Farm Credit Canada remains optimistic about the prospects for Canadian farmers this year, judging by
comments made by Jean-Philippe Gervais, senior economist for Farm Credit
Canada, during a webinar today.
It probably means farmers will continue to have little difficulty getting even relatively risky loans from the government-backed agency.
Gervais cited an International Monetary Fund report that
indicates the economies of China, India and parts of Africa will be growing
faster than the rest of the world. The people in these areas are more likely to
spend any increased money on food than people in other parts of the world.
However, Gervais cautioned that the financial crises in
Europe will take a number of years to resolve and lagging demand from there
could reduce economic growth in counties such as China and India.
He expects North American demand for corn, including demand
for ethanol production, to remain strong this year. Even with declines in
subsidies and tariffs, he said ethanol plants will continue producing to fill
the quota set by government for ethanol content in gasoline.
Ethanol plants that are losing money right now will be back
into profitable territory later this year, he said.
He expects interest rates will remain steady and low. If
they do begin to rise late this year and next year, he expects the increases
will be small and gradual at about a quarter of one per cent per change.
But he also cautioned that Canadian interest rates might
climb faster than in the U.S., depending mainly on the degree of inflation
here.
He said Canadian farmers are in good shape to cope with
modest and slow increases in interest rates, but some farmers will be in
trouble if the increases come fast and amount to two to three per cent.
He expects trade talks and deals to increase and drew
particular attention to the Trans-Pacific Partnership talks which, because they
include Australia and New Zealand, could result in pressure on Canada’s dairy
industry.
He advised Canadian farmers to watch the progress of
political action on a new U.S. Farm Bill. Some expect it might be done this
year; others think it will only come after the November elections.
He said there’s a potential for budget cuts that would
reduce subsidies and impact Canadian competitiveness in U.S. markets and in
world markets where farmers from both countries compete.
About 75 per cent of U.S. Farm Bill spending is on
nutrition, such as Food Stamps and School Lunches, and 17 per cent is subsidies
to farmers; crop insurance takes nine per cent and has been the issue drawing
the most political attention so far.
Gervais also said high and rising Canadian labour costs and
an increasing productivity gap with U.S. food-processing companies are
worrisome trends.
To remain competitive, Canadian companies and farmers will
need to invest to gain economies of scale and to become more efficient,
especially in lowering labour costs, he said.
