Farm income: a dip and now holding

Canadian farm income fell on market volatility, but export growth is still likely, says FCC

“Risk management will become an even more significant component of success,” says J. P. Gervais with Farm Credit Canada.

Final figures aren’t available yet but all signs suggest farm income in 2018 was clipped by several factors and will likely stay at that level through this year, says J.P. Gervais, chief agricultural economist with Farm Credit Canada.

J. P. Gervais. photo: File/Supplied

“Price volatility, higher input costs and weather-related challenges in many parts of the country over the past year took a toll on Canadian net cash income in 2018,” Gervais said in releasing forecasts for various farm sectors.

“With little chance of real growth in commodity prices this year and possibly higher farm input costs, Canadian farmers will need to properly evaluate the outlook for profitability along with the associated risks,” he said. “Risk management will become an even more significant component of success.”

Even with the uncertainty, Gervais remains upbeat.

“If there’s a silver lining to the cloud of uncertainty that hung over the sector last year, it’s that this coming year may be the start of something bigger and better.”

As a result, producers need to find ways of reducing costs while increasing productivity from their existing operations, whether that means increasing the yield per acre or getting more butterfat from a litre of milk, he said.

Overall, the long-term outlook for Canadian agriculture remains positive since consumer demand for food at home and abroad is still robust, he said. The Canadian agri-food sector has shown resilience in the face of adversity.

Gervais said it’s likely there will be fast-changing circumstances, some good and some bad.

“However, I’m confident that Canadian producers, manufacturers and agri-food operators can quickly adjust to this dynamic operating environment,” he said.

He also tipped adding value as another avenue to grow farm revenues, especially as consumers continue to look for food products that are both healthy and convenient.

“Investments in innovation and technology will go a long way in ensuring Canadian agriculture remains competitive,” Gervais said.

While the European, North American and Pacific trade agreements should benefit some parts of agri-food, ongoing trade disruptions between the U.S. and China could possibly open new markets at the same time.

“While the markets generally don’t react well to trade uncertainty, it also opens the door to opportunities for new trade relationships,” he said. “Disruptions can pave the way for new trade flows, which could be positive. But global trade tensions also have the potential to slow growth in the world economy. They can upset the status quo, and potentially impact the demand for Canadian ag commodities and food, and that’s never comfortable.”

While the world is better positioned than a decade ago to absorb potential weather-related supply shocks, higher production is still needed to meet rising food demands, he said.

“Producers who want to see what’s coming should actively monitor global weather patterns, and production updates as the South American crop year wraps up,” Gervais said.

“Canadian producers of both animal and plant-based protein stand to gain buyers both at home and abroad as markets around the world are embracing a wide variety of protein products. This trend will continue in 2019 and beyond, as plant and animal proteins serve different segments of the global market.

“Slowdowns in major economies as a result of trade disruptions could well ripple out to dampen emerging markets’ economies, disrupting expected growth of global demand,” he said. “Commodity prices will shift, hitting producer revenues.

“This year’s quality trade relationships may be shown to be more successful in the long run than those that are merely close,” he said. “In 2019, importers have options. Exporters do, too.”

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