If cereals will be sold differently in the future, Canada needs to change its strategy for the next round of world trade negotiations.
An economist from the Saskatoon-based University of Saskatchewan told last week’s Grain World conference here that the grains industry must focus on how it will make money in the long term.
“The choices appear to be managing cereals as products, or maintaining our stance as a low-cost commodity producer,” said Peter Phillips.
In the past, countries have focused on comparative advantages in trade.
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Phillips said countries tend to specialize in what they’re good at and trade for other goods rather than try to be self-sufficient.
In commodity markets, this has lead to interchangeable products traded mainly on price using short to medium-term supply agreements.
In Canada, most cereal sales have been made free on board, or f.o.b. Phillips said the industry has few links to processors.
But the tools of biotechnology are helping link genetics to the end product. Agricultural products are moving toward vertical integration, where one body co-ordinates the entire production process.
“At the extreme, commodity markets might become an endangered species,” Phillips said, explaining trade will be based less on comparative advantages and more on innovation.
“If a significant share of the market moves to such product trades, residual commodity markets will become thin and both trades and prices will be more volatile,” Phillips said.
In other sectors, one part normally develops the system to link the production process. Its shareholders reap the benefits.
Tough for farmers
Phillips said many farmers may have a tough time getting into the chain, either because they’re not large enough or too far away from the integrator.
If the cereals industry decides its future lies in an integrated, value-added system, Phillips said negotiating towards free trade might not be the best goal.
Rather, he said Canada should focus on international rules for protecting intellectual property, and ensure barriers come down which prevent trading branded products, investing abroad, and selling services in other countries.
Phillips said Canada should also have industry groups representing all links in the production chain to advise trade negotiators.
He told the conference that most trade policy is driven by decisions made at home before talks start.
