FCC likes dairy’s prospects

Canada’s dairy farmers have survived the pandemic better than some other farm sectors and that should continue, Farm Credit Canada’s chief agricultural economist says.

While the industry will face increasing pressure from American imports for a few years, that should eventually reverse.

“We think that 2020 is going to be worse (overall) than 2019, but things are going to get better in 2021,” said Sebastien Pouliot during a presentation at Canada’s Outdoor Farm Show.

“I’m optimistic that things are going to improve in the second half of 2020 and get even better in 2021.”

Dairy consumption and production took a hit in the early months of the pandemic as entire sectors of the food industry shut down or drastically slowed down. However, since the beginning of summer production and consumption have stabilized and have been recovering from the pandemic shock.

Fortunately for the state of supply and demand within Canada, stocks of creamery butter are relatively low.

“There’s some potential for price at least to not decline further and even possibly to increase,” said Pouliot.

Demand will need to recover more strongly in order to propel prices, and whether that happens is unclear as the pandemic evolves.

The United States also saw production and consumption of dairy products slump during the early months of the pandemic for the same reasons as in Canada. Prices took a hit. But recovery has been happening south of the border as well.

On top of the pandemic’s impact, Canada’s dairy industry has also been grappling with the impact of the renegotiated North American free trade agreement. More U.S. dairy products have been allowed into Canada since July, with August seeing another increase in U.S. imports allowed.

Those significant import increases will go on for six years before slowing to one percent increases per year for the following 13 years.

Pouliot said if Canada’s dairy demand keeps increasing by 1.9 percent per year, the 10 year average, then that one percent will eventually leave more market to Canadian domestic production.

“It means the U.S. market share in Canada is going to be declining,” said Pouliot.

“Even though we expect a negative effect of the agreement on Canadian production over the first six years, after that it’s going to be less important and I’m optimistic things are going to get better for Canadian production.”

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