Part 2
This second post to the series on agricultural productivity in Canada dives into the financial realities facing farmers in Canada, where is all the money? I will also explore the public and private funding levels for agricultural research and development both at a national and international level to understand the landscape as it pertains to the discussion on Canadian agricultures status of innovation and growth.
The first blog in the series can be read here.
Research, Development, and Investments: Results Not Guaranteed
This discussion will be on the suggested lack of R&D and investment in Canada’s agriculture sector. Reports both from FCC and RBC (from Part 1), suggest that Canada’s lag contribute to reductions in the sectors competitiveness. This report, from the Canadian Agri-Food Policy Institute (CAPI) provides a more comprehensive discussion, while this Simpson Centre report discusses similar themes. However, it is prudent to look towards the state of Canadian agricultural producers’ profitability to lay the groundwork of this post.
A Snapshot of Operating Finances Across Canadian Farms
To contextualize the discussion around investment into the technologies of tomorrow for Canadian agricultural producers, we need to recognize that at the end of the day, farmer adoption of the knowledge generated by those investments is the ultimate outcome. If there is no uptake in the advancements, we do not see the returns that are hypothesized.
Statistics Canada releases farm operating revenues and expenses annually, which can be made into average operating profit margins. The graph below shows the average operating profit margins per dollar of revenue, based on farms responding to the data source. This figure does omit the profit margins of certain farm types, such as dairy and poultry production due to their differing exposure to market forces, while we focus on the grain and livestock sectors within Canadian agriculture.
As we can see, looking back to 2015, to the most recent year with data available, the range of profitability has expanded slightly across farm types, with some shifts in the ranking of profitability. The beef cattle farms have experienced a reduction in profitability over time (once the 2025 data is available this will likely change given the higher prices cattle markets have been experiencing), while hog producing and potato farm types have increased in profitability. The grain and oilseed farm type experienced a large increase in 2021, while profitability is slightly lower in 2024 compared to 2015.
As the Canadian agriculture sector is dominated by cattle ranching, as well as grain and oilseed production, those farm types warrant a closer inspection to their revenues and expenses.
From the above graph we can see the trends in revenue, expense, and net income for the selected farm types over time. Overall, we see minimal improvement to the net income to beef operations, while grain and oilseed farms have been able to expand their net income levels on average for the time period we are looking at. Obviously, market conditions play a role in the ability of Canadian farmers to capture a profit, alongside the year-to-year production amounts, however, we can identify some level of stagnation in the overall profitability among beef cattle operations.
A closer examination of the sub-components of revenues and expenses for grain/oilseed and beef operations reveals several important trends in Canadian agriculture. It is important to note that all values are reported as averages per farm. As a result, the figures reflect the presence of mixed operations, where beef farms may include crop or dairy income, and grain and oilseed farms may report some livestock-related revenues.
Revenue Trends (2015-2024)
Between 2015 and 2024, both sectors experienced substantial growth in program-related revenues. Program payments and insurance proceeds increased by 196% for beef operations and 137% for grain and oilseed farms. Net program payments grew even more sharply, rising by 318% and 210% respectively.
Outside of program-related income, revenue growth was uneven across categories. In beef operations, revenue from cattle increased by 75%, while non-core sources grew much more rapidly, including custom work and machine rentals (+169%) and “other crops” (+370%).
Grain and oilseed operations show a similar pattern of moderate commodity growth. Revenues increased by 110% for barley and 75% for canola, with more modest gains across other categories. In contrast, program payments again represent one of the fastest-growing revenue components.
Expense Trends (2015-2024)
Expense growth has been significant across both sectors, with particularly strong increases in financing costs. Net interest expense and bank charges rose by 191% for beef operations and 139% for crop producers.
For beef operations, several major cost categories saw substantial increases, including custom work and machine rentals (+171%), feed and related inputs (+108%), livestock purchases (+104%), and salaries and wages (+104%).
In grain and oilseed production, expense growth was somewhat more moderate but still widespread. Notable increases include salaries and wages (+78%), machinery-related repairs and insurance (+78%), fertilizers and lime (+76%), and rent (+75%).
Summary Table: Key Changes (2015-2024)
Category | Beef Operations | Grain & Oilseed Operations |
|---|---|---|
Program Revenue (gross) | +196% | +137% |
Net Program Payments | +318% | +210% |
Core Commodity Revenue | +75% | +110% (barley); +75% (canola) |
Other Revenue | +169% (custom work); +370% (other crops) | (modest increase in most categories) |
Interest & Bank Charges | +191% | +139% |
Labour (wages & benefits) | +104% | +78% |
Key Input Costs | +108% (feed); +104% (livestock purchases) | +76% (fertilizer); +78% (repairs); +75% (rent) |
Taken together, these trends indicate that revenue growth over this period has been driven disproportionately by program payments and non-core income sources, while core commodity revenues have grown more modestly. At the same time, widespread increases in input costs, particularly financing, labour, and key production inputs, suggest mounting cost pressures across both sectors. This combination points to a potential tightening of margins and an increasing reliance on external supports and diversified income streams to sustain farm financial performance.
The financial realities outlined above are not separate from the R&D discussion to follow. Even where innovations exist and public investment has produced results, adoption at the farm level is the mechanism through which productivity gains are realized. Precision agriculture tools, biological crop inputs, and soil health technologies have all seen growing availability in the Canadian market, yet uptake remains uneven. This article discusses survey results from western Canadian farmers, finding that mixed operations, and those with a successor tend to adopt more innovations, depending on the life cycle stage of that farm. While when looking to agricultural census data for 2016 and 2021 a consistent positive relationship between farm size and technology adoption across both periods is found. Adoption rates rise from roughly 55% among the smallest farms to over 90% at the largest in 2016, and from 21% to 85% in 2021. A farmer operating on thin margins, as many beef producers have been through much of the past decade due to the sustained drought affecting most of the leading beef producing regions in Western Canada, is poorly positioned to absorb the upfront costs or learning curve associated with new technology regardless of its long-run return. Also drawing from the agricultural census data source above, both periods show that oilseed and grain farms report technology use at higher rates than cattle operations. This raises a question worth keeping in mind as we examine the R&D data that follows: if the pipeline of innovation is contracting at the same time that farm margins limit adoption, where exactly does the return on research investment materialize?
Looking Back at R&D Investment
Public Sourced Funding
In the opening of this section, I linked two reports, one from The Simpson Centre, and one from CAPI. The CAPI report summary suggests that funding in Canada has dropped 21% since 1985, while capital funding for infrastructure has been reduced 95%, and that less than a quarter of R&D stems from private sources. While the Simpson Centre report shows that globally, from 2000 to 2016, spending on R&D has increased by roughly 16 billion, but within our country, R&D spending has fallen by $180 million from 2013 to 2022.
Finding sources of data on R&D expenditures both within Canada, and globally has proven to be challenging, though an article from van Dijk et al. (2025) provides a global data series which can be found here, that covers public R&D activities from 1960 through 2022. First, we will look at the Canadian estimates over time.
This data source (the GRAPE dataset) presents the public R&D spending in Canada in terms of 2017 CAD dollars, we can observe that a maximum funding level was reached in 1985, where afterwards up to the most recent observation of 2022, the funding level has experienced some annual volatility, with a downward trend since 2020. The year 1959 marked the formation of the Research Branch within the Department of Agriculture and Agri-Food for the nation, while subsequent years saw a range of developments and changes to agricultural policy. Though large disturbances occurred in 1983, when the Crow’s Nest freight rate was abolished, and the sector experienced a depression resulting from crashing prices in the mid to late 1980’s. These factors in combination with concerns of provincial and federal government deficits among the public led to shifts away from commodity specific supports. We can see why the CAPI report used 1985 as a benchmark to compare current spending levels, considering that year had the highest level of investment.
The apparent discrepancy between the Simpson Centre report and the GRAPE dataset likely reflects differences in data construction, scope, and currency denomination rather than a direct contradiction. The GRAPE dataset reports Canadian public agricultural R&D expenditures in constant 2017 CAD and suggests relatively stable funding levels between 2013 and 2022, declining only modestly from $1.0635 billion to $1.0554 billion, a decline of $81 million. In contrast, the Simpson Centre report cites a decline from $860 million in 2013 to $680 million in 2022, without specifying units or methodological details.
Based on the reported values, the Simpson Centre estimates appear to correspond closely with the OECD General Services Support Estimate (GSSE) database, specifically the Agricultural Knowledge and Innovation Systems (AKIS) category which refers to the network of researchers, extension services, input suppliers, and producer organizations through which agricultural knowledge is generated and transmitted to farm operators. It is a useful lens here because productivity outcomes depend not just on the level of R&D investment, but on how effectively that knowledge moves from research institutions to frontline producers. Filtering the OECD data for Canada and the AKIS subcategory yields expenditures of approximately USD $884 million in 2013 and USD $697 million in 2022, closely matching the figures reported by the Simpson Centre. However, when expressed in Canadian dollars, these same OECD estimates are approximately CAD $910 million in 2013 and CAD $907 million in 2022, indicating comparatively little change over the period.
Taken together, these comparisons suggest that much of the perceived decline emphasized in the Simpson Centre report may be driven by exchange rate effects and differences in accounting frameworks rather than a substantial reduction in real domestic agricultural R&D expenditures. The GRAPE dataset, which is explicitly constructed in constant Canadian dollars, therefore provides a more appropriate basis for evaluating long-run domestic public investment trends in Canadian agricultural R&D.
A notable development to this discussion is that the 2025 Canadian federal budget includes a comprehensive expenditure review, with planned reductions across many of the publicly funded organizations. Agriculture and Agri-Food Canada (AAFC) which receives a significant portion of public R&D funds has to meet up to a 15% “savings” target over the next three years. This comes to a reduction in expenditures of $154.7 million by the 2028-2029 fiscal year. Resulting from these austerity measures three primary research centers across the country alongside four satellite research locations will be closing, with a 12 month wind down period. The Deputy Minister of AAFC, Lawrence Hanson is quoted saying “We are not reconsidering this decision” when questioned on the possibility of reversing the shutdowns due as backlash from industry participants arose over the announcement.
Now we will look at how Canada stacks up to other countries investment levels in agricultural R&D, and under purchasing power parity, avoiding the various local currencies.
According to this data source, as of 2022, Canada is among the lowest spenders in public agricultural R&D from the selected countries, yet recorded the highest rate of total factor productivity (TFP) growth from 2011 to 2020. This apparent paradox warrants some caution in interpretation. A strong TFP performance alongside low R&D spending does not necessarily mean Canada has found a more efficient path to productivity growth. It may instead reflect a lag effect, where returns are being realized today from investments made one to two decades prior, a dynamic well documented in the agricultural economics literature. If that is the case, the current trajectory of declining public investment and stagnant private spending raises legitimate questions about whether Canada’s productivity leadership can be sustained into the next decade.
Taxes, Regulations, and Protection: The Plight of Private Research
An article from McKinsey & Company finds that since 2010 publicly traded agricultural companies have underperformed the S&P 500 index. Though this is not entirely surprising given the large returns from technology, data, and artificial intelligence players over recent years, it still warrants further investigation. In its analysis of 134 publicly traded companies, McKinsey notes that median R&D expenditures have remained flat. Once inflation is considered, real R&D expenditures have contracted over their study period. It is noted that those in the top quintile have strong levels of capital expenditure relative to sales, which shows up in R&D expenditures among other avenues.
While this underperformance reflects global dynamics, Canada is not insulated from them, the same structural pressures dampening private returns on agricultural investment internationally have contributed to a domestic private R&D base that has failed to grow in real terms.
The linked CAPI report on Canada’s agricultural R&D details the status of private-sector sourced investment, re-iterating the global declines seen to public R&D, while the country has not seen private sources step into the ring. We will look at the Canadian data pertaining to private research expenditures soon, but first we will walk though CAPI’s theorization on why this gap has been occurring.
The report finds that a primary driver on the lack of growth seen stems from a lack of incentives to action. Canada has shown a lack of strong intellectual property protections for plant breeding relative to the United States and European Union. While regulations surrounding intellectual property for plant breeding have a carve out of the Farmers’ privilege exemption allowing farmers to re-use farm grown seed for replanting in subsequent years. Discussion on changes to the legislation alongside resistance to tightening the exemption play at odds in efforts to stimulate higher investments. Put plainly, breeders operating under stronger IP regimes can more reliably recoup their investment through proprietary seed sales, giving them a structural incentive to invest that their Canadian counterparts lack. It is also noted that tax programs provide potential incentives to private participants. The Scientific Research and Experimental Development (SR&ED) tax incentives allow the potential of income deductions from allowable SR&ED expenditures incurred in that tax year, alongside tax credits that can be applied against the income tax payable. Though the SR&ED program has been criticized as having a complex claims process often favoring firms with the capital and expertise to fully take advantage of the program.
The CAPI report also summarizes that regulatory barriers create an obstacle due to the lengthy period and high costs of getting genetically modified plant species approved, while variety registration processes also build in further restrictions.
Now we will look to Statistics Canada data on private in-house R&D expenditure, as well as the counts of the performers of said R&D activities for agriculture (excluding aquaculture). Due to data limitations, years 2014 through 2017 were omitted, while the most recent reported year is 2023.
The increasing share of Canadian-controlled expenditures in recent years is better explained by foreign-controlled firms pulling back from domestic R&D activity, falling from a peak of $69 million in 2020 to $34 million in 2022, rather than by any meaningful increase from Canadian firms, whose spending has remained volatile with no clear upward trend over the period. We can also observe the stark difference in scale between privately-funded R&D and publicly-funded R&D discussed prior. It should be noted that this data series on expenditures only considers “in-house” activities, omitting contracted or outsourced research, which could impact the scale relative to other sources.
A quick comparison of the compositions of private and public R&D spending between Canada and Australia follows. This uses the GRAPE dataset alongside the above StatsCan data for Canada, and values from ABARES for Australia.
Canada (2022) | Australia (2022-2023) | |
|---|---|---|
Public R&D share | ~88% | ~51% |
Private R&D share | ~12% | ~49% |
Note: Canadian figures reflect in-house business R&D only (StatCan Table 27-10-0343-01), excluding contracted research. Australian figures (ABARES) use a broader definition including private payments to R&D corporations, meaning Canada's private share is likely modestly understated on a comparable basis. | ||
Statistics Canada data on private in-house agricultural R&D expenditures show that nominal spending has remained essentially flat since 2016, with a nominal compound annual growth rate of approximately 2%. Once adjusted for inflation, however, real expenditure has declined, with estimates ranging from -0.9% to -3.1% annually depending on the period examined. This contrasts sharply with Australia, where private agricultural R&D has grown at approximately 4.2% annually in real terms since 2005 (to the 2024-25 period), with the private sector now accounting for nearly half of total agricultural R&D expenditure compared to roughly 12% in Canada.
Conclusion
The financial picture for Canadian agricultural producers reveals constrained and volatile margins, a reality that shapes not just farm viability, but the rate at which new technologies and practices can realistically be adopted given the various costs that tend to show up. The data reviewed here suggest that both public and private R&D investment have declined in real terms, and face further near-term pressure. But the more pointed observation may be this: much of the existing policy conversation focuses on the supply side of innovation, how much is being spent, and by who, while the demand side remains underexamined. Generating research is only half the equation. Getting that research into the hands of producers, in forms they can act on, is where the gap between investment and outcome lies. Part 3 will examine the barriers on both sides of that equation, looking at what the data can tell us about the returns on past investment, the regulatory and IP conditions shaping private incentives, and the often-overlooked distance between a research result and a changed practice at the field level.