Canada will need to grow and diversify its export markets if it hopes to reach its export targets by 2025, says a new report from Farm Credit Canada.
“As an industry, we have quite ambitious targets when it comes to exports,” said J.P. Gervais, FCC’s chief agricultural economist. “The federal government put a $75-billion target by 2025, and the industry was even a little more bold and ambitious, aiming for $85 billion.
“But no matter what, the story is about growth and diversification in the process of growing our exports.”
Last year, Canada ranked fifth globally in ag commodity exports, but only 12th for processed food exports.
“Canada has long been a major exporter of both agricultural commodities and food,” states FCC’s latest annual report on trade. “Yet, in some ways, Canada’s position in global food exports indicates opportunity for growth.”
In the report, the lender identified growth opportunities for five key Canadian food exports: canola oil, pork, beef, potato products, and prepared crab. Expanding sales of the first four to more countries would not only generate more demand for canola, hogs, cattle, and spuds, but also “help reduce financial risks for Canadian producers by lessening our dependency on current major markets,” FCC said in a news release accompanying the report.
Depending on the product, new export growth could be triggered by a number of different things, said Gervais.
“Our competitive advantages are our abundance of natural resources, our stellar reputation when it comes to food safety, our focus on quality, the innovation we’ve had in the industry, and how productive we’ve been for a long time,” said Gervais. “All of these things will have an impact on our ability to grow our exports.”
So does the size of the market (larger ones offer more opportunity) and whether demand is increasing.
“If the market isn’t growing and you want to sell more into that market, you have to steal market share away from somebody else,” said Gervais. “But if there’s growth in that market, it’s a little bit easier because they’re looking at sourcing from different places. There’s more opportunity for you to get a foot in the door.”
But it’s not just about new markets as there is “more of an opportunity to expand into a market where we have a low market share,” said Gervais.
“So where are we under-represented in our export market? When we looked at beef and crab, it’s about Asia. When we look at everything else, it’s about Europe. Those are where the opportunities are for us to diversify and grow.”
Canola oil’s greatest long-term growth potential is in the European market as the EU is planning to phase out palm oil for biodiesel use by 2030.
“This could open the doors for Canadian canola oil,” said the report, which also notes there “continues to be significant non-tariff barriers for Canadian canola in the EU market.
“We know where the challenges are in Europe,” said Gervais. “That’s been well documented. We need to break down some barriers, and we need to make sure they understand some of the regulations we have. If we can do that, I think there are going to be some opportunities there.”
But there’s also further room for growth in countries such as Malaysia, Japan, New Zealand, and Chile.
“I have no doubt that the demand for a healthy vegetable oil like canola oil is going to be strong going forward,” he said.
It’s a similar story for both preserved and prepared pork and beef products, both of which have a “really big opportunity” to expand sales in countries such as Italy, France, Germany, Belgium, the Netherlands, and Poland. However, like canola oil, non-tariff trade barriers continue to be a challenge for beef and pork products exported to the EU.
China remains the largest market for these products, and the impacts of African swine fever on the hog herd there will continue to impact Canadian exports.
“With pork and beef, a lot of it depends on this gap we have,” said Gervais. “Currently, demand is super strong. But it’s also a function of the gap between the demand and supply when it comes to China and how fast they can rebuild their hog herd.
“I think for the foreseeable future, we have quite a bit of an opportunity to grow our exports of beef and pork.”
But in Canada’s agri-food industry, growth and diversification go hand in hand, but the latter isn’t likely to come from existing large food processors, said Gervais.
“Most of them — if not all of them — export to multiple destinations,” he said. “They have, in most cases, already diversified their exports. So the growth and diversification is going to be coming from small- and medium-size businesses.”
That’s easier said than done, he added. Small- and medium-size businesses typically need to scale up and build “export intensity” before they can diversify their markets, even in areas where there is large demand.
“Market signals are important, but looking at it from the bottom up explains why we haven’t seen the diversification that we should expect out of agri-food,” said Gervais. “The strategy of helping small- to medium-size businesses grow their export intensity is going to lead to more diversification over time.”
That will be increasingly important in 2021, as the effects of the pandemic continue to play out. While the export pace in 2020 has been “solid” owing to strong demand for food around the world, next year could bring even more opportunities for exports to countries that are not food secure.
“We have an opportunity, I believe, to say, ‘Hey, here we are in Canada with a stellar reputation when it comes to quality, safety, and stability.’ We have all of that to offer to all of these importers that have their own questions around their food security,” he said.
“I think there’s a huge opportunity for us in 2021 and beyond to say we can be a leading supplier of food in the world.”