Trade tensions taking toll on Canadian farm exports

Hey there, time traveller!
This article was published 03/11/2018 (2550 days ago), so information in it may no longer be current.

When you are as dependent on exports as Canadian farmers, the ability to weather volatile markets has to be part of the business plan.

The Canadian Agri-Food Trade Alliance (CAFTA), says Canada exports half of the beef and cattle produced, 70 per cent of its soybeans, 70 per cent of its pork production, 75 per cent of the wheat, 90 per cent of its canola and 95 per cent of its pulses.

That export focus, a function of productivity gains and Canada’s relatively small population, is much higher than many of its major competitors. The U.S., with approximately 10 times the population, exports only about 20 per cent of its agricultural production. Mexico is a major exporter of vegetables and fruits, but a net importer of major grains, meat and livestock.

However, because the U.S. markets are the global price setter for trade in agricultural commodities, U.S. President Donald Trump’s meddlesome approach to rewriting trade deals has far-reaching effects.

In fact, trade tensions have defined agricultural markets in 2018, Farm Credit Canada (FCC) said in a report released this week. The actions and reactions have affected prices, but also the flow of trade.

For example, the U.S. price of soybeans dropped from US$10.40 per bushel to US$8.42 per bushel over a period of 17 weeks this past summer due to the imposition of tariffs and counter tariffs against major trading partners. Chinese import tariffs diverted global trade flows of hogs, corn and other commodities for all traders, not just the U.S.

“China’s tariff on U.S. soybeans in June affected U.S. producers directly, but it also hammered the price that many soybean producers received, including Canadas. Chinese and Mexican tariffs on U.S. pork exports tapered demand for the U.S. product and weakened hog prices in North America,” the FCC said. Canadian hog prices have dipped to well below break-even prices.

FCC analysts looked back over a 30-year period to assess how periods of volatility have affected demand for Canadian agricultural commodities. It found it can cause short-term declines in demand. But for commodities such as canola and wheat, in which Canada holds major global market share, those effects are more muted than for soybeans, beef, cattle and pork.

Despite short-term impacts, the long-term trends show that Canada’s exports of those commodities have steadily grown over the past three decades.

That trend should continue as Canada continues to diversify its trading relationships with deals such as the newly ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CAFTA predicts that deal could increase Canada’s agri-food exports by up to $2 billion annually.

The scene south of the border is less positive. While Trump’s posturing has won him bragging rights and cheap cheers at the podium, it’s not paying off in America’s heartland.

The Farm Foundation, an independent U.S. think tank, commissioned a team of Purdue University economists to analyze the benefits of the new USMCA (aka NAFTA 2) against the cost of retaliatory tariffs imposed on U.S. exports as a result of his hit on aluminum and steel.

They concluded the effects of those responses along with the Chinese tariffs on U.S. soybeans far overshadow any gains for U.S. farmers under the USMCA. Assuming it is ratified, USMCA could expand U.S. agricultural exports by approximately US$450 million. However, “the retaliatory tariffs implemented by Canada and Mexico on U.S. agricultural exports will reverse the modest export gains from USMCA — a decline of US$1.77 billion rather than a gain of US$450 million,” they say.

The effects multiply. “In the broadest possible context, with all measures and counter measures, U.S. agricultural exports will decline by around US$8 billion — similar in size to withdrawing from NAFTA. These negative trade impacts will be reflected in lower incomes for U.S. farmers, reduced land returns and labour displacement.”

Plus, the U.S. taxpayers are in the process of paying US$12 billion in compensation to farmers — and there was more aid promised as of this week.

It’s crazy, which is exactly why Canadian farmers are well advised to assume volatility will prevail in the days, months and possibly years ahead.

Laura Rance is editorial director at Glacier FarmMedia. She can be reached at 204-792-4382 or lrance@farmmedia.com