Growth in Canada’s cereal and oilseed exports post trade agreements mixed

Over the last six years, Canada has signed three multilateral trade agreements with some of the world’s largest economies. The Comprehensive and Economic Trade Agreement (CETA) came into provisional force in 2017, giving Canada preferential access to the (now) 27 countries in the European Union, with a total population of near 450 million in 2023 as one of the world’s largest economies and one of Canada’s largest agrifood export markets.

In 2018, Canada signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Canada-United States-Mexico trade agreement (CUSMA) which, in many ways, continued the preferential access granted by the former North American Free Trade Agreement (NAFTA) and was in force as of November 2020. CUSMA is arguably Canada’s most lucrative agreement, with the U.S. our largest global trading partner. Given the many ways our economies are tied together, it has always been our largest export market for food products.

The CPTPP opens access to ten Pacific Rim countries (Australia, Brunei Darussalam, Chile, Japan, New Zealand, Malaysia, Mexico, Peru, Singapore and Vietnam), many of which, while not Canada’s traditional partners in agriculture and food trade, are growing their imports as their domestic household spending grows. The United Kingdom is expected to join the CPTPP as a member state by 2025.

But while opening access is necessary to improving trade, it doesn’t guarantee that Canadian exports will grow to those regions with whom we share agreements. Five years after the signing of CUSMA and CPTPP, and six years after signing CETA, the agreements have paid off for Canada’s cereal exports, but to a lesser degree for oilseed exports.

Post-signing cereal export growth rates show benefits of trade agreements

Before the introduction of the trade agreements, overall Canadian cereal export volumes were growing. Annual growth averaged 4.4% in the 2014-2018 period, with exports to the European Union driving much of the increase. Exports to CPTPP countries also had a higher annual average growth rate than the total. Several factors underscored the upticks. In 2014, cereal export volumes rose 21.2% YoY, driven by strong domestic supplies and a rapidly deteriorating Canadian dollar relative to the strengthening USD after the Russian invasion of Crimea.

Over the next five years, growth in overall cereal exports slowed somewhat, falling from 4.4% to 4.0% average annual growth. They were initially buoyed in 2020 in response to burgeoning global demand for ag commodities but fell in 2021 and 2022 when Canada faced cereal production losses due to poor moisture conditions in the West. The signing of CUSMA, CETA and CPTPP then had varying degrees of influence on Canadian cereal exports to the three regions.

The U.S. serves as an aftermarket for Canada’s crop exports. It becomes a destination when exports to other, more lucrative, markets have been maxed out. As cereal volumes increased to Europe, Asia and elsewhere, volumes exported within North America lagged (Figures 1 and 2). CUSMA boosted cereal exports to the U.S. and Mexico in 2023, when volumes were closer to the level in 2018.

Figure 1: CUSMA allows Canada’s exports to the U.S. to grow when needed

Source: Statistics Canada

Growth in cereal exports to the E.U. averaged a very healthy 25% increase each year between 2013 and 2017 (Figure 2). In 2014, Canada exported 3.6 MMT, a 160% YoY increase, to European countries. But that kind of growth proved difficult to sustain, despite the introduction of CETA.

Figure 2: COVID boosts the AAGR of ag exports post-CETA

Source: Statistics Canada

In both Europe and among CPTPP countries (Figure 3), we see the impact on volumes shipped of the drought-reduced production levels in 2021. Nonetheless, the agreements were in place when the world suddenly wanted more ag commodities during COVID-19. Canada’s tariff-free status in the E.U. helped boost cereal export volumes between 2018 and 2020 by 15.7%. In the CPTPP region (without Mexico), cereal exports rose 24.9% between 2019 and 2020, after having increased at an average annual rate of 5.7% between 2014 and 2018. However, exports to Japan, the CPTPP’s single largest market, fell 23.4% between 2020 (their high) and 2022, pushing down overall volumes to the region. This trend may show the limit of trade agreements to boost Canadian exports. Australia, with a transport advantage over Canada in exports to Japan and their own bilateral free trade agreement, had excellent cereal production at the same time, perhaps raising their relative competitiveness.

Figure 3: Crop exports given initial boost post-CPTPP introduction*

Source: Statistics Canada

* does not include Mexico

CETA signing just in time for extra demand from E.U. for oilseeds

Canada’s oilseed exports were increasing overall, averaging an additional 7.8% each year between 2014 and 2018, based primarily on strong sales to China. China’s huge spike in imports of Canadian soybeans, growing 500% between 2014 and 2018, was replicated to varying degrees in their imports from other suppliers to feed swelling pork production levels.

Such strong growth in Canada’s export volumes generally tapered off after 2018, however, for numerous reasons. Overall oilseed exports fell dramatically as African Swine Fever hit the Chinese herd and China’s soy imports stopped almost overnight. Canadian exports have also tailed off as additional domestic oilseed crush capacity has become available. Between 2019 and 2023, oilseed exports averaged a -3.3% loss per year. Comparatively, exports to North American and CPTPP partners dropped at even faster rates, while exports to the E.U. soared.

Despite the existence of NAFTA/CUSMA, Canada’s oilseed exports to North American markets dropped in the first five years since signing. They had been falling each year between 2014 and 2018, but the losses picked up speed between 2019 and 2023, in part due to limited production levels and as exports to other markets increased (Figure 1).

Oilseed exports to countries in the CPTPP region (excluding Mexico) also fell in the five-year period immediately after the agreement was in force (Figure 3). They fell, on average, -8.5% each year. Most of that was due to large reductions in trade with Japan. Between 2020 and 2023, canola exports to Japan declined 56%, with Australia able to pick up the slack.

In the five years before signing CETA, Canada’s oilseeds exports to Europe fell, on average, -3.6% each year, a figure impacted heavily by a dramatic 52.7% YoY drop in 2018 (Figure 2) when losses in canola and soybean production limited exports. Between 2014 and 2017 (i.e., without the lowered crop in 2018), oilseed exports showed an AAGR of 4.1%. As strong as that was, it was dwarfed by export growth post-CETA. Between 2018 and 2022, oilseed volumes to the E.U. rose, on average, 20.5% each year, and looking only at the period 2018 to 2020, they grew more than 300%.

Bottom line

Many factors influence trade performance. Relative global crop production matters to Canadian export volumes, as do relative currency fluctuations between suppliers and buyers. With the first five years since signing the three agreements marred by domestic crop production losses, it's hard to fully assess their impacts. However, CETA’s availability when European demand for cereals and oilseeds increased, pushed Canadian exports higher. Given that ratified countries grew their oilseed exports, on average, 53% annually and unratified countries had an AAGR of 13.4% between 2018 and 2022, there’s more potential to unlock with full ratification (if possible). CUSMA has had a more muted effect, not surprising perhaps given the gains made earlier by NAFTA. The CPTPP region saw an initial boost to crop exports during COVID, which faltered when Japan cut back their shipments.

Martha Roberts

Economics Editor

Martha joined the Economics team in 2013, focusing on research insights about risk and success factors for agricultural producers and agri-businesses. She has 25 years’ experience conducting and communicating quantitative and qualitative research results to industry experts. Martha holds a Master of Sociology degree from Queen’s University in Kingston, Ontario and a Master of Fine Arts degree in non-fiction writing from the University of King’s College.