It is certainly been a rough week for the Western world. The attacks in Paris have certainly shaken many people especially those who follow the 24/7 news cycle. I often refers to black swan events as “unexpected Tuesdays” in my grain marketing presentations. The attacks in Paris were certainly an unexpected Tuesday event, but not something at least at this point, which cause grain price gyrations. Needless to say, especially for our friends in Europe it’s a fluid security environment.
Of course there was also a terrorist attack in Beirut Lebanon just before the Paris attacks, which did not get the same coverage. That’s just the way it works in this world and the Paris attacks had far more casualties. What it has done to Canada has changed some of the geopolitical geometry for our new government. Prime Minister Trudeau has certainly felt the heavy weight of government come down on him at a time when the French president has said France is at war. Every time you see Prime Minister Trudeau on the television, it would seem he knows how the responsibilities have changed.
How this would affect Canadian agriculture at this point is a stretch. Yes, having ISIS infiltrate the refugee stream into the West has the potential to create a black swan event for an economy. In Canada our government has pledged to bring 25,000 Syrian refugees here by the end of the year. The logistics of that seem almost impossible. However, there are many rural areas that will look forward to an infusion of new people and ideas. I’m sure some of these refugees may even end up on Canadian farms.
Of course refugee issues aside, all of this will have to be paid for and I look forward to hearing from new finance minister Bill Morneau this Friday. He is expected to unveil what he has learned about Canada’s finances. The Liberal government had promised to increase government funding for infrastructure projects and support payments for families. Of course I was hoping for some type of infrastructure stimulus for agriculture. In order to do this the Liberals were expected to run budget deficits of almost $10 billion in 2016, 9.5 billion in 2017 and $5.7 billion in 2018 before going back to a surplus in 2019.
Problems may arise. Its expected that finance Minister Morneau will find that we are already into a budget deficit this year. The Canadian economy has been sluggish, as the price of oil has dropped so precipitously. So as we move ahead it looks like we are going back to large deficit financing from government at a time when the world has grown more troubling. For those of us who were hoping for some type of stimulus in agricultural infrastructure or agricultural safety net policy, this new fiscal environment isn’t the best.
Of course, it is probably too early to muse too much about what the new government will do. Parliament is supposed to be recalled in December, but you would think that is more about show than anything else. What I did find interesting was when President Barack Obama was musing openly about the TPP agreement at the APEC summit in the Philippines. He mused publicly that both Canada and the United States would be adapting the TPP agreement. That’s not necessarily what the Liberals promised.
Pertinent to agriculture is the new Liberal government has also stated that the $4.3 billion compensation earmarked for Canada’s supply management sector over a period of years would be called into question. This really doesn’t surprise me. It was a very big promise by the former Conservative government to compensate our dairy farmers for a loss of 3.25% of their market share. The Liberals do not share the same type of commitment to the sector as the Conservatives and it would not surprise me if a portion of this were lost. Those government deficits are just too high.
Canadian economic growth needs a reboot. The low price of oil has certainly changed things. We also have to think about US Federal Reserve Chairman Janet Yellin who is likely to raise American interest rates. This will make our commodities that much more expensive on the world stage as it will be a stimulus to the value of the US dollar. At the same time our loonie should grow weaker. Simply put, there are many economic variables in the mix.
So as we look ahead into this Canadian winter, let’s hope we come out on the other side of it with better prices, a turnaround in the Canadian economy and a safer world. Prime Minister Trudeau has his work cut out for him.