MOOSE JAW, Sask. — China’s slowing growth shouldn’t concern producers too much, says Farm Credit Canada’s chief agricultural economist.
J.P. Gervais told an agricultural outlook seminar earlier this month that the active working population in China, which includes people aged 15 to 59, began to decline in 2012.
Productivity has to go up when populations decline to maintain the same standard of living, which in turn should push up wages.
“That’s good for ag,” Gervais said.
He said a Chinese consumer will spend 40 cents of every dollar on food, compared to 10 cents in Canada
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Chinese soybean imports have doubled every five years for the past 10 years, he added, which means the country now obtains 60 percent of its supply from the world market.
A corn and barley surplus has turned into a small deficit, and Gervais believes that will continue as China produces more livestock to meet a growing demand for animal protein.
However, cheap labour has been the most important driver in the Chinese economy, and that will change if the working population shrinks.
“Yes, their growth is going to start to slow down, but wages are going to go up and consumption is going to gain a lot more weight,” Gervais said.
“Thirty-five percent of the (Chinese) economy is consumption. In Canada it’s 66 percent. In the U.S. it’s 70 percent.”
He said increasing the consumption rate means more money will be spent on food.
The United States remains Canada’s biggest customer, and employment is rebounding now that the drama over the country’s debt and budget has largely subsided.
U.S. monetary policy has changed as a result, and Gervais said countries that relied on American capital, such as India, Argentina, South Africa, Brazil and Turkey, are fragile.
India and Turkey are large buyers of Canadian pulse crops, and the Canadian dollar is gaining value against their currencies, particularly in India.
He said that makes Canadian pulses more expensive and less competitive. Consumers in India and Turkey are price sensitive, and those markets are two to watch.
Meanwhile, Gervais said Canadian producers should keep an eye on interest rates.
He said it’s false to say they aren’t going up. The Bank of Canada rate might be holding steady, but the bank only controls short-term rates. Long-term rates have actually increased considerably since September 2010.
“If you wait for the Bank of Canada to tell you interest rates are going to go up, you look at the bond market, rates will have moved up before that, for sure,” he said.
Gervais expects farmland values to cool as commodity prices dip. They may not actually go down, but he said the large increases of the last few years probably won’t continue.
