Diversifying crop export markets: Has Canada reached its limit?
Diversifying export markets can help mitigate ag producers’ risk. This is important in Canada, a country which depends so heavily on exports. While it’s been a successful strategy for our four top crop exports, the challenges of 2019 highlight why we need to reach out to as many markets as possible.
In our latest trade report, Diversifying Canada’s agriculture exports: Opportunities and challenges in wheat, canola, soy and pulses, we outline the countries we see as having the most potential. We eliminated our ‘preferred’ markets where Canadian exporters already have a competitive advantage and defined the world’s largest and quickly growing importers - who aren’t already preferred buyers – as those with the most potential.
Potential markets: Argentina, Mexico, Egypt, Turkey and Pakistan
Soy represents perhaps the greatest opportunity for diversification. Canada’s preferred markets accounted for just 6% of total imports in 2018.
Notably, China wasn’t a preferred market, despite importing roughly two-thirds of total global imports. Neither were several of the world’s largest, fastest-growing importers, perhaps as a result of the global market adjustment needed. Market conditions worsened in 2018 due to outbreaks of African Swine Fever and the major re-allocation of U.S. soybeans in response to Chinese market access issues.
Potential markets: European countries
Canadian canola exporters may see future growth in Europe, as we saw happening in 2019. Under normal conditions, European importers generally prefer lower-priced rapeseed from within Europe. But a harsh growing season meant their biodiesel production needed to buy canola. We happened to have lots available at an excellent price.
The year-over-year growth we saw in 2019 was positive – but a challenge to maintain. The countries with the most growth potential for canola imports are all European and likely a hard sell in years with normal production and marketing conditions.
Potential markets: Egypt, Philippines, Spain and Netherlands
The global wheat market is fundamentally different from canola. It’s larger, has more traders and Canada’s wheat exports – while still dominant – represent a smaller share overall. And it’s less concentrated which should facilitate further diversification.
Egypt, the world’s largest importer, accounted for 7% of total imports last year, and in 2017, the top 10 importers accounted for only 43% of total imports. Egypt, Philippines, Spain and Netherlands count among the world’s largest and fastest growing importers who currently don’t source a large share of Canadian wheat. The challenge? Every one of these importers already has close and preferential ties with Canada’s competition.
Potential markets: Pakistan, Spain, Belgium, U.A.E. and Germany
There are more importers of pulses than any of the other commodities that make up Canada’s top four exports. As the world’s largest exporter, Canada delivered to 81% of them in 2017.
Pakistan, Spain, Belgium, U.A.E. and Germany hold the most potential for further growth. We have free trade agreements with Spain, Germany and Belgium and are in the process of establishing investment protections agreements with both Pakistan and U.A.E.
Given our current success, future diversification will be difficult. Aside from our current market share, the biggest challenge comes from a relatively small market (worth US$7.4 billion in 2018) that’s often highly concentrated around India’s imports. Most pulse markets are small, and unable to replace the demand for pulses in years when India’s domestic production climbs enough to reduce their imports (as happened in 2017 and 2018).
The bottom line
Through skillfully negotiated trade agreements and investing in resources to develop crop commodity supply chains, Canada has built enviable trade networks. But what’s next?
Further investments to diversify will only bring increasingly marginal benefit: we already export to most significant importers of wheat, canola, soy and pulses. To further develop markets, maybe it’s time to diversify what we export instead.
For more on this topic, read our trade report: Diversifying Canada’s agriculture exports: Opportunities and challenges in wheat, canola, soy and pulses.
Martha is a Research Specialist with a focus on economic performance and success factors for agricultural producers and agri-businesses. Martha has 20 years’ experience conducting and communicating quantitative and qualitative research results to a number of different audiences. She holds a Master of Sociology degree from Queen’s University in Kingston, Ontario.