High energy costs could produce a shift in Canadian agricultural markets closer to home, says the head of the country’s biggest grain company.
Brian Hayward, chief executive officer of Agricore United, told farmers attending the annual convention of the Western Canadian Wheat Growers Association, that the rising cost of energy is fuelling high transportation costs.
Moving grain to far-off customers like China or India is getting more expensive, and eating up a growing share of the already low world price for many farm commodities.
As a result, he said, markets closer to home will attract more attention.
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“I think we’ll find places like Mexico and the United States are going to be more attractive relative to what we’ve seen in the past if we see those high energy prices sustained,” he said in an interview after his speech.
Those higher energy prices also translate into higher input costs, especially fertilizer, a stronger Canadian dollar, which means lower prices on export sales, and reduced wheat acreage, as U.S. farmers switch to corn to take advantage of burgeoning biofuel markets.
All of those factors will tend to reduce the net price for exported wheat even further, said Hayward, making it even more imperative to minimize transportation costs.
“Maybe our best hope is to specialize more and concentrate on high value markets in North America,” he said, meaning the U.S., Mexico and the domestic Canadian market.
One potential problem is access to the U.S. and Mexico, given the protectionist nature of American farmers, and their willingness to launch trade challenges if they think they are losing market share. Canadian wheat, durum, potatoes, hogs and beef have all faced such action during the past decade.
“Certainly access is a concern,” Hayward said after his speech, adding that highlights the importance of successfully concluding the current round of World Trade Organization negotiations to ensure there is improved market access around the world.
Hayward told the wheat growers the future of western Canadian agriculture is driven by four major trends: demographics, particularly a slowdown in world population growth and the aging of the Canadian farm population; technology, which will allow sellers to differentiate high quality Canadian products from the bulk commodities generally traded around the world; energy costs; and regulations, including world trade rules and domestic issues like grain handling, transportation and marketing.
