Trump's tariff threat is approaching, Canadian agriculture is hit hard, and price increases are a foregone conclusion

Image source: healthline

Preparing for higher prices

J., Chief Economist of Agricultural Credit Canada P. Gervais stated that Canada's food supply chain is highly integrated with the United States.

Tariffs will increase business costs, squeeze profits for Canadian producers, and increase market volatility, making it more difficult for companies to develop new business plans and investment decisions.

Gervais said, "Over the years, we have tried to diversify our export markets and achieved certain results, but the reality is that we still rely heavily on the United States. From an economic perspective, these consequences are absolutely negative

Rapeseed is one of the important Canadian export products that may be severely impacted by tariffs.

The United States is the largest market for Canadian rapeseed. According to Davison, in 2023, Canada exported approximately CAD 8.6 billion worth of rapeseed to the United States, of which CAD 6.3 billion was rapeseed oil and the rest was rapeseed cakes and seeds.

Canadian beef also faces uncertainty. According to Dennis Laycraft, Executive Vice President of the Canadian Cattle Association, the majority of Canadian beef and live cattle are exported to the United States with a total value of approximately CAD 6 billion, while the value exported to other parts of the world is only CAD 1 billion.

Laycraft and Davison stated that if tariffs take effect, manufacturers will begin to seek other export markets while dealing with price pressures and restricted market access.

Laycraft said, "We have very good market access in Asia, where demand is strong. But you can't easily replace big markets like the United States

Market observers warn that due to Trump's protectionist tendencies, American consumers may face higher inflation.

I believe that the initial impact will be more on American citizens and the cost of purchasing their goods, but ultimately it will also have a ripple effect on Canadian farmers, "said Keith Currie, President of the Canadian Agricultural Federation

Arrell Food Institute Director Evan Fraser added that Canadian consumers will ultimately be affected as well. He pointed out that since Trump's election, the exchange rate of the Canadian dollar against the US dollar has fallen, which will put inflationary pressure on goods imported from the United States in the long run.

Canada heavily relies on the United States for certain foods, such as fresh produce during the winter season.

Negotiation Strategy

The last time Trump was president, the long-standing North American Free Trade Agreement (NAFTA) was replaced by the Canada US Mexico Agreement (CUSMA).

Currie hopes that the upcoming review of the agreement in 2026 can provide guidance for tariff negotiations.

He said, "There is a dispute resolution mechanism in the agreement. Therefore, imposing tariffs on products allowed through free trade agreements violates the provisions of the agreement

Experts say that these threats are unlikely to become a reality, but they may be part of Trump's negotiation strategy and therefore still need to be taken seriously.

Currie said, "Trump often speaks out, but it remains to be seen whether he will really impose tariffs on our products. The new president may think he is working for the benefit of his citizens, but the reality is that due to the highly integrated systems of the two countries, his businesses will also be affected

More difficult, not easier

Fraser stated that Trump's election and his protectionist commitments are part of a larger trend that will impact the Canadian agricultural food industry in the coming years. He called it 'a turbulent era'.

After decades of global trade expansion, "we are entering a historical period that may be called foam, in which climate change, energy price fluctuations, supply chain problems, labor shortages and other challenges will become more difficult, rather than easier."

Therefore, he expects the so-called 'nearshore outsourcing' to increase in the coming years as export led growth and globalization are losing their foothold. This means that the economic arguments for investing in local processing and manufacturing will be more convincing.

Davison stated that the Canadian rapeseed industry has been working hard for many years to alleviate potential trade disruptions. In the past few years, perhaps the most we have done in our industry is to expand Canada's domestic rapeseed processing capacity.

Laycraft said that Canada may not be able to completely replace the United States as a trading partner, but it can further diversify its agricultural and food export markets. Being able to export more products to other markets in the short term is very helpful for us. In the long run, we do believe that our market share in the Pacific region will grow

Davison stated that the rapeseed industry is also paying attention to other markets, including countries in the Indo Pacific region where the feed industry is growing. We are always looking for diversified opportunities. However, when it comes to large high-value markets like the United States, such markets are not ubiquitous

Source link:

https://www.cp24.com/news/canada/2024/12/10/how-us-tariffs-could-affect-canadas-agriculture-industry-and-consumer-prices/