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Monday, June 5, 2006

Study: Canadian agriculture year-end review


On the whole, Canadian farmers faced some tough going in 2005, but the agriculture and food industry was not without some bright spots, according to a new study.

For many farmers, the major challenge was the sharp drop in realized net income, which fell to its lowest level since 2003. Crop receipts alone tumbled 7%.

Record-breaking production of canola, corn and soybeans in Canada came at a time when world production and inventories were also at high levels but rock bottom prices.

Individual groups also had a difficult year. Spring floods in parts of Manitoba devastated crop production for many of the province's farmers.

A spring frost decimated the grape crop in Ontario. A combination of market conditions and bad weather forced vegetable growers to cut back their cultivated area by some 12%. In addition, sales of greenhouse products fell for the first time.

On the flip side, a major event for Canada's livestock sector was the opening of the US border to imports of Canadian cattle and calves under 30 months of age in July, following the 26-month ban due to bovine spongiform encephalopathy (BSE). This helped bolster the price for cattle and calves marketed domestically.

In addition, the food processing sector kept up a relatively strong performance last year. And the nation recorded another strong surplus in the international trade of agriculture and fish products.

Crop prices drop sharply

Prices paid to Canadian farmers for a number of crops continued to be under pressure due to high North American production levels in 2005 and large world supplies.

In addition, the significant rise in the value of the Canadian dollar against the American greenback lowered returns on Canadian agricultural exports that sell in US dollars.

In December 2005, producers received prices for crops that were 15% below levels of a year earlier, according to Statistics Canada's Farm Product Price Index (FPPI). This continued the downward trend in year-over-year price changes that started in the summer of 2003.

Near-record grain and oilseed production in both Canada and the United States in 2005 added to already large supplies. In addition, growing conditions in many parts of Canada were detrimental to the quality of some crops.

The price index for total crops in 2005 was at its lowest level since the early 1990s. As a result, farmers approached the federal government to seek special assistance for the crops sector.

On the Prairies, production of canola, used to make margarine and cooking oils, jumped 26% to 9.5 million tonnes, the result of a record yield. Flaxseed production nearly doubled.

In Eastern Canada, favourable crop conditions resulted in record corn and soybean production.

Beef markets recover after the US border reopens to Canadian cattle exports

Canadian exports of live cattle and calves under 30 months of age resumed to the United States on July 18, 2005. Breeding cattle, cull cattle and meat from older animals were still not permitted to enter the US market.

The resiliency of the North American beef cattle market became apparent as exports of live cattle neared pre-BSE levels by October 2005. This rebound was significant, especially in the context of the no-trade policy for breeding or cull animals.

Partially offsetting the increase in live cattle exports was a drop in beef meat exports during the second half of 2005. Part of this decline can be attributed to the three-week labour strike at a packing plant in Alberta in late October and early November.

By the end of the year, cattle markets began to recover and prices for livestock and animal products were 5% above levels of a year earlier.

Average 2005 slaughter prices for cattle rose 8%, while the average price for feeder animals increased 32% from 2004.

Huge trade surplus in agricultural products

Canadians export about half of the food they produce and import about half the food they eat. This makes Canada one of the world's most agriculturally trade dependent nations.

For some farm enterprises, such as cattle, hogs and greenhouse vegetables, trade with the United States and other countries has brought opportunities to expand into large new markets. But a trade "shock" can be devastating, as was demonstrated when the Canadian border was closed to exports of live cattle and beef products in the spring of 2003 due to BSE.

In 2005, Canada exported $30.2 billion of agricultural and fish products, down 1.7% from the previous year and 0.9% above the previous five year average.

At the same time, the nation imported $22.0 billion of agricultural and fish products, up 3.1% from 2004 and 6.1% above the previous five year average.

This gave the country a trade surplus in agricultural and fish products of about $8.2 billion.

About 38% of Canada's exports consisted of meat, fish, and live animals; 28% were grains and oilseeds and their products; and the remaining 34% were alcoholic beverages and other food, feed, beverages and tobacco.

Exports of live animals increased nearly 77% from 2004 levels as a result of the reopening of the US border. Wheat exports dropped 23% mainly due to lower demands by China.

In terms of imports, about 29% consisted of fruits and vegetables; an additional 29% were beverages, cocoa, coffee, tea and other prepared foods; 18% were fish, meat and live animals; and the remaining 24% were mainly cereal products, sugar, fodder and feed.

Food processing industry remains strong

Canada's food processing industry held steady last year. Shipments of Canadian manufactured food products totalled $68 billion in 2005, down only a marginal 0.3% from the previous year.

Shipments of beverages and tobacco products amounted to an additional $12 billion, up 0.5%. An increase in beverages more than offset a decline in tobacco.

Food manufacturers used 84% of their capacity in the final quarter of 2004, the highest level over the past decade. Last year, capacity utilization in the sector declined slightly, but was still strong at around 82%.

The article "Canadian agriculture in 2005: A tough year in review" is now available in the June 2006 edition of the newsletter Vista on the Agri-food Industry and the Farm Community (21-004-XIE, free) from the Our products and services page of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Verna Mitura (613-951-8718; or Mike Trant (613-951-2859;, Agriculture Division.

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Date Modified: 2006-06-05 Important Notices