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The US Tariff War and Canada’s Ag Industry

U.S. tariffs on imports have caused negative shifts in the global agricultural supply. As a result, Canadian farmers have become innocent bystanders, hit by China’s retaliatory trade strikes against the United States.

Canadian Farmers Worse Off than US Farmers

This comes just a year after the Federal Government announced changes to their AgriStability and AgriInvest programs to help farmers when they experience a large margin decline and income decline, respectively. Appropriately, now Canadian farmers, mainly soy and hog producers, are asking for compensation from Ottawa, citing how they are worse off than U.S. farmers despite a larger market share and an increase in Canadian exports.

Since China’s retaliatory tariffs on U.S. soybeans, many growers in Ontario have seen their prices drop dramatically. But as Global News reported how the U.S. government recently provided its farmers with a $12 billion aid program to mitigate the loss of purchases by China, Canada, in spite of its new farm risk management programs, has provided no support for farmers to attenuate the hit from falling prices in the U.S., which in turn have devaluated Canadian crops.

In response to the U.S. tariffs on Chinese imports, Beijing has responded by imposing a 25% tariff on U.S. soybean imports and turned to other soybean exporters, after having been the largest purchaser of U.S. soybeans. While this has resulted in a greater market share for Canadian farmers, with over 159,000 tonnes of soybeans shipped to China as of June last year (12 times more than a year earlier), the reality is that falling prices are failing to offset the larger market share.

Hog Prices Tumbling

Other sectors of Canadian agriculture, mainly hog farming, have also taken a direct hit from the ongoing trade war, with hog prices tumbling severely and leaving producers worried about their future.

Manitoba, which is Canada’s largest pig-producing and exporting province, is responsible for over 30% of all national pig production has seen dramatic price reductions, partially due to three new hog plants which recently opened in Iowa, Michigan and Minnesota. As a result, with an abundant supply of pork in the U.S. market, buyers are reluctant to bid up prices, leaving Canadian farmers with the short end of the stick.

Another reason cited by the Manitoba Cooperator is that tariffs on U.S. pork imposed by China and Mexico have had a negative impact on U.S. prices.

Because Canadian hog prices are based on a U.S. formula price, when prices suffer in the U.S. they do so in Canada as well. But due to the U.S. government subsidy of $8 per hog to mitigate losses, including increased hog production, U.S. farmers have not felt the sting as bad as Canadian farmers.

The U.S.’s trade war with China has had worldwide ramifications, and while Beijing’s trade growth slowed as a result of the tariff battle with Washington, China’s trade surplus with the U.S. has surged to record highs.

FXCM’s Economic Calculator reports on the trade balance report issued by China’s Customs Administration, just ahead of the February 14 issuance, showing how the industry consensus has hit a record $33.5 billion.

New Opportunities for Canadian Ag?

While the intensifying battle means more market share for the Canadian industry, the farming sector is still reeling. The silver lining, however, is that despite lowered prices and a dampening of Canadian agricultural exports in the short-term, in the long-term the trade turmoil could provide new opportunities for Canada’s agricultural producers.

The Financial Post noted how a recent report by Farm Credit Canada describes how continued global growth, China’s efforts to reduce its dependence on American suppliers and the ratification of the Comprehensive Agreement for Trans-Pacific Partnership, bode well for Canada’s agricultural sector.

As such, while pork and soybean may see short-term volatility, they have indirectly bolstered interest in other commodities such as wheat and canola, which are far more stable. Because of the interdependence of Canadian and U.S. agricultural industries, when the U.S. loses, so does Canada, however, the effects on the Canadian industry are magnified.

With changing global trade patterns, the U.S. current administration’s self-destructive trade war means that in the long-term the U.S. will lose out, while Canada’s pain may pay off with new lucrative markets.