Top 3 disruptors of 2020 and their impact on Canada’s ag and food sectors
Climate change, protectionism and automation are three forces Bloomberg identifies as major disruptors to the global economic outlook. They’re also among the biggest trends for Canadian agri-food supply chains to watch in 2020. With the potential to both promote and inhibit growth, these forces will shift the profitability of Canadian businesses.
Climate change and protectionism shift ag production and profitability
According to a recent climate change report, Canada is warming at twice the rate as the rest of the world. That’s the long-term forecast. But while forecasts for Canada in 2020 vary, partly due to the challenge of forecasting precipitation, it’s safe to say that both weather and trade disruptions have recently increased volatility of Canadian ag production. Canada's 2019 production of canola, corn and soy fell year-over-year, as a result of either challenged growing conditions or protectionism (or both) that resulted in fewer seeded acres.
In 2020, these are the production and trade risks that will still be present for Canadian agri-food businesses. They’re significant because they’re global.
- New market access issues disrupting trade patterns
- Seasonal drought or excessive rain at seeding and harvest (and the disease and pests too much moisture brings)
- Any shutdown in food manufacturing poses a risk for the entire supply chain, especially in sectors lacking recent investment.
Major global co-occurring heat events are becoming more likely. These hold the potential to re-charge global food insecurity and boost import-dependent countries’ efforts to stockpile ag and food commodities. We may see more intense bidding for available crops. Uneven global growing conditions can raise input costs for Canada’s food processors who import ag commodities or semi-processed food products.
Why emerging trends aren’t just bad news
It’s tempting to think of the disrupters as inherently negative, but that would be inaccurate and short-sighted. Disrupters are merely change agents, for good or ill. Businesses must have a solid risk mitigation plan and a vision of the future to overcome any risks. But that’s hardly news.
Here are 4 ways disruptive forces can boost Canada’s agri-food system:
- Extended growing season: a warming country has some upside for Canadian agriculture. Increases in both annual and seasonal mean temperatures may extend growing seasons, with more days that are hotter.
- New export opportunities for ag and food products. Challenged market access for Canadian exports results in lower commodity prices benefitting domestic buyers. Conversely, new alliances like the tentative China-U.S. agreement can boost prices of commodities in the North American market.
- Enhances Canada’s agri-food system as environmental stewards. McDonald’s and Cargill’s initiatives support Canada’s cattle-beef supply chain; the Sustainable Agriculture Initiative Platform, formed in 2002, brings together more than 100 companies and farmer co-ops worldwide to collaborate on sustainable agriculture and includes Rahr Malting of Alberta, the Grain Farmers of Ontario and McCain Foods. These programs make it easier for producers to adapt to consumer preferences.
- Automation diminishes costs in food processing. Perhaps the disrupter with the most potential to offset the threats to production, automation solves the long-term challenges of labour shortages, especially for skilled manufacturing labour. In ag, Canadian producers are adopting precision technology that provides better monitoring to reduce costs and maintain profitability in highly-variable growing conditions.
Will Canadian businesses investment rebound in 2020?
Many ag operations are cautious about making new investments with 2019’s net income below the five-year average.
Technology adoption will depend, at least in part, on greater certainty around market access. Producer hesitation is a great example of how disruptive forces shape each other. Uptake of automation and innovative technologies can do a lot to combat the volatility of extreme weather events and climate change. But such investments only make sense when they show returns, which are hard to come by when protectionist policies limit market access.
The Canada-US-Mexico Agreement and other recent trade agreements are a step in the right direction. Food demand has also grown both domestically and globally and, despite some economic headwinds, is expected to continue in 2020. Interest rates are expected to remain low. These conditions, together with productivity-enhancing technologies can build a more profitable outlook.
The bottom line
Different forces – African Swine Fever, among others – will influence profitability in the Canadian agri-food system in the year ahead. But these three disrupters will provide some of 2020’s biggest headlines, dominating the risks and opportunities facing Canadian producers and processors.
Canada’s agri-food complex has a history of innovation and resilience in eras of shifting sands. And in a year when the sands will be shifting, it’s good to know that with change comes opportunity.
Jean-Philippe (J.P.) Gervais is the Vice-President and Chief Economist at FCC. His insights help guide strategy and monitor risk throughout the corporation. In addition to acting as an FCC spokesperson on economic matters, J.P. provides commentary on the agri-food industry through videos and the FCC Economics blog.
Prior to joining FCC in 2010, J.P. was a professor of agricultural economics at North Carolina State University and Laval University. He’s also a past president of the Canadian Agricultural Economics Society (CAES). J.P. earned his Ph.D. in economics from Iowa State University in 1999.