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Summary

Canada is the second largest importer of U.S. agricultural products and one of our most reliable and consistent markets in the world. Since the implementation of the North American Free Trade Agreement (NAFTA), U.S. exports, especially high value products, to Canada have grown. Though competition is intense, United States maintains a dominant market share of 60 percent. Furthermore, in fiscal year (FY) 2011, increased demand and higher prices are expected to result in record U.S. exports.

Canadian Market Grows Under NAFTA

Canada accounts for 14 percent of total U.S. agricultural exports to the world and had been the top U.S. market since taking the spot from Japan in FY 2002. Though China is expected to become the top U.S. market in FY 2011, Canada remains a leading destination for U.S. products. Some of the dramatic growth in U.S. exports to Canada can be attributed to lower barriers brought on by the NAFTA agreement. From the time NAFTA came into force in 1994 to full implementation in 2008, U.S. agricultural exports to Canada tripled (increasing roughly $11 billion). More importantly, the United States maintained a market share in Canada at roughly 60 percent, even as U.S. market share of global exports fell due to competition from developing exporters such as Brazil. In FY 2010, the United States remained the dominate supplier to Canada followed by the European Union, Mexico, Brazil, and China.

Diverse Product Mix Stabilizes Exports to Canada

Though bulk products make up 39 percent of total U.S. agricultural exports to the world, they only comprise 6 percent of exports to Canada, which is likely to remain the top high-value U.S. export market for the next several years. In FY 2010, the top export product categories were fresh vegetables ($1.6 billion), fresh fruit ($1.5 billion), snack foods ($1.5 billion), processed fruits and vegetables ($1.0 billion), and red meats ($1.0 billion).

The export product mix to Canada is very diverse compared to other top U.S. markets such as China. For example, while about 60 percent of exports to China consist of soybeans (FY 2010), no single export category to Canada makes up more than 10 percent of the total. As a result of this diverse product base, U.S. export levels to Canada are relatively even year-to-year. Furthermore, due to the prevalence of processed products, export levels are less impacted by changes in commodity prices and economic conditions. This was evident during the height of the global recession in 2009 when commodity prices fell. While U.S. agricultural exports to the world fell 16 percent from FY 2008 to FY 2009, exports to Canada dropped only 4 percent.

Competition and Barriers Remain

Though the outlook for exports to Canada is bright, challenges to growth exist. Competition from Mexico and Brazil has increased in recent years, particularly in fruits and vegetables. China is also increasing exports of fruits, vegetables, pasta, and peanuts. Despite an obvious freight disadvantage, China’s low labor costs are allowing for increased exports of apple juice and other products that could affect U.S. sales. Additionally, market access issues in Canada persist for various U.S. products including dairy products and grains due to Canada’s supply management systems.

Exports Strong in FY 2011

Exports to Canada in FY 2011 are forecast up nearly $2 billion from last year’s record shipments to a total of $18.5 billion. Higher commodity prices in general are pushing the export value up but there are some increases in volumes as well. Fresh fruit, processed fruits and vegetables, red meat, and soybeans are among some of the products with increased volume shipments. Products showing impressive overall value growth thus far in FY 2011 include red meat, hides and skins, tree nuts, and distillers dried grains (DDGs). In FY 2006, exports of DDGs only reached 116,000 tons but began to rapidly climb, surpassing 1 million tons in FY 2010. Exports of DDGs could again exceed one million tons and register a record value.