REGINA – BUSINESS – While many farmers are planning their seeding for 2018, Farm Credit Canada’s (FCC) agriculture economists have five trends they want to plant in the minds of Canadian producers, food processors, and retailers.
“Agriculture is a dynamic sector that is interconnected with so many local and global economic trends,” said J.P. Gervais, chief agricultural economist for FCC. “Making sense of those top trends allows the agriculture and agri-food sectors to identify possible challenges and opportunities in 2018.”
Adding value to Canadian farm products
The investment climate for Canadian agriculture infrastructure is heating up as more food handling and processing facilities are expected to be built across the country to meet increasingly complex consumer preferences at home and abroad.
“The economic environment for investment in Canadian food processing remains favourable, given low-interest rates and strong demand for food, both domestically and globally,” Gervais said.
He said significant investments in food processing that were announced in 2017 are expected to come online within the next two years. These investments support the approach outlined by the Advisory Council on Economic Growth, which called for targeted investments in Canada’s agriculture and food industry to support its global growth potential.
“The ability to add value to farm products will continue to strengthen Canadian agriculture, as well as benefit the entire economy,” Gervais said.
A strong balance sheet is the best farm asset
The theory that a strong balance sheet is a farmer’s best defense against changing economic and market conditions could be put to the test in 2018, according to Gervais.
He said most Canadian producers have built strong balance sheets in recent years, thanks to a significant appreciation in farm incomes and asset values, particularly land, which represents almost 70 percent of the value of total farm assets.
Farmland values will continue to increase in 2018, but lose a bit of steam due to moderate projections for income growth. The Canadian dollar is expected to hover just below the 80-cent mark this year, which will help support farm income, however, global production trends suggest it’s unlikely commodity prices will generally increase in 2018.
“Most farm operations are in a good financial position to weather most significant economic changes,” Gervais said, adding that strong working capital – along with a sound risk management plan – can help producers through short-term economic and market disruptions.
Global economy shines bright on Canada
Trade negotiations and protectionism abroad can be cause for anxiety among Canadian producers, food processors, and exporters, but the global economy is a source for optimism, according to Gervais.
“The global economic environment will sustain strong demand for Canadian food products and commodities as the world economy strengthens in 2018,” said Gervais, adding it’s important to look beyond the daily headlines. “Wages in both developing economies and North America should continue to climb, giving consumers more income to spend on food.”
While there is always the potential for disruptions, Gervais believes Canada is in a unique position to expand its markets in 2018.
“We have important trade advantages that will enable us to grow our exports of some of the world’s fastest-growing food products,” he said. “Potential new opportunities will be created through the Comprehensive Economic and Trade Agreement (CETA) with Europe and growth in emerging markets.”
Keeping up with consumer buying habits
Technology, combined with growing consumer desire for convenience and choice, are causing significant ripples throughout Canada’s food processing and retail sectors, according to Gervais.
“It’s creating a domino effect,” Gervais said. “Traditional retailers are now looking to food processors to supply them with unique products that can separate them from the competition. These trends are also changing the supplier-buyer relationship, as more consumers are buying locally grown food directly from producers.”
Specialty foods are also growing in popularity, thanks in part to the convenience of online shopping, and there’s a growing number of consumers who choose brands that reflect their values.
Fueling opportunities on the farm
Ever since plow horses overtook combustion engines, Canadian farmers have mainly relied on fossil fuels to power their equipment and heat their barns. That’s not going to change much in 2018, even with the promotion of renewable energy.
What might change, according to Gervais, is that a growing demand for biofuels could open more opportunities for agricultural commodities to be used in their production.
“While the U.S. ethanol and biodiesel markets are expected to provide stability to the overall demand for corn and vegetable oil, new ethanol targets at home and abroad could create more opportunities for agricultural commodities,” he said.
Meanwhile, abundant supplies of fossil fuels are expected to keep energy prices down on the farm, as well as limit inflationary pressures on farm fertilizers, which are produced using fossil fuels, such as natural gas, coal, and oil.
By sharing agriculture economic knowledge and forecasts, FCC provides solid insights and expertise to help those in the business of agriculture achieve their goals. For more agriculture economic insights or to read more on the top trends for 2018, visit the FCC Ag Economics blog at www.fcc.ca/AgEconomics.
