Growing pains: Farmers on the tariff frontlines

Field Notes: How Canadian businesses are navigating trade tensions

Canada’s agriculture sector is among the first casualties of the trade wars with China and the United States. Monty Reich, CEO of SWT Ltd, a farmer-owned, independent grain and crop input company in Saskatchewan, discusses how farmers are navigating the trade tensions.

Uncertainty and volatility a near-daily irritant

• The current environment is challenging, uncertain—and confusing. “Each day is a different journey,” Reich said.
• Even before the 100% Chinese tariffs on canola oil and meal and yellow peas were imposed, the U.S. had started talking tariffs in December, with durum wheat on the list to be hit.
• SWT had to absorb the financial blow of U.S. tariffs on durum wheat, choosing not to pass those costs onto its farmer-shareholders. “We sold product into future spring positions and took that hit on our own bottom line,” Reich noted.
• U.S. tariffs have made durum wheat exports more costly. “We are the importer of record,” Reich noted, meaning SWT itself is directly responsible for paying the 25% tariff—a cost that prohibits any future sales.

Canola prices are plunging

• For canola farmers, the impact has been brutal. Prices have plunged by 25-30% since the Chinese tariffs were imposed, dropping from around $16 per bushel to $12.
• “Margins on the farm are pretty narrow as it is,” Reich said. Even small price shifts can turn a profitable season into a financial disaster. With this level of decline, farmers are watching their incomes evaporate.

Tariffs are hitting from all quarters

• China’s restrictions on canola and yellow peas have cut off a crucial market, leaving farmers with few places to turn to. “China accounts for about 87% of the yellow pea market along with the U.S. and India,” meaning farmers now face a near-total lockout.
• India’s on-again, off-again tariffs on pulses add another layer of uncertainty, leaving Canadian farmers with few viable alternatives.

Farmers are scrambling for alternatives

• “Growers are penciling in right now, trying to figure out what’s going to provide them the best return,” Reich said.
• Farmers could pivot to other crops, but in practice, it’s not that simple. “It’s not easy to just flip commodities,” he explained.
• Farmers are “scrambling” to adjust before the next planting season.

Deferred investments, shrinking profitability

• Some canola crush plant investments were already deferred a couple of years ago due to ongoing challenges with the Chinese marketplace and the cost of construction.
• Production facilities being built today are going to continue, and existing facilities will continue operating, but margins are getting tighter.
• Farmers are weighing whether to cut back production, reduce costs, or even scale down their operations altogether.

Fear of stranded shipments

• China’s anti-dumping tariffs on canola seeds can come soon, adding to the threat.
• That risk makes exporting to China a high risk. If canola seed shipments hit the waters, the Chinese “can slap on a tariff tomorrow.” That uncertainty alone is enough to spook exporters and depress prices.
• This feels different from the dispute with China in 2019 that was more restricted to a few companies over “dockage concerns,” and quality issues.

Backdoor trade routes

• In the past, when China restricted direct imports, Canadian canola still made its way there—through other markets.
• “There will be other South Pacific Asian countries that’ll take the product and flip it over to China.” But those countries will try to secure the goods at a discount.
• In addition, building trade relationships with new markets takes time. It’s not simply about switching markets from one to another (e.g., from China to the Philippines).

Other crops are also facing challenges

• Pulse crop (e.g., lentils) are also facing challenges, particularly due to tariffs from India. This adds pressure to the profitability of these crops, with farmers having to navigate changing trade policies, especially when tariffs are applied or removed unpredictably.

Who will replace Canadian canola?

• In the short term, other countries such as Australia can substitute Canadian canola, but Canada’s product is generally seen as highly reliable and high-quality.
• As supply and demand dynamics shift, other countries may adjust their crop rotations to meet market needs.
• Billions of dollars have been invested in Western Canada in canola capacity and crush capacity. There’s a lot of investment at stake in canola to “just let it go away,” Reich said.

The need for stronger government engagement

• While farmers often prefer minimal government intervention, strong trade agreements are essential in resolving issues like tariffs or trade restrictions.
• Canada’s government should ensure robust trade relations with key partners (China, the U.S., India) to reduce barriers, Reich recommended.
• Saskatchewan, for instance, has set up nine offices abroad to facilitate smoother trade relations and reduce friction.
• Canadian agriculture needs to have strong representation globally, not just through trade agreements, but through actual presence and ongoing diplomatic engagement.
• Government investments are needed to improve infrastructure to boost interprovincial markets and move products west-to-east.

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