Understanding trade issues: Implications for the farm
Trade statistics, international trade agreements and non-tariff trade barriers are not always top-of-mind for farm families. Since most producers sell to intermediaries and don’t export their products directly to other nations, trade issues can seem one step removed from the farm gate.
Paying attention to trade patterns, trade restrictions and what international buyers require is necessary to maintain and expand markets.
However, for many commodities, product demand and prices are directly affected by trade factors. Understanding and following trade dynamics can help with decisions on the farm. Market analysts provide information on supply, demand and prices and trade figures prominently into their projections. A lot of market analysis is available at little or no charge to producers, but there are also specialized services to which producers can subscribe.
Consider processing
Canola is Canada’s highest value crop, and about half of the canola is crushed into vegetable oil and meal rather than being exported as whole seed.
Sometimes crush margins are high - meaning crushing plants are profitable, and they can afford to outbid buyers that export raw seed. And other times, the reverse may be true. It all depends on international demand.
In the Prairie region, several field pea processing plants have been established to isolate protein for the growing plant protein market. The demand and trade of pea protein is becoming a factor in the marketplace.
Proximity to processing plants can influence the returns farmers receive and, therefore, the crops they produce.
For hogs and cattle, a large live animal trade occurs between Canada and the U.S. For offshore markets, the main exports are pork and beef. With a highly-integrated North American red meat industry, what happens in U.S. processing plants can directly affect the prices received by Canadian producers. Any event that disrupts a major processing plant is bad news for livestock demand and prices.
In the beef industry, cattle hides are sometimes in demand for various leather uses, which adds to each animal’s overall value. At other times, the international leather market is oversupplied relative to demand, and hides might have such a low value that they are discarded.
Understanding supply and demand and the factors influencing trade can help with on-farm production and marketing decisions. Each commodity has its nuances. Identity preserved non-GMO soybeans face very different market factors than soybeans grown for the oil and meal market.
While individual producers have little influence on the various trade factors, those factors are increasingly affecting day-to-day operations.
Keep it Clean
Most cereal, canola and pulse crop producers will be aware of the Keep it Clean initiative. This is a coordinated industry response aimed at keeping international markets open.
The proper timing of pre-harvest glyphosate has a big emphasis on the site. Glyphosate is not to be used as a desiccant and needs to be applied when grain moisture content is less than 30% in the least mature part of the field. These measures are to avoid glyphosate in the harvested crop exceeding the maximum residue limit (MRL) of importing nations.
Malting barley should never have a pre-harvest glyphosate application, and an increasing number of milling oat buyers have the same requirement.
In the pulse crop information on the site, the clear link to trade is explained. “Canada exports billions of dollars of pulse crops to over 130 countries annually, and shipments containing even the smallest amounts of unacceptable pesticide residue can be rejected, causing millions of dollars in losses and putting key markets at risk.”
Proper crop staging, pre-harvest intervals and the use of only labelled products are emphasized. The issue is complicated by different countries having different MRLs. What’s acceptable in one nation may not be permitted in another.
Growing only registered crop varieties, managing disease and proper crop storage are also key aspects of Keep it Clean.
Declaration of Eligibility
Producers must declare that the grain delivered to a buyer is the variety and class designated through signed affidavits. A separate affidavit is required for each grain buyer that a producer sells to each year. For more information about declaration of eligibility, refer to the Canadian Grain Commission overview.
Sustainability parameters
Buyers and end-users, whether domestic or international, increasingly want to know how their food is produced. Sometimes a premium price might be paid for a particular production practice, such as with grass-fed beef. In other cases, sustainability requirements must be met to do business, and no incentives are offered.
Different companies around the world have different beliefs on what’s important. Some want to know grain production land wasn’t grassland or forest in the recent past. Others want to ensure workers are being treated well. Some buyers want to know what’s happening on each farm from which they’re purchasing.
Various industry initiatives have been launched to demonstrate and certify responsible stewardship and sustainability. For instance, Verified Beef Production Plus (VBP+) validates responsible on-farm practices. Enrolling in the program is voluntary, but producers that go through the training and auditing may eventually have an advantage in accessing specific markets.
The same is true for Environmental Farm Plans. Buyers with sustainability requirements sometimes start with the requirement that a farm must have a current Environmental Farm Plan.
Consumer is always right
Rule 1: the consumer is always right. Rule 2: if the consumer is wrong, refer to rule 1.
The ever-increasing requirements for selling agricultural products domestically and internationally place an extra burden on farmers. However, they can also be viewed as an opportunity.
For Canada to maintain its reputation as a reliable supplier of clean, safe food products, the entire food supply chain will need to continue innovating and evolving. Paying attention to trade patterns, trade restrictions and what international buyers require is necessary to maintain and expand markets.
Want to learn more about trade?
Watch: J.P. Gervais talks trade
Search 'Environmental Farm Plan' for your province online to see what is available
Article by: FCC Economics
Find out how treating each piece of an operation like its own business can help you make smarter business decisions.