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Estimated costs of carbon pollution pricing in relation to grain drying in 2019

Summary

This analysis summarises the data and analyses that have been publicly released by provinces and industry associations, or which have been received by Agriculture and Agri-Food Canada (AAFC) from external sources regarding the cost of drying grains in 2019, and the associated costs from the Government of Canada's pollution pricing programFootnote 1, in jurisdictions where it applies.Footnote 2

Based on the information received, the average per-farm cost of pollution pricing associated with grain drying by province ranges from 0.05% to 0.38% of net operating costs for an average farm, equivalent to $210 to $774, depending on the province in question (Annex 1).

All of the estimates above are limited to direct costs to farmers. None of the figures above include indirect costs that may be associated with increased costs due to carbon pollution pricing impacts elsewhere in the supply chain that may be passed on to farmers.

Conversely, the preceding estimates do not include money returned to farmers under the federal carbon pollution pricing system. All direct revenue from the federal carbon pollution pricing system is returned to the jurisdiction of origin. In Alberta, Saskatchewan, Manitoba and Ontario, the majority of the direct revenue from the federal fuel charge goes directly to individuals and households through Climate Action Incentive payments.Footnote 3 Most Canadian households receive more in Climate Action Incentive's payments than they incur in total costs resulting from the federal carbon pollution pricing system. There is also a supplementary amount of 10% for people who live in rural and small communities.

Additionally, it should be noted that the federal carbon pollution pricing system provides significant relief to farmers in the jurisdictions where it applies: biological sources (for example, livestock) are not priced; the federal fuel charge does not apply to gasoline and diesel used in tractors, trucks and other machinery used on-farm; partial relief from the fuel charge is also provided for natural gas and propane used in commercial greenhouses.

What AAFC received

AAFC has received estimates of the cost of grain drying and carbon pollution pricing costs associated with grain drying from the following:

Each of these groups has arrived at estimates of the cost of grain drying or the carbon pollution pricing associated with this activity using different underlying assumptions, which makes direct comparisons difficult.

Considerations and comparisons

Regional and Time Variations Among Estimates Received

Scope of Estimates Received

Results

These results do not represent AAFC’s estimates for the costs of pollution pricing associated with grain drying to farmers. Rather, they represent a standardization of results from the various groups providing this information to arrive at more comparable results.

AAFC did complete its own analysis of carbon pollution pricing and the implications for Canadian farms. That analysis was completed in 2018, and was based primarily on 2016 data available at the time. That AAFC analysis is available at:

Based on the information received, the average per-farm cost of pollution pricing associated with grain drying by province ranges from $210 to $774, which is the equivalent of 0.05% to 0.38% of net operating costs for an average farm, depending on the province in question (Annex 1).

Fuels most commonly used on-farm are gasoline and diesel, which are exempt from the federal fuel charge in jurisdictions where it applies. Most grain drying equipment is powered with natural gas or propane, which are subject to the federal fuel charge in jurisdictions where it applies.

Costs are expected to vary by farm size, with larger farms having above average costs and smaller farms having below average costs. A breakdown of Canadian grain and oilseed farms by revenue size is shown in Annex 2. Although drying costs are not necessarily directly proportional to farm size, there is expected to be a strong correlation. While the average Canadian grain and oilseed farm has gross revenues of $460,000 per year, there are over 2,000 farms with revenues above $2 million per year that could see carbon pollution pricing costs that are significantly higher than the provincial averages.

Annex 1 - External Estimates of Grain Drying and Carbon Pollution Pricing Costs
Basic Farm Statistics (from 2018) Alberta Saskatchewan Manitoba Ontario
All G&O Farms
Ontario
Corn Only
Number of grain and oilseed farms: 12,965 19,585 6,425 16,000 N/A
Acres of grain and oilseeds: 17,011,000 29,734,700 9,105,100 6,251,300 N/A
Average acres per farm: 1,312 1,518 1,417 391 N/A
Total operating expenses for grain farmers ($ million): $5,375 $8,507 $3,140 $3,143 N/A
Average operating expenses per farm: $414,578 $434,363 $488,716 $196,438 N/A
Average net operating income per farm: $126,897 $123,883 $144,583 $49,783 N/A
Estimated contribution of the federal carbon pollution price to the cost of drying grain in 2019
Alberta Saskatchewan Manitoba Ontario
All G&O Farms
Ontario
Corn Only
Estimated Carbon Pollution Price Paid, Provincial Total ($ million): $3 $15 $5 $12 N/A
Average Carbon Pollution Price per farm: $210 $774 $723 $750 N/A
Average Carbon Pollution Price per acre: $0.16 $0.51 $0.51 $1.92 $5.50
Average Carbon Pollution Price as a % of opperating costs: 0.05% 0.18% 0.15% 0.38% N/A
Average Carbon Pollution Price as a % of net income: 0.17% 0.62% 0.50% 1.51% N/A
Estimated 2019 grain drying costs, in the absence of any federal carbon pollution price
Alberta Saskatchewan Manitoba Ontario
All G&O Farms
Ontario
Corn Only
Total provincial grain drying costs ($ million): $23 $140 $43 N/A N/A
Average grain drying cost per farm without pollution price: $1,735 $7,169 $6,692 N/A N/A
Total grain drying cost / acre: $1.32 $4.72 $4.72 N/A N/A
Grain drying as a fraction of operating expenses: 0.42% 1.65% 1.37% N/A N/A
Grain drying as a fraction of net income: 1.36% 5.78% 4.63% N/A N/A

Addional sources: All basic farm data from Statistics Canada (Acreage from Table: 32-10-0359-01; Farm counts and farm financial information from Agricultural Taxation Data Program)

Annex 2: Number of Grain and Oilseed Farms by Revenue Class, 2018
Alberta Saskatchewan Manitoba Ontario Canada % of Canada’s Total
$25,000 to $100,000 2,935 4,445 1,180 6,200 16,330 27%
$100,000 to $999,999 7,170 10,755 3,765 6,690 31,070 52%
$1,000,000 to $1,999,999 1,230 2,115 790 565 4,975 8%
$2,000,000 and over 615 945 375 235 2,260 4%
Total Farm Numbers, all sizes: 12,990 19,605 6,430 16,040 60,090  
Average gross revenues (all revenue classes)  $549,454  $560,156  $628,220  $244,520  $460,572

Source: Statistics Canada; Agricultural Taxation Data Program, 2018; AAFC’s calculations.
Excludes unincorporated farms with less than $10K in gross revenues and incorporated farms with less than $25K in gross revenues.
*Total Farm Numbers include all farms.
**Canada includes all provinces.

Annex 3: Breakdown of Farm Expenses

Data from Statistics Canada indicates the largest farm operating expenses have historically been wages, fertilizer, feed, interest and overall energy. While most expense items have increased over time, and sometimes show large year to year shifts, some items show more recent variability than others. For example, machinery fuel expenses, which are the largest component of energy expenses, are influenced by crude oil prices and international energy markets, and have shown notable increases and decreases over the past 10 years. Interest expenses have also increased in recent years, partly due to increases in interest rates.

Conversely, other expenses, such as wages and feed, have shown more consistent growth and less year to year variation. Fertilizer prices are influenced by international supply and demand, and show slightly more variability, but have been within a consistent range in recent years.

Chart 1: Breakdown of Farm Expenses, 2018, All Farms

Description of this image follows.

Description of above image
Breakdown of farm expenses, 2018, all farms
2018 All Farms Canada
Heating fuel and curing fuel $559,380,289
Electricity $853,791,527
Marketing expenses $1,438,472,727
Net fuel expenses, machinery and motor vehicles $2,892,933,625
Pesticides $2,371,277,457
Seeds and plants $3,807,487,253
Custom work and machine rental $4,399,906,811
Fertilizers and lime $5,689,661,912
Feed, supplements, straw, and bedding $8,814,709,303
Salaries and wages $5,799,544,882
Other expenses $26,120,899,462
Expense - Total operating expenses $62,748,065,248

Source: Statistics Canada; Agricultural Taxation Data Program, 2018; AAFC’s calculations.

Chart 2: Breakdown of Farm Expenses, 2018, Grain and Oilseed Farms

Description of this image follows.

Description of above image
Breakdown of farm expenses, 2018, oilseed and grain farms
2018 Oilseed and grain farms Canada
Heating fuel and curing fuel $95,741,425
Electricity $223,463,734
Marketing expenses $274,321,042
Net fuel expenses, machinery and motor vehicles $1,511,327,234
Pesticides $1,835,790,786
Seeds and plants $2,143,765,897
Custom work and machine rental $1,910,339,400
Fertilizers and lime $4,144,943,556
Feed, supplements, straw, and bedding $496,782,395
Salaries and wages $1,225,137,093
Other expenses $7,690,625,250
Expense - Total operating expenses $21,552,237,812

Source: Statistics Canada; Agricultural Taxation Data Program, 2018; AAFC’s calculations.

Estimated costs of carbon pollution pricing in relation to grain drying in 2019 (PDF)

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