Agriculture's future bright, assuming continued productivity growth, low Canadian dollar

J. P. Gervais, chief agricultural economist with Farm Credit Canada in Regina, says the outlook for Canadian agriculture is positive, based on continued productivity growth and a low loonie. Image: Greg Huszar

REGINA - Despite some headwinds on the trade front, Canada’s export-oriented agriculture industry is poised for growth in 2017 and the years ahead, thanks to the sector’s slow but steady gains in productivity, says J.P. Gervais, chief agricultural economist with Farm Credit Canada (FCC).

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But all bets are off if the Canadian dollar takes a sudden, sharp rise in value, something that Gervais thinks unlikely, given current Bank of Canada monetary policy. 

“It appears that trade deals in general have become the whipping boy for the anti-globalization movement,” said Gervais, referring to the Brexit vote in the U.K. and threats to pull out of the Trans-Pacific Partnership and NAFTA by U.S. president-elect Donald Trump.

“That may not appear to be good news for us in Canada, because we rely on trade, especially in agriculture,” Gervais told reporters on a conference call Monday prior to the release of FCC’s annual report on Canadian agriculture’s productivity and trade Tuesday.  

“But despite the turmoil,.., I think that things are actually positive. We have a positive outlook for 2016 and beyond for Canadian exporters of agricultural and agri-food products.”

Gervais conceded world economic growth, as measured by real gross domestic product (GDP), is slowing. “But I always like to point out, nobody eats GDP. It’s growth and food demand that matters from our standpoint.”

And what drives food demand for the most part is income growth. And populous, fast-growing nations, like India and China, are still seeing positive growth in average incomes. “There’s no big risk in terms of … seeing world demand for what we sell slow down.”

As the world’s fifth-largest agricultural exporter, at $26 billion annually or 5.7 per cent of global agricultural trade, Canada was the top exporter of wheat, canola, lentils and canaryseed in 2015. Canada ranked in the top 10 exporters of 13 different commodities; and among the top five for six other commodities, the FCC report said.

More importantly, Canada was the second-largest agricultural trader per capita in the world last year at $1,074 US per person, second to top-ranked Netherlands at $2,900 US and well ahead of third-place Australia at $700 US.

“The point is: How can we maintain that status as one of the world’s top exporters? That’s where I like to … talk about productivity and efficiency.”

Gervais noted Canada’s real annual output growth of 2.3 per cent between 1961 and 2006 means that producers could use half the inputs in 2006 to produce the same amount of output they did in 1961.   

“If you look at our long-term rate of productivity, we’ve been doing better than a lot of the other exporters, … but this rate of growth in productivity has been slowing down a little bit,” Gervais said. 

“Future productivity gains will be essential to grow production to meet future food demand,” Gervais said. “We have to keep the focus on being efficient, managing costs.” 

What’s the biggest risk to the FCC’s outlook? “That’s the Canadian dollar. Right now, … we don’t expect it to go up. I would say it’s the number-one risk to the forecast of stable farm cash receipts.”

SOURCE Bruce Johnstone, Regina Leader-Post