A Manitoba based agricultural economist is advising agricultural producers to focus on keeping production costs in line and strive for longer term production contracts as they weather the current economic uncertainty.
Although the value of agricultural commodities produced for food have not been impacted as severely as manufactured goods as a result of the global economic downturn, reduced consumption among consumers concerned about the prospects of job losses has had an impact.
Dr. Fabio Mattos, an agricultural economics professor with the University of Manitoba’s Faculty of Agricultural and Food Sciences, says the situation is unlikely to change quickly.
It may take awhile for them to see higher prices again and demand back to the levels they had before the crisis.
Since it’s very hard to forecast any increase in prices in the next few months they should probably try to protect their income, their profits on the cost side.
A few other things they could try to do is try to have some relatively long term contracts with food manufacturers or whoever buys their production and make production decisions based on the price they expect in the future.
That’s one of the things that hurt the sector right now.
We saw very high prices for agricultural commodities in the last couple of years and that encouraged producers to plant more and therefore they harvested more than the market was able to absorb given the current crisis.
Another thing they should keep in mind is that the low prices we see right now are probably going to rebound but not so fast.
So, maybe for the next crop year they shouldn’t expect higher prices but eventually it’s going to recover, maybe in two or three years.
Dr. Mattos says, while all commodities are suffering, the consumption of food products is less elastic than manufactured goods.
He says consumers tend to take longer to reduce their consumption of food items than manufactured products.
Source: Farmscape.Ca
