“Agriculture strategy is economic strategy,” said John Stackhouse, senior vice president of the office of the CEO at the Royal Bank of Canada, during a session on trade and market trends in the North American economy at the Canadian Produce Marketing Association’s annual meeting in Montreal, Quebec on April 9. “We’re now talking about economic strategy being part of national strategy. Well, agriculture is part of national security.”
Stackhouse joined Ron Lemaire, CPMA president, to discuss the current economic climate and opportunities for the fresh produce industry in Canada.
Stackhouse called the current tariff and economic climate a wake-up call for agriculture, and while he said agriculture is the one thing that stitches Canada together, it’s also a critical part of Canada’s future.
Current state of tariffs
Lemaire said that while agriculture is accustomed to volatility in the form of hurricanes, flooding, a lack of water or other weather disruptions and logistical issues, he asked Stackhouse to discuss the current state of disruption in the form of tariffs.
“What we are in, and have been in over the last week, is equivalent to what we were in in the pandemic and the financial crisis,” Stackhouse said. “Those had long-tail effects that we need to start thinking about and be attuned to.”
Stackhouse said, though, that this volatility is different because it is caused by the policy of a single country, which he said can be reversed or amended.
“We’re seeing pretty concerning sell-off in bonds that’s leading to higher yields,” he said. “We’ll all pay for that in our mortgages, in your commercial paper, in your term loans, and in our government debt and what we have to pay on that.”
Stackhouse said the market hasn’t seen systemic changes to liquidity, which is a good thing. He noted that a challenge to the current economic crisis is the integrated economy and financial system.
“When you put a wall in any part of that, the whole thing is at risk of shutting down,” he said, noting commercial and central banks continue to work on managing the current financial system. “We’re seeing uncertainty. We’re seeing in markets a bit of a buyer’s strike. People are not wanting to invest in the market. The capital is there. There’s an enormous amount of capital sitting on the sidelines. And if that uncertainty can be resolved, that capital should come into markets pretty quickly. In other words, there’s not a systemic challenge that needs a systemic solution. There’s just uncertainty because of trade policies that have everyone tightening up.”
Stackhouse said banks and the agri-food industry need more clarity from the administration on its key objectives both in the short and long term.
“What every sector is feeling is this uncertainty, and therefore an understandable decision or instinct to hold back on investing,” he said.
This uncertainty impacts produce businesses’ decisions to start a new factory line, mergers and acquisitions or even spring planting.
“That’s where it starts to get very concerning because the lead times are very significant,” he said. “We’re not talking days, weeks. We’re talking seasons in agri-food as well as other sectors. More certainty is needed so that those U.S. farmers can know what to plant this spring, and their buyers, not just in the United States but around the world, can have some certainty and do forward contracts and arrange for shipping.”
Stackhouse said without that certainty, there will be structural impacts in the form of pulling back from long-term investments, which could spur a recession next year.
“We’ll get into next fall or next year, and find ourselves in a recession,” he said. “A good number of people are now forecasting that. You don’t snap your way out of that kind of recession when you’ve had that sort of structural lack of investment. It’s not a consumer-driven recession where you can just get people coming back in.”
U.S. vs. China
As to the ongoing escalation of tariffs between the U.S. and China, Stackhouse said the industry is seeing signals of a worst-case scenario; a rapid escalation of a trade war between the world’s two dominant economies.
“If those two economies, which have very integrated economies, but also integrated financial flows, get beyond a point of no return, that will have enduring negative impacts for all of us now. A better outlook is that they both in their self-interest, dial this down. ... It’s gonna be bumpy for a while, and there will be negative outcomes for far too many people because of this, but I suspect the president wants to resolve this fairly quickly, maybe by summer, and just get this off his to-do list.”
Stackhouse said he sees President Trump wanting to create a lot of bilateral agreements with individual countries, noting Israel, Japan, India, Thailand and Vietnam will have talks this week to discuss trade negotiations.
“I’d be surprised if the U.S. didn’t take advantage of and then package those together into a big trade deal for the United States, declare that as a victory and then leave it to trade officials to work out the details,” he said.
Of the trade dispute between the U.S. and China, he said he suspects China is more prepared to wait out the trade war for more favorable outcomes. But he wondered if the average U.S. citizen is willing to pay 10% or 20% more for products.
“The pain threshold is probably greater in China, among ordinary citizens than it is among the United States. I don’t say that with any glee. It is a country that is probably willing, top to bottom, to make more of a collective sacrifice as well as an individual sacrifice to get to a better outcome,” he said. “That may be what China is gaming. ... This is terrible because people in both countries suffer, and the people who will suffer most are the ones who have the least.”
U.S. vs. Canada
Stackhouse said he’s seeing some of that mentality in Canada, where Canadians are willing to give up certain products from the U.S. and other countries.
“We all have seen the anti-American mood sort of grow in [Canada],” he said. “I think that can shift fairly quickly, but China should be aware of the lack of goodwill it has lost in Canada over the years. … We live in a world of two dominant economic powers, but there’s also a whole bunch of the rest of us that make up the other half of global GDP and much more than half the global population.”
Of the $30 billion tariffs the Canadian government implemented on U.S.-produced products such as orange juice, Stackhouse said Canada is in a good position.
“The U.S. has more than economic interests at play here to rebuild a partnership with Canada that can either come all at once or bit by bit, I would suspect it’s going to be bit by bit, just given the nature of this president, and also all the other negotiations that that the U.S. is going to have to deal with.”
Stackhouse said one thing the Trump administration has been successful at is creating fissures, dividing and conquering.
“If he is able to hive off a weakness or create division, he’ll do that and do that with the weaker partner,” he said. “As Team Canada, we have to lock arms, but then it’s more than a symbolic of locking arms. How do we think constructively about reforms and every sector in every economy has room for reform? How do we map out the irritants to our most important trading partner? Some of them justified. Some of them a little more politicized.”
Outlook on exports
Stackhouse said exports are one of the biggest opportunities for agri-food in Canada, but he said it will take years of investment to develop.
When Lemaire asked about exports to the U.S., Stackhouse mentioned a “food first” survey conducted by RPC which looked at the future of agriculture exports for Canada. The report found that Canada fell from No. 5 to No. 7 in global agri-food exports.
“On current course, we will end up in ninth place within a decade, if we do nothing,” he said. “The rest of the world is getting better, and the rise of the rest isn’t just manufacturing. We’re seeing the rise of the rest is agri-food, and we are now competing not just with the United States, but with Brazil and Argentina, but lots of others who are going to be the next Brazil and Argentina.”
Stackhouse said it’s critical for the agri-food industry to invest in infrastructure, noting Canadian ports are not equipped for the current global economy. He noted how a delegation from Japan that visited Canada a few years ago said that while Canadian goods would be a great fit, it would be a challenge to ensure surety of goods. Stackhouse called this an important moment for the Canadian agri-food industry.
“This is the world saying to us, ‘We don’t know if we can count on it,’” he said. “Let’s invest in our ports. Let’s invest in inland terminals. Let’s invest in rail expansion, including just the rail lines and the capacity that we can have. And then let’s start to think more out into the future.”
In terms of greenhouse production, Stackhouse said the Canadian greenhouse industry has grown exponentially in a short amount of time and can easily grow fivefold. He said a study conducted by RPC found that the greenhouse industry in Spain has grown 10 or 20 times more in the same amount of time as in Canada. He said it’s important that the agri-food industry supports Canadian greenhouse growers.
“We need to ensure that we have trade access because most of that produce really is going to go to the U.S.,” he said. “That’s to America’s benefit.”
Lemaire asked Stackhouse about the future of agri-food in Canada, he said the fresh produce industry in the country is well equipped for growth.
“Shame on us if we cannot grow agri-food by 20% over the next decade or so, because we have the land, the water, the inputs,” he said. “We do have the trading relationships, even with all the frictions we have today, we’re better positioned to be selling into the U.S. market and all sorts of other markets in Europe, right across Asia, than most countries. We have the talent across the country and right through the supply chains to innovate and to grow.”
