Canada's agricultural industry has 'productivity edge': BMO

Economists and policy makers may bemoan Canada's lagging productivity in such key industries as manufacturing, but a new study says at least one sector is doing things right: agriculture.

The Bank of Montreal report says the Canadian agricultural industry is a solid performer in a tough global business thanks to producers' "productivity edge," among other factors.

"Rapid economic expansion in emerging markets and lagging demand growth from south of the border has resulted in increasing export market diversification," BMO Capital Markets economist Aaron Goertzen said in a news release Friday.

"Although global competition is stiff, Canadian producers' productivity edge has contributed to a large and growing trade surplus."

Advances in technology, improvements in management practices and industry consolidation are cited as factors that have helped contribute to sustained productivity growth.

"Innovation has consistently and significantly expanded the industry's productive capacity, with gross output per hectare having more than quadrupled over the past half-century."

And innovation isn't slowing down, with private spending on R&D in the agricultural sector having expanded at about twice the rate of the Canadian total over the past decade, according to the analysis.

The net worth of Canada's agricultural industry has increased by 78 per cent since 2003, it says.

Last year's harvest was the second largest on record, the report adds.

"While some Canadian producers in central Canada faced challenges due to drought, improved demand and increased production led the sector to solid revenue growth in 2012," said Karl McLaren, manager, agriculture at BMO Bank of Montreal.

"These factors, along with ongoing technological improvements, continue to have a positive impact on the agricultural sector."

Prices for agricultural products have increased substantially thanks to soaring demand growth, driven largely by rapid population and income growth in emerging markets, the study says.

The rosy picture is at odds with the view taken by many critics who say innovation and export growth in Canada's agri-food industry are hobbled by a protectionist supply management system that controls every aspect of dairy, egg and chicken production.

Chicken and dairy production are growing at a fast clip in non-supply-management countries such as Australia, New Zealand and the United States, while output in Canada is virtually stagnant, Colin Carter, a professor and director of agricultural economics at the University of California-Davis, has pointed out.