The Canadian agriculture industry will show steady production growth after a good 2012 harvest, says BMO Economics.

Also, exports to emerging markets will provide a growing source of revenue in 2013.

“Rapid economic expansion in emerging markets and lagging demand growth from south of the border has resulted in increasing export market diversification,” says Aaron Goertzen, economist at BMO Capital Markets.

“Although global competition is stiff, Canadian producers’ productivity edge has contributed to a large and growing trade surplus.”
Goertzen notes there may be stronger U.S. crop output this year. “As drought conditions in the U.S. subside, increased production there could lead to lower agricultural prices. Export demand growth will be even more crucial for industry prices and profitability.”

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Additionally, “while some Canadian producers in central Canada faced challenges due to drought, improved demand and increased production led the sector to solid revenue growth in 2012,” says Karl McLaren, manager of Agriculture at BMO Bank of Montreal.

“These factors, along with ongoing technological improvements, continue to have a positive impact on the agricultural sector. We look forward to working with our farm customers to support their growth and success.”

BMO Economics notes two trends are occurring. These include:

Enhanced Innovation

  • Advances in technology, improvements in management practices and industry consolidation have resulted in sustained productivity growth.
  • Innovation has consistently and significantly expanded the industry’s productive capacity, with gross output per hectare having more than quadrupled over the past half-century.
  • There are few signs that innovation is slowing, with private spending on research and development in the agriculture sector having grown at roughly twice the pace of the Canadian total over the past decade.

Global Demand

  • Rapid global demand growth has significantly increased agricultural product prices over the past decade.
  • Long-term demand growth is virtually guaranteed by domestic and global population growth as well as rapidly increasing incomes in emerging market economies.
  • Although imports from emerging markets are growing quickly, Canada continues to run a large and growing agricultural trade surplus with these economies. Emerging market development represents a large positive for the Canadian agriculture industry.

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Food prices to escalate in 2013

Think outside the commodities box