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New trade order called bad news for Canada

A new report says Canada and its farmers aren’t equipped to deal with a move away from the ‘liberal world order’

Farmers face a starkly worsened long-term world market for their crops and livestock, fears a Canadian agricultural economics analysis firm.

And that means many basic assumptions of how farm markets and prices behave might have to be radically reconsidered.

“Some of the assumptions of the liberal world order — price arbitrage and market clearing, preference for the certainty of rules-based commerce over power-based relationships, redress from unfair trade and marketing actions of other countries — do not necessarily apply today,” write analysts Al Mussell, Douglas Hedley and Ted Bilyea in an Agri-Food Economic Systems report.

“Canada lacks the economic weight to maintain its current international economic status and levels of market access if trade relations are to be based on leverage and influence.”

The report, called Shifting Geo-Politics and Trade Policy: Wither Canadian Agri-Food Policy? considers what it means for farmers if the world has drifted away from the “liberal world order” of the past 25 years and into a new era of big players attempting to set the terms of trade through power rather than agreement.

For Canadian farmers, who live in a relatively small and weak country that lacks the ability to impose its will on others, the situation won’t just be different, but worse. Basic free market functions might fail, such as:

  • Liquidity and price discovery in the world market fracture as it is balkanized into areas governed by different national power dynamics.
  • World prices might become less relevant as Canadian and foreign prices stop arbitraging, leaving the domestic market and farmers guessing about the true market value of their commodities.
  • Canadian prices could weaken and become unpredictable as Canada loses markets entirely, mostly or sporadically.
  • Trade disputes might become irresolvable through institutions such as the World Trade Organization as those institutions are crippled and sidelined.
  • Canada might not even know what the rules of trade are because big players could act according to their current interests regardless of any agreements they have signed.
  • The Chinese market could become permanently less accessible as China’s heavy investments in the “Belt and Road Initiative” provide it with a set of value chains it essentially controls.
  • Farmers might find themselves repeatedly hit as targets in trade disputes that have nothing to do with agriculture as combative foreign nations see farmers as easy and vocal targets.

The way farmers and Canada will need to respond also requires a rethinking, Agri-Food argues. If the basic laws of free-flowing supply-and-demand don’t apply, farmers can’t rely upon free market responses to prices.

“We are not facing supply-demand misalignment in which, for example, low prices will eventually cure low prices,” they write.

“Rather, low prices could be an indicator that a market as we have known it is simply gone or badly impaired, with unknown points of traction and stability at much lower levels, yet to be discovered.”

And farmer adjustments to price changes will be retarded if governments in Canada and elsewhere step in with ad hoc aid that breaks the direct connection between supply-and-demand and price.

All of these uncertainties are likely to lead to farmers and food industry players being less willing to invest in Canadian agriculture.

In all, it leaves Canadian farmers with a much bleaker situation if the “liberal world order” and the “rules-based international system” are things of the past.

“Many of the assumptions based on past experience may no longer be accurate or reliable. The emerging evidence is that there is exceedingly little scope for returning in the coming years to the markets, domestic policy and trade relationships that has prevailed in the previous 20 to 25 years.”

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