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The Rural Voice, 1977-12, Page 15shortage has led to a bidding war that had driven the quota price to as high as 15 cents a pound, he said. Following the federal government's across the board 18 per cent quota cutback a year ago, the Ontario board had halted farmer -to -farmer quota sales but after complaints front farmers the ban was lifted with the promise the policy would not be changed for at least a year. In an article to appear in the board's magazine shortly, O.M.M.B. senior economist Archie MacDonald is urging farmers to be moderate in their bidding for quota. Farmers can afford to seven cents a pound to match the loss they experience in the $7 per hundredweight over -quota penalty but over the long term, no more than three cents a pound can be justified, McKinnon said. At an average production of 14,000 pounds per cow quota bought at 10 cents a pound would total $1400 to cover a year's production. Return on farm investment nearly equal to small business study claims For years it's been stated that farmers' rate on return for the money they had invested in their farming operation was far below what they could get for the same money invested elsewhere but a new study from the University of Guelph argues otherwise. George Brinkman, an agricultural economist at the University in collaboration with graduate student Jack Gellner of the school of agricultural economics and extension education conducted the study which says farmers in commercial operation are making about the same income they could expect if they were applying the same income they could expect if they were applying the same resources in the nonfarm sector. Mr. Brinkman's study compared farmers to self-employed businessmen, which he said, is about the fairest comparison between farm and nonfarm operations that can be made. Both groups, he said, invest in their own businesses, both have the advantage of being their own boss. Levels of risk, he said, may not be strictly comparable but should be reasonably close as should hours of work and conditions of employment. One of the reasons for undertaking the study was to develop sn improved method for calculating farm and nonfarm rate of return comparisons... a central issue in discussions of income problems in agriculture for several decades. The study examined the relative rates of return to resources in commercial agriculture in Ontario for the period 1971-74 which included two years of low farm incomes and two years of rising farm income. Net farm income was first calculated and compared to the income that nonfarm self-employed businessmen of similar age, sex and schooling to the farmer would earn with the farmer's resources and hours of work. The comparable nonfarm returns were calculated on the basis of long term opportunity costs, as if the farmer had initially entered a nonfarm profession instead of farming. The results of these comparisons, says Prof Brinkman provide a measure of relative efficiency of resource use and can be used to address the question of whether farmers are underpaid. He reminds us that this is a very different question from whether or not farmers are underpaid. He reminds us that this is a very different question from whether or not farmers are poor. The rates of return in a commercial farming venture could be very low, but still generate adequate overall levels of income because the farmer has many resources. Small farms, however, may have too few productive resources to earn adequate incomes, even if their resources were used at an optimal rate. Higher rates of return may help these farmers, but not enough to provide a decent living. Rates of return considerations are more relevant to commercial farms, which the Guelph study defines as operations generating an annual gross income of $15,000 or more in 1971. Although such farms represented only a quarter of all census farms in 1971, they accounted for almost two-thirds of all agricultural sales in Ontario for that year, and would be the main beneficiaries of programs that are designed to increase resource returns. The University of Guelph researchers came up with a returns ratio of 0.96, which Prof. Brinkman explains means that for the years of 1971-74 the farmers interviewed made an average of 96 per cent of the income their resources could have earned them in the nonfarm sector. This indicates similar rates of return in total, but does not mean that all resources were earning similar returns. For Ontario, farm labour and investment returns were only eighty-three per cent of the nonfarm rates. but farm capital gains in those years were high enough to compensate for these differences, amounting to 35 per cent of the total returns in agriculture for the four years. Prof. Brinkman concedes that some farmers may argue that capital gains should not be included in a calculation of farm income because they cannot be realized until the farm is sold and the farmer ceases farming. Prof. Brinkman justifies their inclusion, however, because capital gains increase net worth, enabling a farmer to consume a greater share of his current income than someone who must set aside funds for retirement. Similarly, capital gains can serve as collateral for borrowing. The 0.96 ratio was an average for the 194 farms included in the University of Guelph study, but there was great variability between farms of different sizes, regions of the province, and years of the study period. Large farms, on the whole, had rates of return as good as, or better than, those expected in the nonfarm sector. This applied particularly to farms grossing over 550,000 a year in CLAY — Silo Unloaders Feeders Cleaners Stabling Leg Elevafor's Liquid Manur* Egdi'ntW Hog Equipmint BUTLER — Silo Unloaders Feeders Conveyors FARMATIC — Mills Augers, etc. ACORN' — Cleaners Heated Waterers WESTEEL -ROSCO Granaries B & L - Hog Panellkil ,ar LOWRY FARM SYSTEMS ; RR 1, Kincardine, Ontario Phone 395-5296 ZWAA1\'S WELDING AND EQUIPMENT Bldq. 25 Winnipeq Rd. Vanastra 482-7931 Next to Bayfield Boats SALES AND SERVICE OF Livestock Racks Edbro Hoists Grain Bodies Fifth -Wheel Trailers General Repairs 1971. Rates of return for THE RURAL VOICE/DECEMBER 1977,PG.15.