4 economic topics generating discussion across the agri-food industry

One of the most enjoyable parts of being an economist at FCC is delivering our economic outlook at industry events. It allows us to hear directly from farm operations, food processors, and agribusinesses from across the country during the Q&A portion of the events.

I always learn a ton of relevant information from the conference discussions. Perhaps we could aggregate these insights into a barometer that measures the industry’s economic health? Until we convert the information into meaningful indicators, here’s a summary of the top four topics of interest that our team heard at conferences throughout the summer, along with our assessment.

1. Inflation and interest rates are joined at the hip

Unequivocally the number one topic of concern. Inflation has come down to 7.6% in July (from 8.1% in June), almost entirely due to a decline in gasoline prices. Food inflation stands at 9.2%. The Bank of Canada decided to frontload the increases in its overnight rate because of persistent inflationary pressures. But is the economy on a path towards 2% inflation? Yes, we do expect inflation to start subsiding. The Bank of Canada estimates it will take all of 2023 for this to happen. Higher interest rates take time before they can temper demand and curtail inflation. But we should see improvement in the 2nd half of 2022 if energy prices come down.

Our assessment? We expect another 100 bps increase in the overnight rate before the end of the year. Canadian agriculture should remain financially healthy given the strength of 2022 cash receipts projections.

2. A recession isn’t inevitable

It’s fair to say that the risks of a recession have risen in the last few months, but the consensus is that it’s not inevitable. Of course, inflation and higher interest rates lower households’ purchasing power – that’s weighing on the economy. And the yield curve is indicative of a future slowdown: short-term rates are above long-term rates. But the labour market is hot, with the July unemployment rate at 4.9% and wage growth strengthening. The two consecutive quarters of negative GDP growth in the U.S. fuel the conversations around a possible recession. But this GDP contraction is a result of declines in government spending and weaker exports, while fundamental economic indicators look much better than during previous recessions.

Our assessment? We still believe a soft landing of the economy can be engineered. And if a recession develops, it will be unlike what we’ve ever seen, given the state of the labour market. A global recession is perhaps what we should fear most. It would weaken commodity demand and potentially lead to lower agricultural commodity prices. Europe and China appear most at risk of a significant slowdown... Read More