Agriculture sector wary of ‘strong headwind’ from south

Industry analysts talked in circles on a recent webinar as they discussed the implications for agriculture of Canada’s deteriorating relationship with its largest trading partner.

On one hand, panellists for the hastily convened Canadian AgriFood Policy Institute event acknowledged the futility of negotiating on quicksand: a deal made today with the United States might be sucked into the muck tomorrow.

But on the other, webinar panellists speculated with varying degrees of optimism over what it will take to get negotiators back to bargaining.

This disconnect isn’t unique to this cluster of analysts. However, it underscores the difficulty of coming to terms with the seismic shift in America’s attitudes towards Canada.

It makes perfect sense to want to restore the equilibrium behind four decades of economic co-operation that has served both sides of the border well and which was once the envy of the world. And in the face of catastrophic change, it’s human nature to go through a phase of denial until the new reality comes into focus.

The U.S. no longer respects rules-based trade and its efforts to rewrite the terms are not driven by a commitment to mutual reward.

U.S. President Donald Trump is currently using the 1930s-era Smoot-Hawley Act Section 338 to override provisions agreed to under CUSMA less than a decade ago.

“The apparent intent of the administration is to fall back on Section 338 as the stick for any and all issues,” said agricultural economist Al Mussell. “I don’t know how you negotiate a durable arrangement with somebody who’s prepared to do that.”

For now, at least, the latest tariffs target a handful of Canadian agricultural products including alcohol, dairy, honey, wool and farm equipment parts. The impacts on individual operators within those sectors will be profound and will ripple through the agricultural economy in multiple ways.

Craig Johnson, chief economist with Farm Credit Canada, said the agricultural sector will face higher input costs, the risk of higher interest rates and the effects of ongoing uncertainty on investment decisions.

“Is that going to be a strong headwind to prevent us from capitalizing on some of these opportunities in front of us?” Johnson said. “That’s a real watch item as we move forward.”

Further diversifying away from the U.S. market is a laudable goal, but Canada must overcome the fact it lacks the scale in food production to compete globally based on productivity alone, said Mussell. Even though it is the fifth-largest grain exporter of grains worldwide, it is still a relatively small producer.

The sensitivity around food inflation on both sides of the border reduces the likelihood either government will disrupt the highly integrated livestock sector. That said, there is a renewed posturing for mandatory country-of-origin labelling laws in the U.S. that the Canadian sector is watching closely.

Lisa Raitt, vice-chair of global investment banking at CIBC, poured ice on hope the upcoming U.S. midterm elections will bring a truce.

“I think the midterms and the results of the midterms have zero impact on what’s happening,” she said. Even if the Democrats do retake the power balance, their focus will be on impeachment, not rekindling good relations with Canada.

Raitt said while Canada can challenge these new tariffs in U.S. courts, the process would likely end up before the Supreme Court, which is now loaded with Republican political appointees. If it rules the tariffs are legal, the president has a powerful weapon and a lot of latitude.

“They can claim discrimination on anything and then turn around and tariff something not even closely related to the discriminatory claim as punishment,” she said. “And that’s what’s happening here: complain about cows and cars and cocktails, but you’re going to tariff everything else.”

Unless Canada can negotiate an end to setting tariff policy by social media, there is little opportunity for an outcome that businesses on either side of the border can take to the bank.

Joe Glauber, a former head economist and chief agricultural trade negotiator for the United States Department of Agriculture, said he doesn’t understand the administration’s fixation with Canada, but it could take another election cycle before practicality prevails. “It’s just a weird place to be.”

Laura Rance-Unger is editor emeritus for Glacier FarmMedia. She can be reached at lrance@farmmedia.com