Trade deals, higher costs part of 2017 farm outlook

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This year could be a tricky year for Southwestern Ontario’s farm sector with tighter margins, looming questions over trade deals, and maybe even interest rate hikes.

Then, there is the weather.

“As producers, we need to be aware of the different situations and what is going on and make sure we don’t put ourselves in jeopardy,” said Mark Brock, a Perth County farmer and chair of the Grain Farmers of Ontario.

Brock and others in the agriculture industry said going into 2017 much of the sector is on solid financial footing after several years of high commodity prices earlier in the decade.

That gave producers an opportunity to pay down debt and put money aside.

“At the start of every year we always hope for some good and great things,” said Brock. “I think we are setting the stage for an optimistic 2017. We’ve got some snow and moisture so we have some moisture back into the ground after a dry year.”

Crop prices also have improved from lows hit last fall, adding to the optimism. But there are things for which to watch.

One is Ontario’s new cap and trade system aimed at reducing green house gas emissions.

Elgin County vegetable farmer Mark Wales, a director of the Ontario Federation of Agriculture, said cap and trade will add to farm costs for gasoline, natural gas and propane.

“These are new costs that are unrecoverable by Ontario farmers from the marketplace. In addition there are no carbon offsets that farmers can sell to offset the new costs,” Wales said.

“All of these costs will filter through the entire Ontario economy and effect everything we touch and everything that touches our farm businesses.”

Trade is another big unknown in 2017 for the agri-food sector.

Al Mussel of Agri-Food Economic Systems, an independent research organization based in Guelph, said it would be naive for Southwestern Ontario’s agri-food sector to ignore the trade statements of incoming U.S. president Donald Trump.

“When he says he would like to renegotiate NAFTA we have to take it very seriously,” Mussel said.

Ontario’s supply managed sectors — dairy, chickens, eggs — could be targeted because they are protected by tariffs, he said.

The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) also will start to kick in in 2017, Mussel said, giving Europeans more access to Canada’s cheese market.

“The Europeans will not sell us their run of the mill stuff, it will be their high-end stuff,” he said.

On the flip side, Canada gains more access to the European market for beef, pork and wheat. An issue for Ontario is finding more processing capacity for its pork so it can take advantage of that access, Mussel said.

Interest rates are another wild card. Trump may be more tolerant of inflation than his predecessors, leading to higher interest rates that could spill over the border, Mussel said.

“We could see increases in interest rates that we haven’t seen in some time. If it was 100 basis points, I can’t imagine there would be blood in the aisles, but if we were to get four or five hundred basis points, then that would pose problems for people,” he said.

The one thing farmers and policy makers will have no control over in 2017 is the weather.

“You can do everything right, take every precaution, do perfect marketing but in the end, all things weather will determine success or failure for the year. Mother Nature always wins,” Wales said.