Canada is the latest major agricultural producer to be hit by serious drought in the west, which will result in large falls in harvests. Damp and cool weather in the eastern part also negatively affects crop results, a new CompaniesandMarkets report Canadian Q4 reveals.
The prairies of Alberta and Saskatchewan saw some of the driest weather in decades in the first half of 2009 with rainfall less than half of the average level. This will see large falls in the 2010 harvests for wheat and barley following the large crops in 2009.
Increasing development in the prairies fuelled by the energy boom that has brought investment flows into the area over the past few years has seen demands on the water supply rise, stoking fears that shortages could become more frequent in the future.
On the other side of the country, Ontario and Quebec have seen especially damp and cool weather. This will see yields for corn and soybean fall in 2010.
H1N1 hit pig producers
The livestock sector also continued to suffer through the middle of the year. Pig farmers were particularly hard hit. The lingering impact of the H1N1 Swine Flu outbreak exacerbated the already poor outlook for the sector.
Before the outbreak, pig farmers had been hoping that the sharp fall in pig inventories in North America over the past two years would finally put a stop to the falling prices.
Following the flu outbreak, however, pig prices fell every month through Q2-09 as demand dropped in response to the fears of H1N1 'Swine Flu'. In June 2009, Ontario pig prices were down 16.3% on the 2008 level.
Reducing pig supply
In mid-August, the Canadian government stepped in with a package to help struggling pig farmers. The government is offering CND75m (€47.7m) to help farmers exit the sector to try and reduce supply thereby shoring up prices. Farmers who commit to not producing for three years will also be eligible for the funds.
The government will also back loans to pig farmers and invest CND17m (€ 10.8m) in developing export markets for Canadian pork. The package is a long way from the CND800m (€ 509.3m) injection industry bodies had called for, but should help the sector return to profitability in the not-too-distant future.
Supply chain management still holds
Unlike the export-reliant pork and beef industries, poultry and dairy producers are insulated form the current economic turmoil by a tightly regulated supply chain management system and a high level of protection from imports.
Output of both milk and poultry is governed by quotas set at a national and provincial level. Prices are determined based on cost of production, all but guaranteeing profits for the majority of producers.
While in the current climate poultry and dairy farmers will no doubt be happy to be spared the difficulties being faced by beef and pork producers, in the longer term the researchers believe the regulations are holding back the development of the sectors as well as placing an unfair burden on consumers.
The production quotas limit the opportunities for efficient producers to expand, holding back productivity growth. Consumers are also left paying more for dairy products than would be the case if prices were fixed by the market and domestic producers were subject to competition from imports.
Despite this, the supply chain management system has broad political support and the researchers do not see any major changes over the forecast period.
Pressure for change is most likely to come from the outside - Canada's protection of its dairy and poultry industries has been a constant stumbling block in trade negotiations.