Canada’s agriculture sector is well-positioned to grow due to emerging trends and tastes in the global marketplace according to a report released by TD Economics.

The report’s author, Derek Burleton, notes the sector is largely associated with adversity and hardship. However in key areas such as productivity, the sector is a leading area within the overall economy.

“Agriculture, and in particular crops, has entered a new era of high prices, supported by rising food consumption from emerging markets and the prospects of competing demand for crops as a source of bio-fuels,” says Burleton, head of economic studies at TD Bank Financial Group.

The report notes that Canada is the world’s fifth largest agriculture and agri-food exporter, and the sector still makes a disproportionately high contribution to Canada’s overall merchandise trade surplus –$6 billion or roughly 9% of the total.

The agriculture sector has been at the forefront of improving efficiencies, raising economies of scale and lowering costs. Since 2002, annual productivity growth has averaged 2% per year for primary activities — double the average pace of the overall economy.

The report notes that the market now reflects the prospects of the agriculture sector. This year to date, agricultural prices as measured by the U.S.-dollar TD Commodity Price Index have jumped by almost 40% on a year-over-year basis, outperforming changes registered in the other sub-indices and outstripping the 25% gain in the Canadian dollar.

TD Economic says a number of trends bode well for Canada’s agriculture sector. Growing demand in China, India and other emerging markets is likely to keep overall global consumption of key agricultural commodities running at a brisk pace over the next 5-10 years, fuelled by rising populations and incomes.

TD Economics notes that Canada’s bio-fuel production is small in absolute terms, but growing quickly, supported by the federal government’s announced intention to mandate a 5% ethanol blend in gasoline by 2010 and a 2% bio-diesel blend in on-road diesel and heating oil by 2012.

The report notes the loonie could rise even further against the U.S. dollar in the next few months, though it should return to about US95¢range by 2009; energy and fertilizer prices will remain high by historic standards; wage pressures will not ease to due fierce competition for labour; and strong international trade will drive up ocean freight rates for dry bulk cargoes by an annual average of 5% through 2010. Moreover border issues, including a likely move by the U.S. to implement inspection fees on food imports, will remain a concern on the cost side.

“There is every reason to believe the sector will respond with the same kind of resiliency to address future challenges, and retain its status as an important driver of productivity and prosperity in this country,” says Burleton.