The Manitoba Canola Growers Association (MCGA) surveyed its members this spring to get a sense of how trade uncertainty was affecting their decisions.
“While trade is certainly weighing heavily on them it’s not the only factor. There are many factors that go into considering what producers choose to seed each year,” says Delaney Ross Burtnack, MCGA’s executive director.
“They are looking at their marketing plan of course, making sure they are prepared for whatever uncertainty may be happening with their crops, including canola. But this may not be the year that they are making the big spend on whatever capital purchase they would look to make.”
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Many producers have sound agronomic reasons for sticking with their crop rotations and have already purchased or booked inputs months ago based on their existing plan. So, for many, changing that plan isn’t a feasible or desirable option.
“For this year, I kept my same rotation, because agronomically I have a good five-year rotation that is helping to build my soil and reduce insect and disease pressure, and I don’t want to back off on that,” says Kevin Auch, who grows cereals, oilseeds and pulses on his farm at Carmangay, Alta.
“Next year, if there are repercussions on the profit margins on some of my crops, then I will have to reassess.”
How is the tariff situation affecting other decisions on the farm?
When it comes to major capital purchases of things like equipment, land or infrastructure, some producers are delaying while others are accelerating those decisions.
“In some cases, people are pulling ahead a purchase — for example, equipment — that they know they will need in the short time horizon, and which are not currently exposed to a countermeasure here in Canada against some U.S. tariffs,” says Tyler Fulton, president of the Canadian Cattle Association.
“Others have delayed or are not making the purchase because they know that the lead time required could expose them to a tariff when it’s delivered.”
Adding to the uncertainty is the complex criteria for whether tariffs apply on Canadian agricultural commodities.
“The criteria are whether a commodity is CUSMA (Canada-United States-Mexico Agreement, formerly called USMCA) compliant,” Fulton says. “There are so few people in agriculture that are trade specialists who know the HS codes that can help define whether or not a product is subject to a tariff or not.”
The tariff environment also affects farm transitions. As most farms across Canada are embroiled at various stages of the transition process, the current market uncertainty and shifts in global trade alliances are adding a whole new dynamic to an already complex process.
“There are differences across all agriculture simply because of where we are in each of the cycles,” Fulton says. “In some transition plans it’s not uncommon to see the next generation specialize, so it’s difficult for those choices to be made when you have got such a stark difference in the projected margins in, for example, a crop versus a cow/calf operation.”
Not everyone is affected the same way
Not all sectors are being affected by trade issues in the same way.
Canola and pea growers are being hit with 100 per cent tariffs from China, and although the United States has imposed a 50 per cent tariff on Canadian steel and aluminum imports, Canadian agricultural commodities have so far not been slapped with similar tariffs.
That’s little comfort to Canadian farmers when the threat to do so remains.
“All of this creates a scenario where prices flatten out, there is less bidding for crops, the farmers have a lot on the farm right now looking for a home and the prices just aren’t where they want them to be while this uncertainty is going on,” says Greg Northey, Pulse Canada’s vice-president of corporate affairs.
In the beef industry, perhaps the clearest example of the degree to which the uncertainty has affected the sector was the flow of live cattle exports, including categories of feeder cattle, in advance of the original tariff deadline.
“We saw an exceptionally elevated increase in exports just to take the risk off the table,” says Fulton. “It was not consistent with the cost of production comparison between the U.S. and Canada at the time and exclusively related to the tariff threats.”
It has also meant that producers who background or feed cattle have had to purchase them at record high prices, increasing their costs and eating into their bottom line.
Supply-managed sectors, such as dairy, egg and poultry, are somewhat better insulated from the threat of tariffs than producers in export-reliant sectors, but they are not immune from the uncertainty created by trade disruptions.
“The dairy system in Canada isn’t meant to have uncertainty and unforeseen things happening,” says Quebec dairy producer Jason Erskine, who is also a director with Les Producteurs de Lait du Québec (Dairy Producers of Quebec) and the Union des producteurs agricoles (Quebec’s farmers’ union).
“Because we always know how much milk is coming into the system and how much we need, it helps us lower our cost of production because we can run everything to maximum efficiency. It is the uncertainty that is driving up the cost of everything, because markets are going to price in the risk.”
What’s the end game?
As the saying goes, “this, too, shall pass” but what will the lingering effects be, both positive and negative?
On the negative side, there will be short-term pain — and no one can be sure how long it will last.
Although buoyed by the fact that the dairy industry has long been ahead of the Buy Canadian trend with its blue cow branding of dairy products, Erskine is concerned that supply-managed sectors could be vulnerable to a change in the trade conversation.
“Tariffs are a tool, and the U.S. is using the tariffs to extract more out of us. So, if they impose tariffs that are crippling, such as (with) steel and aluminum presently, that we begin to ask, ‘What do we need to do for you to get rid of these?’ There is huge danger for supply management if that conversation happens,” Erskine says.
It’s also important to learn the lessons of this tumultuous era.
“As a country we need to make sure we don’t waste the opportunities that present themselves and go back to business as usual,” Auch says. “When you have some good years in a row, we sometimes forget that these things can happen. One of the side benefits could be that farmers, and all businesses, will take more of a cautionary approach.”
Lots of opportunities
On the positive side, this tariff situation could lead to new markets. It’s also already providing the impetus for provincial governments to finally take action on removing interprovincial trade and mobility barriers and facilitate trade across Canada.
“Our domestic market, and having access to local supply chains, becomes an important piece so that we are not at the mercy of foreign supply chains,” says Yves Millette, CEO of Farm Business Consultants (FBC).
“The Buy Canadian movement has become more attractive for patriotic reasons but also economically, and now there is a collective will to get our resources to both coasts. That’s good for our farmers because we need to diversify as a country and ensure that there are programs in place that are good for us all in general.”
When it comes to supply-managed sectors, such as dairy, trade disruptions could translate into lasting benefits.
“I think people are better understanding the benefits of supply management because they realize the importance of having food available in the store all the time and not fluctuating in price, or availability, especially in a more and more unstable world,” Erskine says.
And out of turbulent times comes opportunities for some. Many producers remain optimistic about the future of Canadian agriculture.
For example, in the beef sector, there is still phenomenal demand from consumers and a tight supply that should support the high prices cattle producers have seen over the past few years.
“I can’t help but be optimistic about how the beef sector is positioned for the next five years,” Fulton says. “Although this uncertainty is unequivocally a net negative, maybe some of the other additional actions that we have seen in the U.S. over the last couple of months might, in the long run, bring more fiscal responsibility and focus economic growth than we were seeing previously.”
New markets and Canada first
Most sectors have been working on developing new international markets, and while that process may have a new urgency because of the current trade environment, it’s not necessarily a direct result of it.
The pulse industry, for example, has already been exploring new markets in the Indo-Pacific region and has been focusing on more food applications, such as meat and dairy alternatives.
“There is a huge opportunity for pulses because they are highly nutritious and high in protein,” says Northey. “A lot of countries are adjusting their dietary patterns and looking for healthy alternatives, so there is a lot of interest and desire for pulses, and we are promoting that across the world.”
Millette also thinks that positive changes will come from these fraught times. He believes they will be the impetus for beneficial long-term change for farmers and for Canada, pointing to recent examples such as the decrease in taxation burden for producers through the removal of the carbon tax and suspension of an increase to the capital gains inclusion rate.
“I believe we are going to start to see friendlier legislation when it comes to farming, producers and entrepreneurial businesses,” Millette says.
“We have a country that has abundant natural resources, and we should be one of the wealthiest countries in the world if we simply made sure that we have the infrastructure in place to do that and optimize our own economic interests.”
