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Crop exporters face growing competition

Diversifying Canada’s customer base won’t be easy, FCC says in new report

While Canadian agribusinesses have already successfully started to find new customers, markets for major crops such as wheat, canola, soy and pulses face "barriers to further diversification."

Canada’s agri-food sector is highly dependent on export markets and efforts to diversify the existing customer base won’t be easy in the coming years because of growing competition, says a new report from Farm Credit Canada.

While Canada stands in fifth place among the current agri-food exporting nations and has ambitious plans to move closer to first, it’s facing increased competition from Asian, South American and Black Sea region suppliers, FCC said.

While Canadian agribusinesses have already successfully started to find new customers, the markets for the major crops of wheat, canola, soy and pulses each “feature barriers to further diversification,” the report reads.

“Canadian soybeans and pulses compete in markets with one major buyer that dictates the majority of global trade flows, while wheat export markets are characterized as largely mature with well-established trade partnerships.

“Canadian canola must compete with an intra-European market – arguably the world’s largest rapeseed market — that has often been able to meet its own needs when facing average market conditions,” FCC said.

The organization also noted the shifting global trade landscape is complicating efforts to diversify Canadian export markets due to geopolitical issues.

Trade actions “continue to reverberate throughout the world’s agricultural and general economies. Global supply-and-demand balances of many ag commodities are becoming increasingly difficult to gauge, adding to more price volatility and market uncertainty,” FCC said.

“Underlying all of that is increasing competition among exporters jockeying for their advantage. That won’t pose a problem, but only if Canada can continue to count among the strongest in that field.

“While there are definite opportunities to broaden the spectrum of importers who prefer Canadian commodities, ongoing trade tensions, accelerating weather and disease events will test the successful fulfilment of such potential in 2020.”

Although the United States took in just over 35 per cent of Canada’s total agri-food exports in 2018 thanks to “our historical relationships, well-established infrastructure and proximity to the world’s largest single-country economy,” FCC cautions against being reliant on that status.

“The last 18 months of global trade have highlighted the risks of an overdependence on one buyer and the importance of diversified markets to agricultural suppliers.”

However, diversification won’t be simple because there are many mature markets and the supply of agri-food products is growing. “Russia, the U.S., Argentina and European suppliers are major wheat exporters, each with close and preferential ties to the markets we identify as offering the highest potential for Canada’s further growth.”

Global wheat markets have shifted with the largest buyers taking less and the overall number of importers falling. That poses the risk of possible market contractions, FCC said.

Developing new markets brings added costs even with free trade agreements and “price-sensitive markets limit that potential, sometimes an issue for higher-quality and higher-valued Canadian commodities.”

Exporters have to watch what’s happening with buyers outside the U.S. and China because if they don’t increase their demand for agri-food products, “Canada’s efforts to diversify export markets will mean little. As well, many countries’ goals of achieving food security are tied to weakening dependence on imports. We may already be as diversified as we can reasonably expect.”

Still further diversification may be possible and is worth exploring to maintain exports rather than risk lost revenues that occur with border closures, FCC said.

Free trade agreements have benefited agri-food exporters and the trade commissioner services can provide the necessary support to smaller businesses looking to enter new markets. Also, as exporters expand their business, their operating costs will decline.

Canada exported $33.97 billion worth of crop commodities in 2018 with crops accounting for just over three-quarters of that total. Since 2009, wheat and canola have accounted for at least 50 per cent of Canada’s total crop exports. Soy and pulses exports have accounted for about 20 to 25 per cent. Barley, oats, tomatoes and other vegetables together have comprised eight to 10 per cent of total exports each year. In 2018, the top four commodities accounted for 73 per cent of total crop exports.

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