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Sylvain Charlebois: ‘Trump effect’ could hit Canadian food prices

After the shock comes the reality of understanding what a Donald Trump presidency and a Republican-dominated U.S. Congress will mean to all of us. Over the past two years, policies on immigration, trade and security have dominated the campaign.

After the shock comes the reality of understanding what a Donald Trump presidency and a Republican-dominated U.S. Congress will mean to all of us.

Over the past two years, policies on immigration, trade and security have dominated the campaign. Not much was said about agriculture or food policies. By the looks of it, though, a new approach in Washington could affect what we eat and, most important, how much it costs.

In fact, the “Trump effect” could increase the cost of our food over the next few years. With food prices dropping recently in Canada, this could be welcome news for the industry, but not so much for budget-conscious consumers.

First off, Trump’s victory could have major implications on energy geopolitics around the world. Trump has called for more drilling of fossil fuels, fewer regulations and a complete withdrawal from the Paris Agreement on climate change. His defiance of OPEC is consistent with his views on U.S. energy security. The Keystone XL pipeline project also fits well with Trump’s intentions.

All these measures could potentially initiate the next commodity super-cycle, as we witnessed with the Bush administration a decade ago or so. Trump’s infrastructure plan has already pushed up prices for iron, copper and other materials. Commodity prices could go higher and increase procecssing costs.

For now, agricultural commodity prices are still historically low and will remain so for a while. In some parts of the U.S., food prices have dropped by as much as eight to 10 per cent in one year, the most significant drop in almost 50 years.

This is great news for consumers, but the number of jobs in this sector has stagnated over the past six months. This phenomenon has recently reached Canada, but to a lesser extent. Even though we all want lower food prices, the current situation is clearly hurting the food industry.

The traditional sweet spot for food inflation is between one and two per cent a year. Such a threshold is manageable for all and allows the industry to provide higher-quality products at an affordable price.

With Trump in the White House, labour is another challenge. Eventually, the issue of immigration could also indirectly affect consumers’ dinner plates. Trump’s proposed immigration laws could harm American agriculture.

More than 66,000 temporary agricultural workers with visas enter the U.S. every year — not a significant amount. However, U.S. agriculture has an estimated two million illegal workers helping farmers at harvest time. Without such support, U.S. production levels would be reduced and prices pushed higher.

The next Farm Bill will, of course, be written by the Trump administration. The Farm Bill is American-driven but its influence is often far-reaching. It is unclear how new policies will take shape, but it is easy to assume that American farmers will come first.

We could see subsidies driving commodity prices higher for a while. Just like George W. Bush before him, Trump has a thing for ethanol. We all remember what happened with food prices when oil was over $140 a barrel.

American farmers could be well served by the next Farm Bill, but the rest of the world should brace for more food-price volatility.

Ironically, Trump’s known abhorrence for regulations could benefit the bottom line for many restaurants. Since his election, stock values of many restaurant chains have gone higher. The fight for a $15-an-hour minimum wage was hit hard by Trump’s victory, which again signifies good news for restaurant operators.

Unlike general food prices, menu prices could drop. For Canadian restaurants, it means less pressure coming from the U.S., at least for while. Many in the Canadian restaurant industry are likely cheering, but ever so quietly.

Trump’s proposal of a hard cap on business taxes at 15 per cent will make some Canadian lawmakers nervous. We could see more food-processing closures in Canada or could see many operations relocating to the U.S., where labour costs are lower.

This could jeopardize further our control over food-supply chains. It might become harder to maintain our level of competitiveness. The loonie is likely to fall even further with lower interest rates here, and the U.S. Federal Reserve is likely to raise rates, both causing our food economy to become more vulnerable to currency fluctuations.

In summary, a Trump administration could push food prices higher over the next few years, and in this case, Canada would not be immune to this shift.

Higher food prices in general might be problematic for some consumers. More challenging for all are abrupt shifts in commodity prices. That will be bad for everyone if Trump-esque ideologies spell trouble for global agriculture.

Sylvain Charlebois is dean of management and professor in food distribution and policy at Dalhousie University in Halifax.

Sylvain.Charlebois@dal.ca