Strong sales are bright spot in an otherwise uncertain trade environment in which exports struggled for third year in a row
NIAGARA FALLS, Ont. — The red meat sector has been one of the strongest performers in the Canadian economy and all indicators show it is poised for further growth.
In 2018, the value of red meat exports grew by 18 percent with the United States, China and Japan being prime destinations, said Pedro Antunes, executive director of the Conference Board of Canada.
“It is a better performance than we have seen nationally for goods outside the energy sector,” he said at the Canadian Meat Council annual meeting held in Niagara Falls June 3-4.
Agrifood has performed well but other areas lag.
Canadian exports struggled for the third year in a row. Oil prices collapsed in 2014-15 but analysts expected to see investment improve and exports drive the economy.
This did not happen and Canada’s export volumes are at the same level as 2007.
In 2015-16 about $40 billion in lost investment occurred.
Canada struggles with uncertainty over trade agreements and it is not competitive on the tax front, which discourages private investment. However, the economy is growing at a rate of about 2.5 percent and unemployment is at a manageable level of 5.5 percent.
Consumers have driven much of the growth in the last several years with purchases on big ticket items like houses, vehicles and home appliances.
However, consumer debt has been increasing for 30 years and the amount of income used for debt servicing is up. This does not appear to be troublesome because the number of mortgages in arrears and credit card delinquencies has not signaled a serious problem at this time.
“We have taken on big spending on big mortgages but most of the strain is on principle rather than interest. Interest costs remain quite reasonable,” he said.
The greater issue is a lack of productivity growth. Statistics Canada reported productivity growth was zero for 2018. Productivity needs to at least match inflation and that is not happening.
“For a developed economy like Canada, we need to see the amount of capital per worker increase but for the last three years we have been eroding the capital per worker. For a developed economy this needs to be much stronger growth,” he said.
Labour markets are tight and that constrains businesses when they cannot find enough workers.
The aging population is driving an increase in retirement rate. Baby boomers in their 60s are leaving the work force at a rate of about 250,000 a year, but the big surge is expected in 10 years, when those in their mid-fifties start to retire.
Canada is due for tax reform and struggles to compete with the large cuts made in the U.S. at the end of 2018. That boosted consumer spending but that improvement won’t last and the U.S. deficit is growing.
“How do we compete with a system that is not structurally sound? Sooner or later there will be a Democratic government elected and they will be forced to raise taxes to cover these deficits,” he said.
Geopolitical risk remains high with ongoing trade disputes between the U.S., China and Mexico.
“A lot of the risks we have in the global economy are self-imposed. A lot of the risks are around anti-trade forces,” he said.
The challenge of protectionist sentiment with more tariffs is a challenge.
Trade opportunities are in the developing economies of the Asia Pacific region, home to about 40 percent of the world population. China’s growth has been phenomenal and the economy is four times bigger than it was in 2000. Average growth is about six percent.
Canada experienced double digit growth in exports to China for the last decade. Exports grew by 17 percent in 2018 but it is a different story for 2019 since China retaliated with trade stoppages and other barriers after a Huawei executive was arrested in Canada.