TORONTO – Canada enjoys a large and growing surplus in agriculture trade, thanks largely to continuing improvements in productivity, according to a report Friday by the Bank of Montreal.
Meanwhile, rapid economic expansion in emerging markets is both offsetting declining demand from the United States and adding to the diversification of export markets, BMO Economics said in an upbeat assessment.
It said the industry should show steady growth in production again this year following a good harvest by farmers last year.
However, bank economist Aaron Goertzen noted the potential impact of a stronger U.S. crop this year.
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“As drought conditions in the U.S. subside, increased production there could lead to lower agricultural prices,” Goertzen said.
“Export demand growth will, as a result, be even more crucial for industry prices and profitability.”
Bank agriculture manager Karl McLaren said that while some producers in Central Canada faced challenges due to drought, improved demand and increased production led the sector to solid revenue growth in 2012.
“These factors, along with ongoing technological improvements, continue to have a positive impact on the agricultural sector,” McLaren said.
BMO said improvements in technology and management practices and industry consolidation have resulted in sustained productivity growth over the years, 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,” it said.
At the same time, growth in global demand has significantly increased agricultural product prices over the same period.
“Long-term demand growth is virtually guaranteed by domestic and global population growth as well as rapidly increasing incomes in emerging market economies,” the bank said.
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