While many farmers are planning their seeding for 2018, Farm Credit Canada鈥檚 (FCC) agriculture economists have five trends they want to plant in the minds of Canadian producers, food processors and retailers.
鈥淎griculture is a dynamic sector that is interconnected with so many local and global economic trends,鈥� said J.P. Gervais, chief agricultural economist for FCC. 鈥淢aking sense of those top trends allows the agriculture and agri-food sectors to identify possible challenges and opportunities in 2018.鈥�
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.
听鈥淭he economic environment for investment in Canadian food processing remains favourable, given low interest rates and strong demand for food, both domestically and globally,鈥� said Gervais. 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鈥檚 agriculture and food industry to support its global growth potential.
听鈥淭he ability to add value to farm products will continue to strengthen Canadian agriculture, as well as benefit the entire economy,鈥� said Gervais.
听A strong balance sheet is the best farm asset
听The theory that a strong balance sheet is a farmer鈥檚 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 per cent of the value of total farm assets.
听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鈥檚 unlikely commodity prices will generally increase in 2018. 鈥淢ost farm operations are in a good financial position to weather most significant economic changes,鈥� Gervais said, adding that strong working capital 鈥� along with a sound risk management plan 鈥� can help producers through short-term economic and market disruptions.
听Global economy shines bright on Canada
听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.
鈥淭he global economic environment will sustain strong demand for Canadian food products and commodities as the world economy strengthens in 2018,鈥� said Gervais, adding it鈥檚 important to look beyond the daily headlines. 鈥淲ages in both developing economies and North America should continue to climb, giving consumers more income to spend on food.鈥�
听While there is always potential for disruptions, Gervais believes Canada is in a unique position to expand its markets in 2018. 鈥淲e have important trade advantages that will enable us to grow our exports of some of the world鈥檚 fastest-growing food products,鈥� he said. 鈥淧otential new opportunities will be created through the Comprehensive Economic and Trade Agreement (CETA) with Europe and growth in emerging markets.鈥�
听Keeping up with consumer buying habits
听Technology, combined with growing consumer desire for convenience and choice, are causing significant ripples throughout Canada鈥檚 food processing and retail sectors, according to Gervais.
听鈥淚t鈥檚 creating a domino effect,鈥� Gervais said. 鈥淭raditional 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.鈥�
听Specialty foods are also growing in popularity, thanks in part to the convenience of online shopping, and there鈥檚 a growing number of consumers who choose brands that reflect their values.
Fueling opportunities on the farm
听Ever since plow horses overtook combustion engines, Canadian farmers have mainly relied on fossil fuels to power their equipment and heat their barns. That鈥檚 not going to change much in 2018, even with the promotion of renewable energy.
听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. 鈥淲hile 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,鈥� 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.
