Emerging Markets / November 15, 2016

Agriculture and Free Trade in the Canadian Economy

With a GDP of approximately US$1.6 trillion, Canada usually ranks as the tenth largest economy in the world. Given that Canada’s national territory is largely comprised artic climates, it is not surprising that this large nation has a population of merely 35.3 million inhabitants. Similarly, given the natural geography of the country, the agriculture industry only accounts for 1.6% of the Canadian economy and labor market. In terms of manufacturing, this industry accounts for 28.0% of the national GDP, while services dominate the Canadian economy representing more than 70.0% of its overall activity. Within agriculture and manufacturing respectively, Canadian production is mostly comprised of wheat, barley, and oilseed as well as mineral commodities and heavy machinery. This article explores the status of the Canadian milk and dairy industry.

Agriculture and Free Trade in the Canadian Economy

Canada is a significant producer of milk and dairy products, which supply mostly its growing domestic market. The fluid market refers to the milk destined for direct consumer purchase in the form of cream or flavored milk. Meanwhile, the industrial milk market refers to that which is processed into consumer goods such as butter, yogurt, cheese, ice cream, or milk powder. Currently, it is estimated that manufactured milk products dominate 60% of the Canadian market, while the fluid milk market accounts for 35% and milk used in farms amounts to 5%.

Total cow milk production in Canada during 2015 equaled some 8.8 million metric tons, increasing to little over 9 million in 2016. The estimated production for 2017 is of 9.5 million metric tons. In tandem with the domestic cow milk production, the head of cattle in Canada have increased from 955.000 in 2015 to an expected 960.000 for 2017. In terms of milk imports, Canada bought some 50.000 metric tons of milk from the international markets during 2015. Meanwhile, the total milk imports for 2016 are expected to decrease slightly to 45.000 metric tons. In terms of exports, Canada represents a minimal supplier within the international dairy market exporting only 4.000 metric tons in 2015 and 6.000 during 2016.

The central and provincial governments closely monitor dairy production in Canada. Every year, the national government agrees upon an overall market sharing quota system, which is then broken down and distributed to producers by provincial governments. However, this strict production regime is expected to be phased out during the coming years. At the end of October 2016, Canada and the European Union signed the long awaited Comprehensive Economic and Trade Agreement (CETA), which seeks to increase and facilitate free trade between both jurisdictions. As part of the CETA, both Canada and the EU commit to periodically phasing out tariff rate quotas and other barriers to the free exchange of consumer goods. The CETA is expected to provide a larger and more competitive agricultural supply to Canadian markets, with goods entering from the EU. At the same time, the CETA will increase the EU’s export and market share within Canada.

Nevertheless, as of right now, the United States remains Canada’s most important trade partner, representing more than 50% of Canada’s total imports and exports. Therefore, the strength of the US dollar (USD) against the Canadian dollar (CAD) is a determining factor within this trade relationship as well as Canada’s domestic market prices. It is important to mention that throughout the last several years, particularly 2016, the CAD has weakened substantially against the USD.

(Read more about Sustainable Agriculture and Our World Habitat)

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