August 6th, 2015
Deciding farm product prices is not a random process. There are various international standards for deciding the value of agricultural products, but in Canada, the Farm Product Price Index (or FPPI) provides a measurement for any price fluctuations that farmers receive for the agricultural commodities they grow and sell. Canadian agriculture has a significant affect on the economy, and the FPPI serves as a barometer to indicate the changing tides in agricultural pricing.
Pricing for commodities is based upon the point of first transaction, when the deductions of any fees before a producer is paid are omitted. Bonuses or any premiums that are attributable to specific commodities are also included. The Canadian government releases this data as it becomes available: here is March 2015’s FPPI for a sample.
This index is so important because it is one of the most important indications of inflation or deflation in an economy. Agriculture policy makers and any other concerned parties carefully monitor the FPPI for any unexpected changes, especially during periods of inflation or deflation of the Canadian dollar.
What are the FPPI Categories?
The FPPI covers virtually every area of agriculture. It breaks down into two major categories: crops and livestock. Crops include cereals and oilseeds, as well as speciality items. Livestock primarily covers cattle and hogs.
Any Canadian agricultural operation falls within these parameters, as defined by the Census of Agriculture, certain marketing boards, and a variety of government commission and departments that gather data relating to agriculture. They use this information to recalculate the new values every month.
What is the Purpose of the FPPI?
Measuring Canadian agriculture’s effect on the economy is an important aspect of the FPPI. It is not only agriculturalists who use this system: agricultural analysts and economists with a vested interest in the livelihood of the sector who want to stay informed with the latest agricultural commodity prices and policy development.
The FPPI produces useful information for a diverse audience. Obviously agricultural producers benefit from this knowledge, but producer groups, private sector commodity analysts (such as meat and other food processors), financiers, international exporters, and government officials involved with determining and setting agricultural policy. The FPPI helps shape and develop the future of Canadian agriculture.
How Does the Government Calculate the FPPI?
The FPPI primarily uses the Farm Cash Receipts series CANSIM table 002-0002 for creating its monthly price indexes, as well as other sources such as the Farm Product Prices Survey (or FPSS). It also draws on other sources to measure Canadian agricultural commodities produced and sold outside of the sector, as well as outer-province farm-to-farm sales. Inter-farm sales within provinces fall outside these estimates based on farm cash receipts.
Regulatory boards directly provide some of this information, such as the Egg Farmers of Canada, or the Grain Farmers of Ontario, for instance. Processing some of this data takes place at provincial agricultural or statistical departments. These various sources pool their collected data to create an accurate and representative figure.
The FPPI is not a perfect system, of course, and is subject to error. Due to the network of indexes drawn upon to create the index, the results are not always perfect. Larger geographic areas and commodity groups often produce results that are more reliable.
For the sake of consistency and stronger analysis, using the FPPI to measure the effect of Canadian agriculture on the economy is more useful over a period of months or years rather than from one month to the next. Nevertheless, the FPPI is a valuable tool for predicting market movements, helping Canadian food processors and agriculturalists to make the most of their crops and products.