The new year always brings its usual projections and forecasts and is an appropriate time to look at future opportunities and challenges. To help you focus business on the most important issues to Canadian agriculture, here are the top five economic drivers that we recommend you watch in 2013.
World economic growth
Economic growth in the Western world has been sluggish and the outlook for 2013 calls for more of the same. The International Monetary Fund predicts economic growth of just 0.2 per cent for the Eurozone in 2013. Harsh government austerity measures have kept unemployment elevated in many European countries. Keep an eye on France and Germany, which are feeling the weight of their neighbours’ successive years of fiscal struggles.
Economic news coming out of the United States is somewhat more encouraging. The U.S. housing market bottomed out early last year and continues to recover from the meltdown of 2008-09. The U.S. still has not recovered all of the jobs lost during the recession, but employment numbers are steadily advancing towards prior levels.
In recent years, the emergence of a growing middle class in developing countries has created rising demand for Canadian agricultural products. While income growth is slowing in many of these markets, it remains well above the pace of the developed world. There are signs that China is in the early stages of a positive transition, relying less on investment and stimulating domestic consumption. This would help sustain the current pace of income growth and avoid a dreaded hard landing.
Production outlook
Production conditions around the world should always find a place in the top five agricultural issues. World inventories of major crops are expected to remain tight, when compared to projected demand. The likelihood of two major droughts in a row is small, but any adverse weather conditions in the U.S., Australia, or South America could push crop prices upward once again. Livestock producers would welcome relief from high feed prices, but they may have to live with higher than average feed prices throughout 2013.
Farmland values
North American farmland values have been increasing rapidly over the past several years. The FCC Farmland Value report estimated that Canadian farmland appreciated on average by 8.6 per cent over the first six months of 2012.
The outlook for farmland values is greatly influenced by interest rates and crop receipts. These two drivers explain a great share of the patterns in farmland values. Inflation has been below the Bank of Canada’s target for six months, and most forecasts predict that low inflationary pressures will continue, given the challenges in the world economy.
It’s impossible to project future interest rates with certainty, but a plausible scenario involves interest rates remaining low through the second half of 2013. Given low stocks-to-use ratios for grains and oilseeds, crop receipts should remain strong, barring any weather disaster in Canada. Land values are expected to continue increasing in the Prairie and central provinces in 2013, although perhaps at a slower pace than 2012.
Productivity
Farm cash receipts in 2012 exceeded 2011 levels throughout Canada, reflecting the enthusiasm and optimism in agriculture. But strong receipts can lead businesses to lose focus on profit margins.
Continuing to seek efficiencies and productivity gains in your operation is critical. Investments in land, equipment and technology must be linked to your bottom line over the long run. Innovation and productivity are definitely areas of emphasis for the Growing Forward 2 agricultural policy framework to be launched in April 2013.
Canadian food processors also need to look at their competitiveness, after a few consecutive years of stagnant productivity. This is particularly important, given the gains of U.S. competitors and the possibility that free trade negotiations with the European Union may be concluded in 2013. This could lead to greater market access for Canadian products, but also trigger greater competition in our home market.
Labour market
There continues to be a divergence in unemployment statistics between the Prairie provinces and eastern Canada. Stronger economic performance in western Canada continues to keep unemployment low, building pressure on wages. We should expect the labour market to reallocate workers to faster growing areas in the country, where there are skill shortages. The job market can be relatively sticky and it may leave some businesses struggling to find qualified labour.
Agriculture is a dynamic and complex industry. The next twelve months will bring many opportunities and the usual lot of challenges and surprises. A year from now we will undoubtedly find issues that, in hindsight, should have made it to our top five list. Our commitment is to check in throughout the year and explain in more detail how these issues impact agricultural producers and agribusinesses throughout Canada. What’s the most important driver to watch for your business in 2013?
Read J.P. Gervais in FCC Express – Canada’s agriculture e-newsletter. Sign up and stay in the know with industry news, videos and podcasts at www.fcc.ca/express.