Tax incentives might fulfill agrifood’s need for investment

  • National Newswatch

Investment in agrifood has been stagnant in recent years

Ottawa—Enabling tax incentives might supply farmers and food businesses with the capital investment they need to secure their future, says the Canadian Agri-Food Policy Institute (CAPI).

Capital investment in agriculture and food businesses has been largely stagnant in recent years “and the barometer is telling us that there may be stormy weather ahead,” CAPI says in a commentary.

A dearth of investment is impacting Canada’s long-term sustainability, prosperity and growth. “While there are complex dynamics at play, the level of investment can be a barometer of confidence and competitiveness in the sector. Capital investment has been stagnant over the last five years and has fallen 10 percent in food manufacturing.”

Overall, the sector’s needs include access to capital, markets, labour, input, a competitive regulatory landscape and more. “In Canada, this is often achieved through programs and incentives run by the government. Creating new government programs often seems to be the go-to tool in the public policy toolbox.

“However, it isn’t the only one, and Canada may be missing out on tools that are more effective for boosting investment in the sector, including tax incentives such as deductions and credits.”

In some sectors of the economy, tax incentives are used extensively. In the last federal budget, investment tax credits were deployed to encourage the transition to a green economy. While these green energy credits have been slower to finalize than expected, they mark a shift from the previous program-centric approach.

“Agriculture and food have, at times, benefited from increases in the Capital Cost Allowance but do not benefit from the same targeted incentives offered other sectors.”

Agrifood faces market barriers, such as policy risk, capital intensity and technology risk, that are unique obstacles to commercialization and scale-up that other sectors do not face, CAPI said. Targeted incentives for investments will help overcome these challenges and catalyze the sector to realize its potential.

Looking at the farm gate, Canada lags the U.S. in how it uses tax incentives to encourage the investments needed to grow a sustainable and prosperous farm economy.

According to a report by the Organization for Economic Co-operation and Development (OECD), tax expenditures to agriculture in the US were valued at $3.5 billion between 2018 and 2022.

While it is harder to get as clear a picture of the situation in Canada, a Finance Canada’s report says the value of tax expenditures for farmers is only several million dollars a year. Most of those expenditures are for revenue deferrals, including for when a farmer receives compensation when their livestock is destroyed because of a disease outbreak.

In a previous report, CAPI found farmers see the benefit of using tax incentives more, with 73 per cent saying that they could be influential in encouraging them to adopt more sustainable management practices. “The U.S. has a soil a water conservation deduction, and perhaps it is time to replace the growing list of programs in Canada with something similar,” CAPI said.

“It may be tempting to call for more programs to address the lack of investment in agriculture and food, there is a need to get more creative. Amid calls for fiscal restraint, and increasing concern about governments’ ability to get things done, tax incentives may be a more effective policy tool to unlock the investment needed to deliver a more sustainable, prosperous sector. You do not always need to use a hammer when a screwdriver gets the job done.”

This news item was prepared for National Newswatch.