China has big impact but don’t ignore food processors

What are the connections between falling Canadian soybean acreage, a Rabobank analysis of the impact of African swine fever in China, strong beef exports to Asia, and reports by Food and Consumer Products of Canada and the Canadian Chamber of Commerce on impediments to food industry sustainability and competitiveness?

For the purposes of this column the key connection was simply that they all caught my attention and sparked some thinking.

As I pondered, I could not avoid thinking about China and how its food demand affects almost everything in agriculture.

Let’s start with soybean acres. Statistics Canada’s planting intentions report noted farmers plan to seed about 5.65 million acres, down 10.7 percent from last year and down 22.5 from two years ago.

It wasn’t long ago that the oilseed’s acreage was soaring higher annually in Western Canada as growers tried out the new short-season varieties. But a couple of dry years and disappointing returns per acre have removed the crop’s shine.

Concerns about market access to China might also have figured in farmers’ decisions.

In the current crop year, with China shunning American soybeans because of the trade war between the two superpowers, China bought up almost all of Canada’s available supply. In the seven months to the end of February, it bought 3.06 million tonnes, or 92 percent of the export total. That was up from 1.25 million at the same point last year. For the first time, China imported more Canadian soybeans than canola, which stood at 2.73 million tonnes.

But Canada now has its own problems with China, as canola growers know only too well, and although there is no official word that trade restrictions will spread to other crops, the worry exists.

Also, with African swine fever spreading through China, the country’s need for soy meal will fall in the coming year.

Speaking of ASF, the global agricultural banker Rabobank produced a couple of reports on the implications of the disease sweeping China and moving into other parts of Asia.

On the feed front, it says the need for imported protein meal will drop this year, but the impact will be partly offset by rising soy meal inclusion rates in poultry and aquaculture feeds.

ASF will speed the hog industry transition already underway of moving toward larger commercial operations away from home-based small production units.

The demand for commercial compound feed in China will displace home-made feed, and feed manufacturing companies will consolidate into larger entities, Rabobank says.

In another report, the bank says ASF in Asia will raise demand not just for pork but for all protein: poultry, beef, seafood and alternative proteins.

It is hard to appreciate the scale of China’s pork production. If it declines 30 percent as Rabobank expects, that is the equivalent of all of Europe’s annual pork production. It is 130 percent of the annual pork production in the United States.

The recovery of China’s herd will take time so the potential opportunity for the world’s meat exporters should last for at least two years.

Chicago hog futures jumped higher in the past two months but are now marking time, watching weekly meat export reports to determine if analyses such as Rabobank’s are real or just overblown hype.

The Canadian government does not publish weekly meat exports, but the monthly report to the end of February shows increased movement to China.

In the first two months of 2019 China was the second-largest importer of Canadian pork by volume and third largest by value.

The volume of pork going to China was up 23 percent over the same point in 2018.

In beef, if you put Hong Kong and China together, they are the second-largest importer of Canadian product this year.

China’s imports of Canadian beef soared 717 percent to 3.2 million kilograms, worth $28.8 million in the first two months.

Hong Kong imported 2.7 million kilograms of beef. The volume slipped 11 percent, but the value of the imports rose 14 percent from the same point in 2018.

These gains were complemented by new business associated with the recent trade deal with Pacific rim countries. In the two months, the quantity of Japan’s beef imports rose 87 percent and the value climbed 102 percent.

Now, these are only two months of results, but they might signal something good for Canadian livestock producers.

Canadian agricultural products can compete effectively when they do not face unfair barriers. But apparently that strong base of commodity production does not stimulate a vibrant food processing industry. Canada needs more domestic food processors to provide a steady and secure market less exposed to international trade barriers and political whims.

Recent reports from Food and Consumer Products of Canada and the Canadian Chamber of Commerce lay out a troubling story of why food processors struggle, even though they are the largest manufacturing employer in Canada.

Impediments include regulatory burdens at all levels of governments, corporate taxes, a highly concentrated retail food sector that demands high payments to get on store shelves, fluctuating exchange rates, labour shortages and barriers to interprovincial trade.

According to an index developed by the World Economic Forum, Canadian companies face a high level of government regulation. Some regulation is necessary for health, safety and environmental protections and we don’t want to be like China.

But certainly we could be closer to Germany, which ranks seventh on the list compared to Canada’s ranking of 38th worldwide.

Wouldn’t it be refreshing if instead of politicians holding a news conference to take credit for using tax money to fund a project, they announced simplifications and removals of regulatory burdens, saving businesses millions that they could put into expansion, new hires and innovation.

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