Agricultural markets thrive on trade. Commodities in general are highly suited to free and open exchange, since every country needs them but not everyone has them. Because commodities are largely homogeneous, importers can purchase from whichever source is the cheapest, and suppliers are forced to compete. The natural laws of supply and demand efficiently send signals to producers and consumers to adjust their behaviour and investments in response to market conditions. Of course, prices can overshoot one way or the other due to a host of different factors, but no ‘human’ planning or intervention holds a candle to the overall efficiency and effectiveness of simply allowing commodity markets to ‘do their thing’.
The world has gone through several decades where there was a growing acceptance of the need for more open and free trade across nations. Of course, every country has their ‘unique’ sectors that receive ‘special’ treatment, but in general the barriers around the world had been falling. There is debate as to how evenly the gains of a more open world have been distributed, and in many cases countries can probably do a better job of helping those that have to cope with the new reality of foreign competition. The net benefits from free trade are enormous, particularly for a country like Canada.
Unfortunately, the global attitude towards trade is shifting. The rhetoric has gone from trying to negotiate protection for a particular sector within a wider deal, to whether trade deals themselves should be pursued overall. The Trump Administration may appear to be the most vocal in its skepticism, but many countries seem to be carrying a more cynical tone. Even Canada, which is so heavily dependent on global trade, was perceived as not being particularly helpful in progressing the revived TPP discussions.
In many cases the grain markets are not specifically a primary target, including in the current NAFTA renegotiations. However, there is always the risk of ‘collateral damage’, whether through the unintended consequences of new regulations in another sector, or a single politician whose support is needed to pass another provision.
The consequences of any impediments to open agricultural trade are high. Prairie pulse markets are feeling the full effects of that today, while the memory of disrupted canola shipments to China is not that far behind us. The irony is that those countries that impair the flow of goods to help their own domestic groups in the shorter term, usually end up paying a dear price in the long term. This is due to farmers reducing production, which only further tightens supply, driving prices higher when the inevitable need for future imports arises.
Virtually everyone benefits from trade. But the gains get dispersed so widely across society that they are often drowned out by the shrill cry of those on the ‘losing’ end, even though trade is often the convenient and oversimplified scapegoat for complex economic issues. In general, agriculture doesn’t have the ‘bullseye’ on its back the way some other sectors do, but it will be difficult to not get swept up in the shift in sentiment. The world will be worse off because of it.
Jonathon Driedger, Senior Market Analyst