Agood harvest last year has put Canadian farmers in the driver’s seat for this year as steady production growth should lead to strong exports to emerging markets, says an analysis from BMO.
“Rapid economic expansion in emerging markets and lagging demand growth from south of the border has resulted in increasing export market diversification,” Aaron Goertzen, an economist with BMO Capital Markets, said. “Although global competition is stiff, Canadian producers’ productivity edge has contributed to a large and growing trade surplus.”
Even a possible rebound in grain exports from the United States after last year’s crippling drought didn’t temper BMO’s optimism. Nor did a cold, damp spring that has delayed planting in many areas.
Goertzen said a bumper U.S. crop would decrease international prices, but a more important factor is import demand from overseas. “As drought conditions in the U.S. subside, increased production there could lead to lower agricultural prices. Export demand growth will, as a result, be even more crucial for industry prices and profitability.”
Farm groups offered a more cautious assessment. Ron Bonnett, president of the Canadian Federation of Agriculture, noted that many Ontario farmers suffered drought last summer while the Prairies had good harvests.
Bonnett added that “the BMO study highlights how innovative and resilient the agriculture sector is, and that Canadian farmers — despite the challenges — are doing an excellent job at meeting demand — getting Canadian products into domestic and international markets.
“In terms of the sector as a whole, a number of specific sectors continue to struggle — cattle and hog producers continuing to face high feed costs that haven’t translated to high retail prices and are putting many farmers in difficult financial situations, he added.
“Also, there remains significant weather volatility to contend with, with flooding anticipated out west due to significant snowfalls and the U.S continues to face significant drought conditions,” he said. “All these factors will have a lot of impact on whether farmers can take advantage of strong prices.”
Richard Phillips, executive director of Grain Growers of Canada, said a key factor in the current prosperity is that farm groups, the food industry and government have put resources into opening and maintaining markets.
“Farmers excel at growing crops, but we need a place to sell them to be successful,” he said.
The BMO study noted farmers have used advances in technology, improvements in management practices and industry consolidation to boost their productivity. “Innovation has consistently and significantly expanded the industry’s productive capacity, with gross output per hectare having more than quadrupled over the past half-century.
“There are few signs that innovation is slowing — with private spending on research and development in the agriculture sector having grown at roughly twice the pace of the Canadian total over the past decade.”
Meanwhile rapid growth in the global demand for food due to population increases and rising incomes has significantly increased agricultural product prices during the past decade, it said.