Grainswest - Spring 2022

Spring 2022 grainswest.com 23 COVID troubles aside, the agriculture supply chain is typically robust, but not without shortcomings. The relative measure of its strength is indicated by how much a given year deviates from normalcy. Al Mussell makes his living monitoring trends, analyzing the story behind the story and interpreting the implications for Canada’s agriculture industry. As director of research at the Canadian Agri-Food Policy Institute in Ottawa, ON, he knows the last two years have been a grind, but what lies ahead may be even more difficult. The supply chain can absorb a lot of upheaval caused by everything from snowstorms and dry years to high and low commodity prices, said Mussell. “Most of those shocks are temporary, five to 10 per cent deviations or less. What we’ve had to deal with over the last couple years are deviations that are more in the magnitude of 30 per cent or more.” To absorb such shocks requires a strong system, which Mussell believes Canada has, but knows that everything has a breaking point and the industry as a whole is nowhere near out of the woods. Shipping containers today are harder to come by than a roll of toilet paper in spring 2020, which is to agriculture’s detriment. Mussell noted transport of consumer goods, namely electronics from Asia, has such great margins compared to commodities, that vessels unloading in North America often go back to Asia empty to reload because it simply pencils out better. It also doesn’t help that port issues in Asian countries mean that it can take days or weeks to find workers to receive and process orders. “Nobody’s there to unload it,” he said. “They’re locked down, sick or too scared to come to work. Stuff like that plays havoc with your supply chain.” Add to this weather concerns and a particularly dry year across a large swath of North America, and people begin to talk about food security on a global scale. Yara International CEO Svein Tore Holsether recently pronounced: “I’m afraid we are going to have a food crisis.” The comment by the fertilizer giant’s top dog was in direct relation to the rising cost of energy prices. Natural gas prices in Europe hit all-time highs this past fall and prices in Canada are similarly doing well. So, while 2021 gave the world a vaccine, it also came with sky-high energy prices—a plugged leak at the stern only to spring a new one at the bow in the boat of globalism. To see how unprepared people were for the energy ascension, look no further than the USDA’s February 2021 Agricultural Projections to 2030 report. It predicted a slow, determined increase in the price of crude oil, starting at $41 in 2020 and rising to $57 a barrel by 2030. At time of publishing, WTI Crude and Brent Crude were both above $95 a barrel. The entire situation conjures up more unknowns for Mussell. “We really do have signs of the return of global hunger,” he said, and observed that many countries are forward buying crops. This is unusual, but seemingly they don’t want to be caught at the mercy of supply chain shortfalls. Jordan and Egypt, the latter of which is typically one of the world’s largest grain buyers, have snatched up a considerable volume of cereals. This is to avoid being caught without adequate stocks and to insulate themselves from high prices, a problem exacerbated by lagging global production, which has seen demand outstrip foodstocks for the second straight year, as recorded by the UN’s Food and Agriculture Organization. And while it’s not illegal to purchase more commodities for domestic supply, it can cause speculation and, ultimately, food insecurity, further compounding worldwide food questions. “That could be really disruptive to the point where you get geopolitical effects,” said Mussell. He cited China’s recent trade actions against Australian barley and wine as well as Canadian canola, beef and pork as evidence of international tensions. “What I think we are going to emerge with from the pandemic is a hungrier world where food security is a front-burner issue,” he said. “I really do worry about countries making their own rules having to do with ag and food security. For a trading economy like Canada in ag and food, we are a loser out of that deal.” DEALERS AND DELAYS At a micro-level, a different set of problems persists. For the average farmer, equipment is typically bought following a good year. In Western Canada, 2021 was not that year. However, a few geographic pockets across the Prairies fared well with crop production, and there, equipment purchases were prioritized. The situation is better with equipment and parts availability than it was in the spring of 2020, but it’s still in bad shape. “The supply chain is nowhere near where it needs to be, or nowhere near what we call normal,” said John Schmeiser, president of the Western Equipment Dealers Association (WEDA), which represents 2,200 dealers in North America, including 750 in Canada. “It’s a compounding problem. It starts with the pandemic, that’s where things really started creating the challenges, but then there was pent up demand.” That pent up demand, explained Schmeiser, began five years prior and follows a typical, undulating five-year market cycle. In 2019, manufacturers predicted 2020 would be a surge year for equipment, he said. This proved exactly the case thanks to the trifecta of relatively good weather, strong crop prices and low interest rates. “If those three metrics hit, there’s an incredible demand for new farm equipment,” he said. “Those metrics all hit.” Not knowing where the pandemic would take them, manufacturers collectively began telling dealers in March 2020 to stock up on parts inventory as much as possible. Dealers listened, but their shelves invariably emptied. “Eventually you get to a point where there’s a stranglehold on the system. That caught up to us,” said Schmeiser. Saskatchewan is the only Canadian province and jurisdiction in all of North America that requires every manufacturer to maintain a parts depot or use a dealer as a designate, noted Schmeiser.