Canadian farm exports remain strong, for now

Top 10 ag exporters in 2015 (percent of total market share):


Canadian agriculture has been keeping pace with the rest of the economy, but growth is levelling off and future directions depend on the value of the loonie.

Farm Credit Canada is projecting that plateau won’t be easily overcome.

The lower value of the Canadian dollar compared to the U.S. currency has buoyed Canadian commodity export industries, including agriculture, and is critical to continued success.

J.P. Gervais, a senior economist with FCC, released a report last week telling Canadians they need to invest in agriculture if they want it to maintain its share of the country’s gross domestic product and exporting status and take advantage of growing global demand for agricultural production.

He also said the U.S. dollar is likely to remain strong for at least next year, given Bank of Canada policies and the tumult of international markets.

Canada was projected to be the biggest winner from the Trans-Pacific Partnership trade agreement, but anti-trade winds blowing in from Europe and the United States will require the Canadian ship of state to take a different tack.

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“Trade deals in general have become the whipping boy for the anti-globalization movement,” said Gervais, referring to Brexit, and U.S. President-elect Donald Trump promises to cancel the Trans-Pacific Partnership and renegotiate the North American Free Trade Agreement.

“Despite the turmoil, I think that things are actually positive,” Gervais said.

“We have a positive outlook for 2016 and beyond for Canadian exporters of agricultural and agri-food products.”

Global GDP growth is slowing, but the growth in demand for food commodities and energy continue to rise at higher rates than overall numbers.

“There is no risk in terms of demand for what we sell slowing down,” he said. “Nobody eats GDP.”

Canada is the world’s fifth largest agricultural exporter and the largest for wheat, canola, lentils and canaryseed, despite its relatively small size in terms of agricultural production.

The country’s agricultural exports total more than $26 billion, but the United States’ exports are $119 billion.

Canadian exports represent 5.7 of global exports. The U.S. has 15 percent, China seven, the Netherlands 6.5, Brazil 6.2, Spain 4.3, France 3.9, India 3.5, Australia 2.9 and Mexico 2.8.

Maintaining Canada’s strong role in global agricultural trade will mean continuing to improve production.

The U.S. Department of Agriculture measures productivity using a measure called total factor productivity. TFP rises when total output grows faster than total inputs.

From 1960 to 2006 Canada’s agricultural annual TFP growth averaged 1.6 percent. That efficiency growth over 55 years means Canadian farmers now use half the inputs to produce as much food at it produced in 1961.

However, many of the technology tools are now factored into farm operations, including gains through plant breeding, fertilizer and pesticide use, water efficiency from reduced tillage and improved farm equipment.

New gains are slower to deliver results and have more modest expectations, said Gervais.

He feels that the move to data use will provide some of the biggest gains in productivity in the near future, along with more complete adoption of efficient farming practices across Canada.

At the same time, headwinds are developing that may slow overall improvements to production, cash receipts and exports.

These include urban expansion through farmland conversion and tighter operating margins for producers that could limit investment in tools and inputs.

Gervais said the value of the Canadian dollar will continue to be the biggest factor for cash receipts.

He believes the loonie will remain aound US75 cents next year with potential for short-term dips toward 70 cents.

“It is the number one risk to the forecast for next year,” he said.

The complete FCC report is available for download here in PDF format.

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