Canadian agriculture sector to expand in 2012

by Bryan Salvage
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TORONTO, Ontario – In 2012, Canada's agricultural sector is projected to expand at a rate near 2 percent, and between 2 and 3 percent in subsequent years, according to the new Canadian Agricultural Prospects study released on Oct. 31 by BMO Capital Markets Economics.

"The livestock segment should grow at a comparatively fast pace in the area of 3 percent next year, as producers respond to still-favorable prices," said Kenrick Jordan, senior economist, BMO Capital Markets. "In particular, livestock production should get a lift from the expected re-opening of the South Korean market to Canadian beef. Moreover, pork exports to Asia should continue at a brisk clip."

Crop production is slated to grow by about 1.5 percent in 2012 as planted acreage and yields move back to more normal levels and prices remain elevated.

"The sector has shown remarkable adaptability, evident in superior productivity growth, rising export orientation, a shift in output mix toward value-added products and the launch of new enterprises like greenhouse vegetable production and specialty crops," Jordan said. "These trends must hold for the sector to enhance its competitiveness."

"Canadian agricultural producers faced some challenges this year as many prairie grain growers had to deal with epic moisture levels and livestock farmers contended with rising input costs," said David Rinneard, national manager, Agriculture, BMO Bank of Montreal. "However, Canada's farmers have a wonderful track record of perseverance and success. With a return to better growing conditions, favorable prices, and continued demand, the 2012 table appears set for the industry to expand in the coming year."

It is specifically critical for farmers to boost productivity, Jordan noted. "Competition is intensifying, as 'non-traditional' producers like Brazil, Argentina and Russia make inroads into global markets. In addition, sophisticated risk management strategies will be needed to address volatility in input and output prices, production and profits. Given the need for ongoing cost reduction, innovation, market diversification and risk management capacity, consolidation is likely to continue based on larger, more capital-intensive and more complex operations."

Other highlights if the study include:

  • Meat demand is projected to grow briskly, as expanding populations in fast-growth developing countries broaden their diets, which would be positive for both livestock and crop producers.
  • Agricultural production is forecast to grow above the longer-term trend beyond 2012, at annual rates between 2 and 3 percent.
  • Continued price strength should support further increases in crop production. The prices of major grains and oilseeds are expected to remain above historical norms and to trend higher amid robust demand from developing countries, continuing expansion of biofuel production globally, and increasingly scarce resources such as arable land and water.

"Agricultural production should also be promoted by the growing demand by advanced-country consumers for products embodying a range of attributes – related, for instance, to health, environmental sustainability and food safety – that offer scope for increased value-added as well as by the development of niche markets like greenhouse vegetables, organics, and specialty crops," Jordan concluded.

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