Beijing and Washington agreed they would keep talking about measures under which China would import more energy and agricultural commodities from the United States to close the $335 billion annual U.S. goods and services trade deficit with China (all figures US$).

A joint statement issued at the conclusion of intensive trade talks in Washington did not indicate whether the two countries would delay or drop their tariff threats on billions of dollars worth of each country’s goods, which has sparked fears of a wider trade war and roiled financial markets.

“There was a consensus on taking effective measures to substantially reduce the United States’ trade deficit in goods with China,” the joint statement said.

“To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services.”

President Donald Trump has threatened to impose tariffs on up to $150 billion on Chinese goods to combat what his administration says is Beijing’s misappropriation of U.S. intellectual property through joint venture requirements and other policies that force technology transfers.

Beijing denies such coercion and has threatened equal retaliation, including tariffs on some of its largest U.S. imports — among them aircraft, soybeans and autos.

A report by China’s state-run Xinhua news agency described the statement from the two governments as “vowing not to launch a trade war against each other.”

While the statement said the two sides would engage at high levels and “seek to resolve their economic and trade concerns in a proactive manner,” it made no mention of tariffs.

It said there was consensus between Washington and Beijing on the need to create “favorable conditions to increase trade” in manufactured goods and services. This could be a reference to China’s previous pledges to open up more economic sectors to services.

A commentary published by Xinhua on Sunday declared the statement a “good example of win-win”, noting that it would help America reduce its trade deficit by increasing exports to China and allow China to diversify and raise the quality of its imports.

It also argued that China has always resisted any “unreasonable demands” by the U.S., never compromising or accepting restrictive conditions.

The commentary added that a resolution to the trade dispute will be complicated, difficult and take a long time.

U.S. LNG exports

The U.S. will also send a team to China to work out the details of increased agricultural and energy exports, the countries said, without specifying timing.

A senior U.S. official said that during discussions with a member of President Xi Jinping’s office, China was considering a package that relied on major purchases of U.S. liquefied natural gas, including a contract for a U.S. firm to build LNG receiving and processing facilities in China.

The package, which also would include new commitments on intellectual property protections, could be agreed by a potential mid-year visit to Washington by China’s Vice President Wang Qishan, the official said.

Trump made cutting the U.S. trade deficit with China a promise in his presidential campaign.

During an initial round of talks earlier this month in Beijing, Washington demanded that China reduce its trade surplus by $200 billion — a figure most economists say is impossible to achieve because it would require a massive change in the composition of commerce between the two countries.

As of late Thursday, U.S. officials were still pressing China to agree to that size reduction.

But economists say that level would be extremely difficult to achieve, especially as U.S. tax cuts are spurring demand for more imports.

The $200 billion figure is equivalent to about 90 per cent of Boeing’s annual aircraft production and is larger than all of the United States’ global annual agricultural and oil exports.

Eswar Prasad, a Cornell University trade professor and former head of the International Monetary Fund’s China division, said that Beijing had clearly balked at a specific quantitative commitment.

“It is a very limited and tentative agreement mainly designed to deescalate tensions,” Prasad said of the joint statement.

IP vagueness

The statement was vague on the Trump administration’s core intellectual property complaints, saying that both countries “attach paramount importance to intellectual property protections … China will advance relevant amendments to its laws and regulations, including the Patent Law.”

There are concerns among some legislators and trade experts that Trump could give priority to a narrower trade deficit over tackling what they say is China’s abuse of intellectual property rights. Any deal under which China would import more goods could easily be reversed, economists say.

The statement made no mention of whether there would be a relaxation of paralyzing restrictions on Chinese telecommunications equipment maker ZTE Corp. imposed last month by the U.S. Commerce Department.

The action, related to violation of U.S. sanctions on Iran, banned American companies from selling semiconductors and other components to ZTE, causing the Shenzhen-based company to cease operations.

Earlier this week, Trump tweeted that he directed the Commerce Department to put ZTE back in business and said the company’s situation was part of an overall trade deal with China.

— Reporting for Reuters by Ginger Gibson; additional reporting by Alexandra Harney in Shanghai.

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“The net income and the overall situation in the United States is not looking good,” said Craig Klemmer, senior agricultural economist with Farm Credit Canada. “When we look at the net income expectations for 2016, there’s not a lot of optimism in the United States.”

American farmers have been slammed by a steep drop in grain and oilseed prices, and livestock prices are now down, too. But the low Canadian dollar has sheltered producers north of the border.

“Broadly, commodity prices are down from where they were a year or two ago, but they are high historically,” said Michael Burt, director of the Conference Board of Canada’s industrial economic trends group.

“Canadian farmers have an additional advantage because if you’re selling commodities going onto global markets or priced according to global benchmarks, the weaker Canadian dollar is definitely good news.”

And although pork prices have dropped, beef prices are still high in comparison to what they have been, he added.

But the low loonie — which has been creeping towards the 80-cent market in recent weeks — will be less of a shield if it continues to climb.

“The impact of the change in the Canadian dollar is going to have an impact on profitability, and right now, it’s still providing us with cautious optimism,” said Klemmer.

Still, surveys conducted by the conference board in the last two years consistently show Canadian farmers are optimistic, with more than half saying they expect their businesses to grow over the next five years.

“It was remarkable how optimistic Canadian farmers were in regards to their growth prospects,” said Burt.

Back on the farm, there are other positives — lower fuel costs, relatively stable input prices, and if the slowdown in the oilpatch hasn’t made it easier to find workers, the pressure on wages has lessened.

And while global stockpiles of most crops are piling up, there are exceptions which are benefiting Prairie growers.

“But for other commodities, like pulses, there is strong demand,” said Klemmer, noting Western Canada has stepped in to fill demand for pulses caused by severe drought in India.

“That’s creating a lot of optimism,” he said. “If you look at our recent farmland values report, we have fairly strong growth numbers in Alberta and Saskatchewan.”

“We have a lot of specialty crops where Canada has a large market share in terms of global trade,” added Burt. “We’ve managed to establish ourselves as key players and in many respects, that’s good, because it allows farm operators to get away from staples that might be more cyclical, in terms of price fluctuations, and allows them to have a more stable source of income.”

It’s tough to forecast where the Canadian dollar will go, but Klemmer predicted there will be some fluctuation but not a steep jump in its value.

But there could be some pressure on commodity prices, and producers should sharpen their pencils and look at their management, he added. Producers should know their cost of production, make sure they understand their cost structure and work with their financial experts to prepare for the bad times.

“That being said, we have low interest rates right now and we have some strong land value increases, so we’re kind of at a point where we need to protect our working capital and build adequate working capital if we start seeing some further stresses in the market. If you have that cash availability, you have opportunities,” said Klemmer.

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The “No Speculation with Food” initiative is subject of a binding referendum on Feb. 28 under Switzerland’s system of direct democracy.

Proponents argue that speculative transactions create volatility and lead to hunger and poverty. They point to a study by the Federal Institute of Technology in Zurich that speculation can account for 60 to 70 per cent of price movements, making it harder for poor countries to afford food.

The measure would amend the constitution to ban banks, trading houses, insurers and other investors and wealth managers in Switzerland from dealing for themselves or for clients in financial instruments based on agricultural commodities or food.

The government noted that no trading platforms for such products exist in Switzerland and that companies could easily circumvent a ban limited only to this country.

Banning such trades would harm the economy, it added, noting the costs it would impose on the many Swiss-based trading companies, insurers, banks and pension funds that deal in farm product derivatives.

It would also impinge on economic liberties and raise questions about Swiss policies at a time the economy was also labouring under the impact of a strong currency, it added.

— Reporting for Reuters by Michael Shields in Zurich.

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“Current approaches toward innovation and growth — particularly in the food industry here in Alberta — are not working,” said Jerry Bouma of Toma & Bouma Management Consultants.

“If we seek success and want to grow this industry, we’re going to have to do things differently.”

Alberta’s food-processing industry has been lagging behind other sectors for over 20 years, said Bouma, who spoke at the Conference on Food and Innovation in late May.

“Our industry — food and agriculture — is definitely second tier in Alberta. It’s way down there relative to energy,” he said. “It’s sort of an afterthought, a poor country cousin. No one’s excited about agriculture and food.”

In 2004, the government of Alberta launched a strategic plan that was meant, in part, to ramp up food production in Alberta. The mantra became 20:10 by 2010 that meant “we’re going to achieve a $20-billion value-added sector next to a $10-billion production sector by the year 2010.”

That didn’t happen, said Bouma.

“We thought 2:1, how hard can that be?” he said. “Back in 1995, the ratio was about 6:6 – $6 billion farm production and $6 billion food processing. In 2015, it’s about $12.5 billion to about $12.5. The ratio hasn’t changed at all. It’s still 1:1.”

And though it may look as though the outputs on both sides have doubled, Alberta’s “real growth is probably less than 15 per cent” once population growth and inflation are factored in.

“Relative to our population growth and economic growth, we’ve gone backwards.”

Wake-up call

In Canada, food manufacturing is the No. 1 employer and top contributor by GDP, at $103 billion in 2012, said Cornelia Kreplin, executive director of sustainable production and food innovation for Alberta Innovates Bio Solutions (AI Bio).

But only 40 per cent of agricultural commodities produced in Canada are converted into value-added products, she said. That number is much lower in Alberta.

“Three-quarters of what Ontario produces is actually value added in terms of exported product,” said Kreplin. “When we take a look at Alberta’s performance, most of what we export is dominated by agricultural commodity sales.

“We do have an opportunity to increase food manufacturing in Western Canada.”

In 2012, AI Bio contracted the Conference Board of Canada to review opportunities in Alberta’s food-processing sector. Its review found “Alberta’s food business motivation to innovate is, in many cases, much less than motivation in B.C. and Quebec.”

That was a wake-up call for Alberta’s food sector, said Bouma.

“We’re in this province thinking we’re leaders in entrepreneurship with a can-do spirit, yet this firm comes along and tells us that, within the food sector, we’re not even average. We’re at the bottom, relative to our provincial counterparts.”

Driven entrepreneurs

And why is that?

Well, said Bouma, food manufacturing is a “tough, tough business.”

“The food business, from a business perspective, is not very enticing,” he said. “It’s terribly competitive, the margins are tight, and it’s so easy to copy.”

Look at thriving Alberta food businesses — such as Heritage Foods, Big Rock Brewery, and the Little Potato Company — and you find “intense personal drive and differentiation were the key success factors.”

“They were led — and in many cases, founded — by a very driven individual who exemplifies leadership and tenacity that you’ll find nowhere else,” said Bouma. “And in almost all cases, they’ve either developed a new product line or introduced a new product category that clearly differentiates them.”

But these companies are already going “flat out” to keep up with growth.

“Those companies that are best placed and best suited for exponential growth are, in fact, maxed out, and it’s hard to attract the managerial and the business talent to enable that.”

Innovation model

A new framework for food innovation could fix that, said Bouma.

Presented at the conference, the proposed Food Research Project Framework is based on the “model of innovation” that led to the creation of the Internet — the U.S. government’s Defense Advanced Research Projects Agency.

“What makes it different from what we’ve done so far? It’s built on capability and proactivity — getting the right people led by a vision and a mandate,” said Bouma. “It’s focused on the market: Where’s the growth opportunities? What are the companies that can really grow with the right kind of management teams and structures?”

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