Assessing political risks: tariffs, trade barriers

It isn’t all about supply and demand. Increasingly, the bottom line factor to be concerned about is political risk.

An obvious example is the 50 percent tariff on peas going into India, which is applied on top of that country’s fumigation rule, which unfairly singles out Canada. There have also been fears of a potential tariff on lentils.

Note to India: yellow peas at $6.50 a bushel and red lentils at 17 cents a pound are money losers. Unless something changes quickly, acreage here will be dramatically reduced. As one farmer noted on Twitter: “No use both of us starving.”

China can also employ trade barriers when it suits its purposes. Remember the furor about blackleg in Canadian canola a few years ago? As well, the release of several new canola traits has been held up for years because China won’t approve them.

Will Prime Minister Justin Trud-eau be able to kick-start a free trade agreement with China? Why is he concentrating so much on China while apparently shunning a deal through the Trans-Pacific Partnership?

Meanwhile, many analysts are trying to assess the political risk from the North American Free Trade Agreement.

What might Canada have to concede to achieve a new NAFTA deal?

What if an agreement can’t be reached? What’s the American process for pulling out and if that happens, what are the fallback trade rules and how will they affect agriculture?

These aren’t easy questions. While something abrupt such as the Indian tariff seems unlikely, trade with the U.S. is integral to the entire Canadian economy with a direct impact on currency value and interest rates.

Not all international political decisions are bad for agriculture. In fact, it can be argued that American ethanol policy is one of the big reasons for the boom in grain prices over the past 10 years.

Starting in about 2002, ethanol production in the United States began to surge. By 2010, nearly 40 percent of the massive American corn crop was being diverted into ethanol production, and that has remained relatively constant to the present time.

Without this new demand factor for corn, all grain prices would have been much lower. Farmland prices in Canada would likely be significantly less than they are today.

U.S. President Donald Trump’s administration seems content to maintain the U.S. renewable fuel standard.

While the dramatic growth in ethanol production is over, the existing industry appears to be safe for now, which is good news for grain farmers on both sides of the border.

Of course, domestic policy is also a risk. Carbon pricing is a prime example. While provincial governments are likely to exempt farm fuel, many other farm inputs from commercial trucking to fertilizer are likely to be hit.

Just because it’s hidden doesn’t mean that it isn’t reducing our ability to compete in world markets.

While the Trudeau government has walked back from some of its more harmful corporate tax changes, farmers are now much more keenly aware of how easily and quickly the rules can change.

A lot of risk comes from the bureaucracy rather than the politicians.

On taxation policy, how Revenue Canada decides to interpret and enforce the rules is important. And the Pest Management Regulatory Agency has a pesticide re-evaluation process by which it can announce its intent to cancel product registrations before seeking industry feedback.

While we have limited ability to influence policy decisions in India, China and America, it’s disconcerting to see how often domestic policy runs amok creating unnecessary risk to agriculture.

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