Ahead of the Heard
There was a time when farmers and ranchers gave little thought to what happened to their production once it left the farmgate. It was usually consigned to brokers, agents, a co-op, wheat pool or some other sales entity. That’s still the case, sort of, but as operations grew larger and margins became razor thin the gyrations of the marketplace have become a lot more important. What a lot of producers of various commodities came to realize over the years was that not only were price cycles important but even more important were trade politics particularly at the international level. That trade mischief and manipulation have had the effect over the years of costing the ag industry billions of dollars. To deal with that reality national producer commodity organizations have spent countless millions trying every possible legal and political angle to thwart the consequences of trade disruptions. It’s an endless exercise and costly to the industry and there is no end in sight. But it could be said that there is slow incremental progress.
Then out of the blue comes a sudden food embargo as was recently announced by Russia. That arbitrary action blows years of careful market development and access negotiations out of the water literally overnight. That decision affects $428 million in annual food exports from Canada to Russia - $260 million of which are pork exports. One could dismiss that as being small potatoes in the overall Canadian ag exports of many billions. Government apologists were quick to point out that other foreign markets could quickly be found for the exports to Russia. That might have been the case except for one other matter – the Russians applied the same food embargo to the US, the EU, Australia and other countries all of it in retaliation for those countries applying economic sanctions against Russia for its bad behaviour towards the Ukraine. This type of trade action tit-for-tat is nothing new in global politics; it’s actually a legal process under WTO trade rules when trade disputes can’t be resolved between nations. I expect no one was surprised when the Russians bit back at those that were trying to slap it on the wrists. By applying the food embargo to all its major suppliers the Russians created instance global trade chaos for what in most cases are perishable food products. That’s where it’s going to hurt more than just pork exports.
Contrary to the minimum economic impact theorists, the sudden impact of billions of dollars of perishable food products having to find new homes will be felt around the world and at the farmgate in Alberta. The EU exports alone exports over $16 billion a year to Russia – that’s a lot of grub – and it will find its way to market because when it comes to trade or war all is fair. For example the EU exports large quantities of pork and beef to Russia – to get rid of a growing surplus because of the embargo you will soon find large quantities showing up in the North American pork market. The EU has shown in the past that they have no scruples when it comes to dumping or using export subsidies to get rid of surpluses on the world market. More cheap pork will impact beef prices, it all has a steamroller effect. The same will happen with dairy products (high tariffs won’t stop the EU from dumping more of their cheeses in North America). All of that is good news for consumers as food deals will soon be showing up in grocery stores.
There will be economic outfall from this embargo and the question producers and processors should be asking is when will compensation from the federal government be arriving. Their political position on Russia’s Ukraine policy and the sanctions they applied are the cause of the food embargo. It wasn’t the producers or the industry that caused the embargo – I would suggest the government knew there was a price to pay for their actions – and they need to step up to pay for the consequences of their decisions. Food producers should not be the only sector of our society to pay for federal government international political adventures.
There are other winners from the food embargo besides consumers, food producers and exporters in countries like Brazil and China that are not part of the embargo will see a sudden rise in demand for their food products. They may not be able to replace all the embargoed products but it will certainly be a very profitable process for those they can – when it comes to trade politics there are always winners and losers.