With Russia’s invasion of Ukraine sidelining two major agriculture exporters, the global demand for Canadian grains, seeds, pulses, meat and other goods has never been higher.
The question now facing Canada’s agricultural sector – one of the foundational pillars of the country’s economy – is whether it can meet global demand.
On that front, there are daunting challenges, industry officials say, specifically, weather and supply chains.
Weather
Last spring’s heat dome exacted a heavy toll on B.C. And such abnormally dry, hot weather was disastrous for major crops like canola, said Jim Everson, president of the Canola Council of Canada.
Everson noted that Canada – the world’s largest canola producer – averaged an annual harvest of about 20 million tonnes over the five years prior to 2021. According to Statistics Canada, the extreme heat in Western Canada cut that production to 12.5 million tonnes.
“It was a very dispiriting year, a very frustrating year for growers,” Everson said. “Some producers had decent moisture and were able to grow a decent crop; others got basically nothing. The impact was dramatic.”
The dry weather has continued into early 2022, and Everson noted that, while it is too early to tell how this year’s harvest will look, the industry is keeping a close eye on the situation.
The heat and lack of moisture isn’t just affecting farm commodities. The shortage of seed and grain crops from last year’s drought is also driving up animal feed prices, which add to meat producers’ costs that have already increased because of rising high energy prices.
There’s also a more long-term concern, said Canada Beef president Michael Young.
“When feed costs increase, the cow-and-calf guys tend to liquidate,” Young said of beef producers’ tendency to reduce herd sizes during periods of high cost. “Now, that increases the supply in the short-term, but, moving into 2023, we are looking at a tighter beef supply in North America. So everybody’s praying for rain right now.”
Further east in the country, however, weather is presenting a different set of challenges. Heavy spring rainfall in Manitoba flooded fields and delayed the seeding of soybeans and other crops.
Brian Innes, executive director at Soy Canada, confirmed that farmers are delaying seeding in Manitoba due to the floods. But he added that Canadian soy farming is geographically diverse enough – with recent record production in Ontario – that their crop has maintained historical averages.
“Certainly, [the flooding] makes the whole industry nervous because we are planting the most important crop in agriculture that we’ve had in 100 years,” Innes said. “But it’s too early to say how the harvest will look like … We are still in the window for farmers to seed and get an excellent crop.”
Market conditions
Innes was not exaggerating when he described this year’s crop as perhaps the most crucial one in a century for Canada’s economy. In addition to the national economy needing to pull itself out of the pandemic-era downturn, the war in Ukraine has essentially removed two major exporters of wheat, grains and seeds from the world market.
“Right now, we have essentially eight countries in the world that supply the rest of the world with grains,” Innes said. “And two of them are at war. Canada is one of the only countries left … so we are counting on every bushel that we can produce to feed Canadians and the world. And the amount of stock is very low historically while we have the highest prices we’ve seen.”
The Canola Council’s Everson noted that canola prices and demand were already high heading into 2022, and Russia’s attack on Ukraine exacerbated the situation. Ukraine, in particular, is responsible for almost half of global sunflower oil supplies. Demand for alternative cooking oils like canola has consequently skyrocketed.
For canola, there is another emerging trend driving demand: With climate change now among the world’s biggest challenges, many governments are adding biofuels to their domestic energy mix. That means more demand on seed oils and other biofuels for non-food-consumption purposes, Everson said, further increasing demand on the Canadian commodity.
On the beef side, Young said that the picture is more mixed. He noted that domestic consumption of beef in Canada rose during the pandemic, and as prices rise, producers are concerned that domestic consumption will fall as people choose more affordable alternatives.
That picture, however, contrasts significantly with the situation abroad. Despite China suspending Canadian imports since December, Young said Canadian beef continues to enjoy extremely high demand in other places. China is traditionally Canada’s third-largest export destination for beef.
Among the biggest gains have been made in Mexico, where beef exports in the first three months of 2022 have increased 13 per cent in volume and – with global prices rising – almost 40 per cent in value. There have also been increases in markets like Japan, Canada’s second largest export destination for beef, as well as inroads being made to newer markets like Vietnam.
“We are hoping we can resume trade with mainland China as soon as possible,” Young said. “We’re, I guess, in the penalty box right not. But the opportunity has presented or allowed us to see growth in other markets … All of the volume that would have been going into the Chinese marketplace has certainly been picked up. Demand is not the problem.”
Bottlenecks
The biggest challenge beyond weather affecting production, officials agree, is supply chain bottlenecks. Most agreed that the massive flooding in B.C. late last year opened a lot of eyes on the impact of possible large-scale disruptions to Canada’s national transport network, while the threat of labour action earlier this year at Canadian Pacific Railway Ltd. (TSX:CP) had many agricultural producers on edge.
The biggest issue, however, is the ongoing container shortage. All agricultural sub-sectors are reporting dramatically higher shipping costs and longer wait times, as well as increased uncertainty about container availability. Soy Canada’s Innes said the problem is especially salient in Canada, where shippers employ “discrimination on pricing” in providing containers to Canadian clients at a higher cost.
“I think what we see is that the shipping companies – the three global alliances that control the containerized cargo market – are making exorbitant profits by focusing on certain lines of business rather than supporting exports from Canada. Our food-grade production is shipped almost entirely in containers. So we ship about 40,000 containers a year to countries around the world … and we are facing severe challenges to get adequate service and competitive pricing.”
Young agreed.
“Everyone’s feeling the delays in global movement,” he said. “It has really affected the protein business … and there is quite a backlog. I think we are going to be sorting through that as we move through this year – and that all contributes to the cost of the product on the ground.”
For Everson, there is another concern.
The COVID pandemic, he said, has given some countries the opportunity to institute protectionist trade policies. Everson cited Indonesia’s decision earlier this year to ban palm oil exports due to a domestic shortage – a move that critics say could put further pressure on global food prices.
“Over time, presumably those rules will be removed,” Everson said. “But the Government of Canada has always been a strong proponent of good global trade rules and liberalized trade … and we continue to ask them to be sure that we have strong, fair trade rules applied.”
In the meantime, Young emphasized that Canada’s producers – while facing high costs – are not forgetting the plight of average consumers also facing the rising prices of food. By working to resolve the issues that are driving up costs, government and industry officials are trying to support their membership within their sub-sectors ensuring Canadians are somewhat cushioned from those cost pressures.
“Agriculture in Canada supports a huge component of Canadian business,” he said. “We know that trust and patronage [from the public] has to be earned … The food dollar is being squeezed very, very tight, and people are making choices. So we are going to have to work really hard to bring value choices from the beef category to the table to defend our share in the Canadian marketplace. •
