokers can offer to enrol your credits back to 2002 and forward to 2010, in various combinations and with different implications. Most contract offers do not say where the credits will be sold. Expect new regulators. British Columbia, Ontario and Quebec have been developing regulations. American states are organizing for regional emissions regulations. “In Canada, federal regulatory targets are planned for 2010, but a national offset market could start earlier. We’re hoping it will begin in 2008,” says the CCC’s Haugen-Kozyra. Federal regulations may affect provincial regulations, and could set 2006 as the earliest year of qualification. FF farmforum.cA
to help carbon credit buyers and sellers find each other. As well, in the past few months, brokers have started to organize. The new Carbon Offset Suppliers Association of Alberta is working on standards and a code of conduct, says Keith Anderson, acting chair. Also in Alberta, the non-profit organization Climate Change Central (CCC) is working with the provincial Farmers’ Advocate Office to develop standards to govern the business. “And we’re trying to standardize some of the contract terms,” says CCC official Karen Haugen-Kozyra. CCC has launched a website, Carbon Offset Solutions, www.carbonoffsetsolutions.ca, as an information resource on the Alberta carbon market, and climate change policy generally in Canada. The website offers information on offset policy, regulation, quantification protocols and the offset market.
for more information visit us online online articles Chicago trades carbon credits www.farmforum.ca/Chicagotrades Alberta gets serious on carbon offset www.farmforum.ca/abcarbonoffset additional resources Chicago Climate Exchange www.farmforum.ca/chicagoexchange Climate Change Central www.farmforum.ca/climatechangecentral Carbon Offset Solutions www.farmforum.ca/carbonoffsetsolutions Flatlander Environmental Services - contracts www.farmforum.ca/flatlander C-Green Aggregators Ltd. - carbon credit FAQs www.farmforum.ca/cgreenaggregators
Carbon credit contracts can be negotiated online, at meetings and even at your door. Signing on a few dotted lines can be done in minutes, and generate some cash. But remember, contracts are legal commitments. “Be cautious,” says Saskatchewan Soil Conservation Association executive manager Blair McClinton. “It’s important to read the fine print and understand it before you sign.” Once credits are sold, they are gone for good. Be wary of contracts committing your farm to future tillage practices. When you sign a contract, you may be locked in for years. “Once you’re in, you can’t back out,” says McClinton. “If you go back to tillage for any reason, you may have to pay back any credits received. “Be satisfied that the terms are going to be satisfactory and fit your operating system,” he adds. “All contracts restrict farming practices to a certain degree.” For example, you’ll be able to chop flax straw, but not burn it. And fall fertilizer banding might be an issue in one contract but not in another. An alternative contract for “right-offirst-refusal” is being offered by at least one broker. To McClinton, that looks like a very poor choice. “Why would you sign if there’s no money on the table?” he asks. “If something becomes available from another broker, you’re tied to the one you first signed with.” Ownership of carbon credits is yet another issue. “Whether you’re a landlord or a tenant,” warns McClinton, “come to some agreement about who gets what before you go into a carbon trading agreement.” FF Farm Forum.ca | 21
fa r m l i f e
Drive and determination put Outstanding Young Farmers on fast track By kate rowland
Harry and Leony Koelen shared the OYF National Award with Mossbank, SK couple Norman and Laura Shoemaker. We’ll profile the Shoemakers in our summer issue of Farm Forum. 22 | Farm Forum | Spring 2008
H
arry and Leony Koelen know a thing or two about building a farm business on the strength of a dream and a lot of hard work. In 1991 a strong desire to farm brought them to Canada from the Netherlands with little more than a backpack, $2,000 in savings, Harry’s degree in pigs and poultry, and the promise of a job at a large farrow-to-finish hog operation in Ontario. This wasn’t the Koelens’ first trip to Canada. In 1987, Harry worked as an agricultural exchange student for three and a half months on a pig farm near Ridgetown, Ont. Leony had also visited Canada in 1989. This time, though, they were here to stay. For four years after arriving, they worked for others, saving all the money they could. By 1995 the couple had enough to buy their own 100-acre farm in Brussels, Ont., where, with the addition of rented barns (trucking their pigs back and forth on an old school bus), they started a 500-sow farrowing operation. The ability to think creatively, says Leony, is high on the list of advice they would give to young farmers starting out today. Prioritizing where you spend your capital is also of vital importance. When you have only a little to spend, where and how you spend it is critical. “A key rule is to spend money only where it will bring money back in,” she says. By 1999 the Koelens had built their own dry sow barn and no longer had to rely on rented facilities. But with cheaper land available a little farther north in Bruce County, and hog operations still fairly new to that county, they sold their farm and moved to Bruce Road 19, between Chesley and Walkerton. Then they forged ahead on a new barn for 2,500 sows. Soon, however, they found some of their neighbours were worried about the impact a large barn might have. So the Koelens went visiting, meeting with each of their new neighbours to talk about what they planned to do, how they planned to do it, and how they planned to handle manure. Since then, the couple, whose
The Koelen children, clockwise from top: Laura (13), Sarah (11), Matt (7), Brent (4) and Tim (6) Finally, she says, recognize the extreme importance of education. “Young people have to stay on top, and that means education. If you see farming as a hobby, it won’t ever be a business. You can enjoy what you do, but you have to be smart about it.” FF farmforum.cA
Photos courtesy the koelen family; hog photo: ©iStockphoto.com/narvikk
family has grown to include five children business financially solid. “Often people ages 3 to 12, has weathered both a cy- worry about the details, and forget about clical downturn (exacerbated by the high the basics,” she says. Canadian dollar) in the pork industry, as The Koelens’ current operation inwell as personal setbacks including a barn cludes 5,400 sows and 1,100 acres on roof collapse in 2001 and an electrical fire two parcels of land. They operate one in 2003 that wiped out 1,800 piglets and of the largest farrowing operations in 1,280 sows. Still, they continued on, with Bruce County. In 2006, this family farm a healthy dose of determination tempered produced 130,000 young pigs, sold (at by cautious optimism. 17 days and five kilograms) to Listowel, It took a full year to rebuild the barn ON-based Synergy Swine Inc. Per-sow claimed by fire, a year in productivity is high — which they were already between 26 and 27 pigThe Koelens’ current building a second oplets per year. They credit eration on land in North this consistently impresoperation includes Bruce. When they built sive performance, in large 5,400 sows and 1,100 part, to their 16 full-time the second barn, Leony says, they acted as their acres on two parcels employees and a few own general contractor, part-time employees. of land. They operate and designed it with minWhile prices are low imal unused space. “We one of the largest far- right now and costs are still try to stick to the bahigh, Leony believes there rowing operations in sics,” she says. “The barn is still room for young has a simple layout, with farmers to get into the Bruce County no wasted space. Alleyindustry. “You need to ways are only large enough for a sow to work hard, be determined, and not give move through.” up, no matter what anyone tells you,” she Every extra foot you build and don’t says. “Be creative, and don’t be afraid to use for your operation, she adds, is mon- try something new.” ey wasted because it increases your cost Lots of great producers are looking per pig. “Right now, we maintain a low for enthusiastic young people to join unit cost through high productivity.” them, Leony adds, so consider potential H & L Koelen Farms Limited also partnerships. As well, she points out that sticks to the basics technology wise. “The land- and barn-leasing opportunities more high-tech it is, the harder it is to are an option for those who might not understand, and to teach to employees,” have the money to buy at the beginning. Leony explains, adding that the number More advice: make sure you surround of sows bred each and every week is the yourself with professional advisors who most important factor in keeping the know the industry.
for more information visit us online online articles Where best meets best www.farmforum.ca/OYFprogram Winners work outside the box www.farmforum.ca/OYFwinners additional resources Outstanding young farmer website www.farmforum.ca/OYFCanada Farm Forum.ca | 23
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