Growth Opportunities Abound in Canada's Agriculture Sector: TD Economics



    TORONTO, Nov. 28 /CNW/ - Canada's agriculture sector is well-positioned
to grow due to emerging trends and tastes in the global marketplace according
to a report released by TD Economics (www.td.com/economics).
    The report's author, Derek Burleton, notes the sector is often overlooked
or undervalued and largely associated with adversity and hardship. However a
careful analysis reveals it is a major economic driver and, in key areas such
as productivity, the sector is a leading area within the overall economy.
    "Agriculture, and in particular crops, has entered a new era of high
prices, supported by rising food consumption from emerging markets and the
prospects of competing demand for crops as a source of bio-fuels," said Derek
Burleton, author of the report and head of economic studies at TD Bank
Financial Group. "For Canadian farmers, it is about time."

    Powerhouse

    Canada is the world's fifth largest agriculture and agri-food exporter
after the European Union, the United States, Brazil and Australia. Grains and
oilseed products, live animals and red meats account for more than half of
Canada's export sales. And while it is also the world's fifth largest importer
of agricultural products, the sector still makes a disproportionately high
contribution to Canada's overall merchandise trade surplus ($6 billion or
roughly nine percent of the total).
    Activities in agriculture and agri-food also provide direct benefits to
other areas of Canada's economy. For example, primary agriculture is a major
user of energy products, machinery and maintenance and repair services, while
food processing is a heavy consumer of paper, fabricated metal products,
plastics, glass and glass products. On the supply side, agriculture and
agri-foods are key suppliers of products such as fuel wood and cork, raw
animal hides and animal and vegetable fertilizers.

    Leader in Productivity

    Raising productivity levels is a key objective for Canadian business. The
agriculture sector has been at the forefront of improving efficiencies,
raising economies of scale and lowering costs. For instance, the average size,
value of assets and net worth of the average farm continued to rise during the
first half of this decade. There was also a shift in commodity export sales
away from wheat and course grains towards oil seeds, red meats and special
crops, which reflected further efforts to diversify and take advantage of
areas offering greater revenue potential.
    Equally important, the farming community has been busy implementing new
technologies and processes to ramp up productivity. The ability of the
industry to take advantage of the new equipment has been made more viable by
declining prices of U.S. made capital goods. Since 2002, annual productivity
growth has averaged two percent per year for primary activities - double the
average pace of the overall economy.

    Market Recognition

    The market now reflects the prospects of the agriculture sector. This
year to date, agricultural prices as measured by the U.S.-dollar TD Commodity
Price Index have jumped by almost 40 percent on a year-over-year basis,
outperforming changes registered in the other sub-indices and outstripping the
25 percent gain in the Canadian dollar. Temporary factors, such as the decline
in the greenback, have helped drive prices higher, but it is telling that many
forecasters have upgraded their long-term estimates for agriculture prices.
This is a reflection of a number of market factors including those outlined
below.

    Trends and Tastes

    A number of trends bode well for Canada's agriculture sector. Growing
demand in China, India and other emerging markets is likely to keep overall
global consumption of key agricultural commodities running at a brisk pace
over the next 5-10 years, fuelled by rising populations and incomes. In some
cases - such as wheat and course grains - consumption is projected to exceed
global production.
    Efforts to derive energy from agricultural products will continue, due in
part to forecasts in crude oil prices and the United States' determination to
become energy independent. By 2009, the OECD estimates that bio-fuel output
will surpass 40 billion litres per year, up from the current level of about
20 billion.
    Canada's bio-fuel production is small in absolute terms, but growing
quickly, supported by the federal government's announced intention to mandate
a five percent ethanol blend in gasoline by 2010 and a two percent bio-diesel
blend in on-road diesel and heating oil by 2012. Other incentive programs at
the federal and provincial levels will also encourage production.
    Consumer tastes are also evolving, which could represent new growth
opportunities in the agriculture sector. For instance, the organic business is
booming as a growing number of individuals in Canada and abroad are taking an
active interest in tracking their food from field to dinner table. Since 2001,
the number of certified organic producers in Canada has jumped by 60 percent,
while a growing number of retailers are joining the bandwagon.

    Rising costs

    The report notes the loonie could rise even further against the U.S.
dollar in the next few months, though it should return to about 95 U.S. cent
range by 2009; energy and fertilizer prices will remain high by historic
standards; wage pressures will not ease to due fierce competition for labour;
and strong international trade will drive up ocean freight rates for dry bulk
cargoes by an annual average of five percent through 2010. Moreover border
issues, including a likely move by the U.S. to implement inspection fees on
food imports, will remain a concern on the cost side.
    Mr. Burleton said: "There has been no shortage of challenges facing the
agricultural community over the past half decade. Not only have crop farmers
been hit by difficult growing conditions but the livestock industry has faced
a barrage of surprises, including avian flu and BSE. Yet through ongoing
efforts to adapt and adjust, many agricultural producers have emerged from
this period in a position of strength. There is every reason to believe the
sector will respond with the same kind of resiliency to address future
challenges, and retain its status as an important driver of productivity and
prosperity in this country."





For further information:

For further information: Derek Burleton, AVP & Director of Economic
Studies, TD Economics, (416) 982-2514; Pascal Gauthier, Economist, TD Bank
Financial Group, T: (416) 944-5730, pascal.gauthier@td.com


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