Growth and diversification are not easy, concedes Farm Credit Canada, but the future is bright for these crops
An analysis by Farm Credit Canada shows opportunities for Canada to expand and diversify markets for four major crops in spite of trade tensions.
Chief economist J.P. Gervais said wheat, canola, pulse and soy markets all have potential. Although beef and pork were not included in a trade report released last week he said animal protein is also in demand.
But growth and diversification aren’t easy tasks, he told reporters at Canadian Western Agribition.
“Diversification is not necessarily something that happens overnight. You need to invest in developing new relationships,” he said. “This is going to require efforts and businesses that are willing to invest in establishing new business relationships.”
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The fixed costs of developing relationships are lower on a per-unit basis for larger businesses, and balancing profitability with risk is key.
Exports are under pressure because of market access issues between Canada and a number of countries, as well as from the ripple effect of heightened tension between the United States and China.
Still, Gervais said trade agreements signed in the past few years offer room for growth.
He said market characteristics to look for include size, growth and countries that already buy a lot from Canada.
For example, Canada’s market share for wheat is 15 percent.
“If you find yourself in a position where you export a lot more than 15 percent of what they’re buying perhaps the potential to grow your presence in this market is not necessarily great,” Gervais said.
The picture for wheat is of a stable mature market, the report said, but one that has steadily diversified over time.
Canada exports to 102 countries or 70 percent of all the wheat importers. The market is valued at nearly $33 billion US.
“We have some potential options to diversify it a little bit more,” Gervais said, listing countries like Philippines, Egypt, Spain, Netherlands, Belgium and Germany among the possibilities.
Canola is a smaller global market worth about US$10.8 billion. Canada accounts for 44 percent of global exports.
As a result of issues with China and production issues in Europe, exports to Europe have diversified through 2019. Gervais said Saskatchewan exports to Europe this year have more than tripled.
“The question mark there, obviously, is if this is going to be sustainable,” he said.
It’s too early to say if this is true market diversification, especially if Europe’s production rebounds.
“We do expect the demand for oilseeds in China to be less in 2020 than what it has been in 2019 and 18,” he added.
Canada’s market share of pulse exports is 23 percent in a market valued at $7.5 billion.
“We are quite diversified,” Gervais said. “We sell to 81 percent of these countries.”
Diversification potential is limited given that India imports more than 30 percent of the world’s pulses.
“Prior to 2017 the import market for pulses was growing at an annual rate of eight percent,” Gervais said. “That spoke to a lot of potential for us to grow exports, which we did, and now the issue has been that, relying on an importer like India, should we diversify a bit more?”
Possibilities include Pakistan, Germany, Belgium and Spain.
Soybeans could be the best chance for Canada to diversify crop exports, according to the report.
“Soybeans is a really interesting sector, mostly because we’re not as large as an exporter,” said Gervais.
The total soy market was valued at nearly US$63 billion in 2018 but Canada accounted for just $2.2 billion of that.
China’s imports have steadily grown for the last 20 years and in 2018 represented 65 percent of the total.
“That makes it really hard to diversify,” Gervais said.
But other markets that have potential include Argentina, Mexico, Egypt, Turkey and Pakistan.
Gervais said trade agreements offer more opportunities for beef to move to both Asia and Europe.
“When it comes to red meat, I’m really excited,” he said. “I know there’s a lot of discussion about the shift in food preferences, consumers wanting to eat more plant-based proteins, but when it comes to animal proteins consumers still want to eat beef.”
He said he believes that Canadian exporters will meet the requirements Europe has set for beef to enter and establish a stronger market.
Currently the U.S., Mexico and Hong Kong are what he calls Canada’s preferred markets, which leaves a lot of room for diversification.
Gervais added that producer organizations and private businesses should be looking at opportunities and weighing risks.
“I do believe it’s a good risk management strategy to be looking at our export presence and say do we have too much concentration in some of the markets that are significant to us,” he said. “Having said that, it’s balancing the idea that we want to make the most profitable sales (while) at the same time making sure that you don’t overly rely on a market that could shut down at any point in time.”
