Senior economist Graeme Crosbie with FCC writes that sales of Canadian farm foods should be strong in 2022.
By Andrew Joseph, Farms.com; Photo by Irina Iriser on Unsplash
Generally-speaking, in the business world when someone wins someone else loses.
In the world of agriculture, there is ample opportunity for Canada to rack up the wins this year.
Graeme Crosbie, Senior Economist with FCC (Farm Credit Canada) outlined this in a recent report.
He stated that food inflation and food security are focal points in the increase in global export restrictions. He pointed to past examples of political and civil rest in many countries as a driver.
- The 2008-08 food crisis with many countries and food riots had a food inflation of over 20 percent for 16 months, reaching a high point of 64 percent.
- High food costs in 2010-11 had food inflation reach a high of 41 percent in April 2011, which Crosbie said was a force behind the Arab Spring event—a series of anti-government protests, uprisings, and armed rebellions that spread across much of the Arab world.
And now, with a Covid-19 weary world, the invasion of Ukraine by the Russian Federation and abetted by Belarus, the global ag sector is in flux.
With Russia and Belarus major suppliers of fertilizers for farming, since Autumn of 2021 countries have initiated sanctions and export restrictions on foods and fertilizer from Russia and Belarus as a means to punish them for their aggressive behaviour on the world stage.
Restrictions include bans, taxes, and any other method to stop exports.
According to the International Food Policy Research Institute (IFPRI), there were 10 global export restrictions around the world between September 2021 and before the Ukraine invasion in February 2022.
Since the invasion, the IFPRI found that through the end of May 2022 there had been 57 announcements of export restrictions.
Crosbie said that the vegetable oil market should be watched carefully. Ukraine is a key supplier of grown foods, but also of sunflowers for oil. He said that vegetable oils account for 11 percent of the calories consumed globally, and that vegetable oil prices have recently hit record highs.
He pointed out that 41 percent of global vegetable oil production is traded, and with the top two suppliers of Ukraine and Russia having been hampered, and Indonesia banning palm oil exports (and then reversing the ban three weeks later), the vegetable oils market has become volatile. Indonesian palm oil is about 32 percent of the globally-traded market.
Canadian consumption of vegetable oils is derived mostly from soybeans and canola. Canadian production of vegetable oils—aka omega 3 oils—such as canola, soy, and flax, makes up about 62 percent’; corn, cotton, and sunflower—omega 6 oils—about five percent; and HOLL (high oleic/low linolenic), olive, and peanut oils are at about 12 percent.
It’s worth noting that weather is playing into current reduced vegetable oils supplies in 2022—Canadian farmers saw drought take out a lot of the canola/rapeseed crop, while Europe also saw crop damage.
Canada did export 75 percent of its canola oil—the US bought 62 percent, and Chine 25 percent, according to the Canadian Oilseed Processors Association.
However, the USDA (US Department of Agriculture) believes that vegetable oil supplies will rebound for 2022-23, Crosbie noted, because of a strong output of soybean oil in the US and South America and canola oil in Canada and the EU.
Demand is forecast to rise slower than production, and so ending stocks are projected higher for 2022-23. Crosbie said that along with vegetable oils, the wheat market is also developing in a similar manner—Russia and Ukraine are large wheat exporters, and India is limiting exports.
Summary
Crosbie wrote in his FCC report that “Export restrictions can create a vicious cycle—food inflation leading to export bans leading to further food inflation. More export restrictions could be announced if prices continue to rise.
“Export restrictions may increase domestic supplies and lower domestic prices, but the evidence is mixed. However, there are costs associated with such policies. Lower prices disincentivize production as they lower domestic producers’ revenues. Globally, export restrictions mean higher world prices. For other countries, especially those with lower incomes, this means increased food insecurity and may create conditions for civil unrest. Reports are emerging that this is already occurring. Developed countries are better positioned to deal with the higher food prices.
“Rising protectionism does not usually mean increased opportunities for industries with open borders, such as Canadian agriculture. However, in the case of export restrictions, opportunities exist for large agricultural-producing countries. These opportunities can be short-lived as restrictions will eventually be removed; Indonesia’s stance on palm oil exports is a good example of how quickly policies can change. Assuming logistics can be ironed out and a rebound in production in 2022, there will be no shortage of buyers for Canadian ag commodities this upcoming year. Strong production in 2022 would also go a long way in easing food security concerns.”
Farm Credit Canada is the country’s largest agricultural term lender. It seeks to enhance rural Canada by providing specialized and personalized financial services to farming operations, including family farms. For more information on the FCC, visit www.fcc-fac.ca.