How the agriculture sector can best prepare for tariffs and market uncertainty

Producers are no strangers to uncertainty — whether it’s a sudden shift in weather, a dip in commodity prices, or a disruption in the supply chain. But as of recently, the challenges feel more complex. Geopolitical tensions, trade wars, and the threat of tariffs have added new layers of risk to an already unpredictable industry. For many farmers, ranchers, and agribusinesses, it isn’t enough to survive but thrive in the face of these challenges — and how you do that is in how you prepare.

While you can’t control the global forces shaping the industry, you can control how to respond. By focusing on strategic planning, risk management, and operational resilience, producers can navigate these uncertainties and position themselves for sustainable growth.    

The tariff threat: What it means for agriculture   

Tariffs are not a new concept, but their impact on the agriculture sector has become increasingly pronounced. With global trade tensions rising, particularly between major economies like the U.S. and China, the ripple effects are felt far and wide. For Canadian producers, the U.S. market remains a critical export destination. While not the only market, it is a dominant one — and relying on any single market can be risky. Diversification is often touted as a solution, but it’s not as simple as flipping a switch. Finding new markets takes time, and in the meantime, producers must navigate the challenges of fluctuating prices, supply chain disruptions, and shifting trade policies.

The key is to understand and manage risk. Just as a farmer wouldn’t plant a single crop without first evaluating the market and price signals, agribusinesses can’t afford to operate without a robust risk management strategy. This means evaluating financial resilience, exploring insurance options, and leveraging tools like financial modeling to anticipate potential challenges.        

Playing your hand: A lesson in focus and control

Again, producers are well aware that unpredictability is a constant in agriculture — often at the mercy of factors beyond their control. But as the old saying goes, you can’t control the cards you’re dealt, but you can control how you play them.

This sentiment is particularly relevant when it comes to tariffs and trade wars. While you can’t predict the outcome of international negotiations, you can take steps to manage the impact on your operations. One effective approach is to focus on financial modeling. By running different scenarios — such as a sudden drop in commodity prices or impositions of tariffs — you can better understand how these events might affect your bottom line. This proactive approach allows you to make informed decisions, whether it’s adjusting crop mix, exploring new markets, or securing insurance to protect against price volatility. You can also take this further by building an appropriate debt structure that provides flexibility and reinforces your balance sheet during turbulent times.   

Insurance plays a crucial role in risk management as well. Programs like Agri-Stability, crop and hail insurance, and Western Livestock Price Insurance offer a safety net for producers facing market disruptions. For example, if tariffs lead to a drop in cattle prices, livestock producers can leverage price insurance to offset commodity market drops. Similarly, crop insurance can provide a buffer against environmental perils such as drought, wildlife, fire or insect pressure — weather likely being the most significant risk in most cases. It's essential to recognize your options and take steps before a crisis develops.    

The importance of a strong balance sheet

In times of uncertainty, a strong balance sheet is more important than ever. Think of it as the foundation of a house — if the foundation is solid, the structure can withstand even the fiercest storm. For agribusinesses, this can include maintaining healthy working capital, managing debt levels, designing an appropriate debt structure and ensuring your financial reporting requirements are up-to-date.

Working capital and working capital to expense ratio are critical metrics. They represent the liquidity available to cover short-term expenses, and a healthy working capital-to-expense ratio provides a cushion that can make all the difference when market conditions worsen. For instance, if a producer has enough working capital to cover six months of expenses, they’re in a much better position to weather a sudden drop in commodity prices or unexpected increases in input costs.

Debt management is another vital consideration. While debt can be a useful tool for growth, it can create challenges if not managed carefully. The best practice would be to aim for a flexible debt structure that allows you to adapt to changing financial and market conditions. This might mean a review of your longer-term and shorter-term debt. If cash flow is tight, a business may look at consolidating debt, or negotiating longer repayment terms, right-sizing your operating lines, or securing lines of credit or trade payables to provide additional liquidity when needed.    

Operational resilience

While financial planning is essential, it’s only one piece of the puzzle. Operational resilience — particularly in the realm of agronomy for example — is equally important. Agronomy can optimize crop yields, manage input costs, and reduce vulnerability to external shocks. For example, precision agriculture technologies can help farmers make data-driven decisions about planting, fertilizing, and irrigation, leading to more efficient resource use.

This would be the same concept as livestock producers that benefit from a focus on animal health and nutrition, which ensures producers can maximize productivity and efficiency. This is especially important when feed costs are volatile and water availability becomes limited, which have become increasingly common in recent years.

The role of cash flow planning

Cash flow planning is another essential component of risk management. In agriculture, where income is often seasonal and expenses can be unpredictable, maintaining a healthy cash flow is needed. This means not only tracking income and expenses but also anticipating future cash needs and planning accordingly.

Similarly, to a producer knowing they’ll need to purchase seed and fertilizer in the spring, they plan to ensure that they have sufficient cash or credit resources to cover these expenses. If you anticipate a drop in commodity prices or market interruptions, there are steps you can take to manage prices or secure financing to bridge the gap.

Cash flow planning also involves understanding and mapping the timing of income and expenses. The goal is to identify where peak cash flow demand occurs and ensure there is sufficient income, cash, or credit available to support your business goals — so you stay in control, rather than letting cash flow pressures force less-than-optimal decisions, such as selling or buying at less profitable times. Without that planning, you could find yourself short on cash at a critical time, which may force you to sell inventory. By identifying these peak cash flow demands in advance and implementing a cash management strategy and arranging the right financing, you can maintain control over your business decisions and avoid unnecessary compromises. There are also other tools you can leverage for support, like the federal government’s Advance Payment program, which offers interest-free loans of up to $250,000 to help manage cash flow through seasonal cycles.

Looking ahead: Preparing for the future

As we look ahead, the agriculture sector faces several challenges — but also opportunities. The global demand for protein continues to rise, driven by population growth, changing dietary preferences, and increasing awareness of the health benefits of protein. This presents an opportunity for both livestock and crop producers, to capitalize on growing demand.  

At the same time, producers must prepare for potential obstacles, such as trade barriers, market volatility, the impact of drought and limited water supplies. By focusing on risk management, financial planning, and operational resilience, producers can position themselves to navigate these challenges and seize the opportunities that lie ahead. In the face of tariffs, market volatility, and geopolitical uncertainty, the agriculture sector must focus on what it can control. This means adopting a proactive approach to risk management, maintaining a strong balance sheet, and optimizing operational efficiency. These considerations can help producers adapt in an era of increasing uncertainty.