John Weekes’ resumé includes time as Canada’s ambassador to the General Agreement on Tariffs and Trade, a lead role in Canada’s NAFTA negotiating team and a current membership on the Expert Group on Canada-U.S. Relations. He offered thoughts on Canadian agri-food’s way forward during a fireside chat with former AdFarm CEO Kim McConnell hosted by the Canadian Agri-Food Automation and Intelligence Network (CAAIN).

Weekes began by stressing how important international cooperation is to beneficial trade agreements, drawing on his experience with the original NAFTA negotiations.

“There are a number of things that go into a trade agreement, but I don’t think there’s anything more important than having good relationships,” he said. “In NAFTA, one of the reasons we were able to do this so quickly was the three leaders of the three countries involved, Brian Mulroney in Canada, George H.W. Bush in the United States and President (Carlos) Salinas in Mexico, were all committed to this at the highest level.”

This level of co-ordination, Weekes said, is not present with U.S. President Donald Trump. “I think it’s very hard to tell exactly what it is his objectives are.”

He added Trump’s trade priorities will likely become clearer once the commissioned “America First Trade Policy” report comes back to his desk in early April.

In the face of an uncertain situation with our closest trading partner, Weekes suggested it could be time to consider other markets.

“We’ve talked about trade diversification, but I don’t think we get to trade diversification by going and talking with other countries about how we can make our trade agreements with them work more effectively,” he said. “An important part of it is also, how do we make the Canadian economy more interesting for partners other than the United States in terms of how we trade with them?”

He said Canada has previously failed to act in similar situations, such as when Germany expressed interest in buying Canadian natural gas following Putin’s invasion of Ukraine.

McConnell brought up the idea that agriculture is often the sector that “gets hit” in trade disputes. Weekes said this is because other countries know attacking agriculture will draw national attention.

“Agriculture is a difficult subject for trade negotiation,” Weekes said. “This is why trade barriers in agriculture … tend to remain higher.

“This really means that we need more trade negotiations in agriculture, not fewer.”

McConnell asked Weekes how industry can help government get better at negotiations. Weekes said communications between industry, government and agriculture are important to keep everyone on the same page.

“It’s kind of difficult for somebody in the farming community to sort of understand what the dynamic of a trade negotiation is, and how you go about trying to extract concessions from other people.”

“These countries are going to need a lot of a lot of supplies,” he added, “and Canada is one of the few countries that still has the capacity to increase exports and production.”

McConnell added the government should champion the reputation of Canadian food in trade negotiations.

“Shouldn’t we really be saying to the world, ‘hey, world, anybody out there want food? We got food,” McConnell said. “Anybody out there that wants low environmental footprint food? … Hey, give us a call. We’re interested.’ I think that’s a message that our government needs to champion a little more.”

To finish off the conversation, McConnell asked Weekes what his greatest fears are for the future.

“The thing that strikes me the most is still the possibility of accidental nuclear war,” he said.

“I think number two in the list I (would) put as pandemics. Because with the deterioration of the environment, I think the risk of a much more serious pandemic is probably just a matter of time.

”The third one would be a deterioration of the international system of economic co-operation and trade co-operation,” he said. “And frankly, I think the third one collapsing would make the first two more likely.”

The message Weekes left with the crowd, however, was one of hope and co-operation.

“I think you all need to step up and play a part in this,” he said to the packed room at the Westin hotel in Ottawa.

“If you learn one thing from our altercation with the Americans at the present time, we need to do more about standing up on our own two feet. We can’t just rely on them as a market partner. We’re going to have to do things to strengthen our own economy and potentially prepare ourselves for looking elsewhere in the world.”

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She told an audience at the Dairy Farmers of Canada (DFC) annual policy conference in Ottawa Feb. 4-6, that supply management is a “social contract” that needs protecting.

Why it matters: Dairy farmers have long been asking the federal government to compensate them for the increased access given away in CUSMA.

Bibeau said the trade deal, alongside the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) deal were important to continue cohesive trade between nations.

Those deals opened up 3.25 per cent of the overall dairy market to international competition, with CUSMA rising the number to 8.4 per cent.

“Obviously, everything related to the free trade agreements that we have signed was very disturbing for (dairy producers) in the recent years,” Bibeau said afterward. “Now we know what we have in front of us and they already know about the compensation for the first two agreements (CETA and CPTPP). The compensation for the new-NAFTA will come soon as well.”

“We’re committed to protecting supply management, the system and to make these compensations.”

Bibeau refrained from putting a timeline on when further compensation could be offered. The 2019 federal budget promised $3.9 billion in funding for eligible dairy, poultry and egg farmers to deal with impacts of CETA and CPTPP.

“In terms of order, I want to complete, make the decision and go for- ward with different financial mechanisms for the… producers of eggs and poultry and the processors as well. Then we will move forward for all of them for the new NAFTA,” she said.

Given CUSMA has not yet been ratified by the Canadian government, it is not realistic to expect compensation to be included in the 2020 budget.

Pierre Lampron, president of DFC, said he was happy to have a commitment from the government for compensation.

“It depends on when the ratification will be in Canada, the timing depends on that, so I’m not sure if it will be fast or slow,” he said.

During her speech, Bibeau also spoke of the “unacceptable actions” of “extremist” groups protesting on dairy farms, telling the audience it was a concern for her.

She also spoke optimistically about the future of the industry, encouraging innovation and more inclusion of youth and women in the industry.

Lampron said it was important for the industry to work together to meet challenges.

“The new generation, we need to promote more how we produce, how good we are to the environment, how (well) we take care of our animals. We need to show the population, it will be good for the future,” he said, adding it’s important to continue to have good engagement with the federal government.

Overall, 9.2 billion litres of dairy production took place in Canada over 2019, bringing in $7.6 billion in revenue. Consumption of milk and cheese dropped by one per cent, yogurt consumption dropped four per cent and consumption of butter increased 13 per cent.

The average litre of milk in Canada was $1.56, placing in the middle of other countries. The high water mark was Norway ($2.86) and the lowest price was Poland, at $0.83.

Sustained growth in consumption of higher-fat dairy products, and continued production investments are expected over the course of 2020.

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The U.S. International Trade Commission (ITC) released its highly anticipated analysis of the pending trade agreement in mid April.

It found the deal, upon ratification, would have a moderate impact on the American economy overall after considering eight of the deal’s key provisions, including agriculture, automobiles, labour, and cross-border services.

Canada, the United States and Mexico reached the USMCA deal at the end of September after U.S. President Donald Trump repeatedly threatened to withdraw the U.S. from the North American Free Trade Agreement (NAFTA).

USMCA would replace NAFTA upon ratification. However, ratification of the deal has stalled in recent months, thanks in large part to the fact American tariffs on steel and aluminum remain in place.

Canadian officials have said it is unlikely Canada will ratify the trade agreement before the tariffs are removed, a position largely supported by industry groups, including the agriculture sector.

The Justin Trudeau government imposed more than $16 billion in retaliatory tariffs on a host of American products last Canada Day in protest of the Trump administration’s tariffs. Canadian officials have since said Canada is looking at whether to expand its list since the tariffs remain in place.

That expanded list, officials have said, could include more targeted tariffs on American agricultural goods. Canada’s current retaliatory list does not include any U.S primary agriculture.

Canada’s upcoming federal election is also affecting the USMCA ratification prospects.

With about five weeks left in the parliamentary sitting calendar, the likelihood of Canada passing the trade deal before it rises for summer recess is slim.

South of the border, several high-ranking Democrats have said they want changes to the USMCA agreement, a position that, based on initial reactions from Democrats on Capitol Hill, has likely been bolstered thanks to the ITC’s moderate findings.

“This report confirms what has been clear since this deal was announced — Donald Trump’s NAFTA represents at best a minor update to NAFTA, which will offer only limited benefits to U.S. workers,” Senate finance committee ranking member Ron Wyden said in a statement.

“As I’ve said for months, the administration shouldn’t squander the opportunity to lock in real, enforceable labour standards in Mexico and fix the enforcement problems that have plagued NAFTA.”

As for the agriculture industry, the ITC found that it would grow if the pending USMCA deal is passed into law, but at a lesser rate than other sectors – thanks in large part to the fact most agricultural trade under the existing NAFTA is already duty-free.

One agricultural area that could see some trade growth, the report noted, was in the dairy, poultry, wheat and alcoholic beverage sectors. New sanitary and phytosanitary provisions were also expected to help bolster trade within North America.

On dairy, the ITC cautioned the American dairy industry would see “small gains in market access for the U.S. dairy sector upon implementation of USMCA, with small export gains contributing to limited positive impacts on dairy production and employment.”

Increased dairy exports to Canada would likely be driven mostly by goods like cheese and other milk and cream products, the report said, noting American dairy imports would likely increase slightly as well, although they would remain small compared to domestic consumption.

If all new quotas for dairy products were filled, the ITC estimated the increased access to Canada’s dairy market would be worth about $230 million, using 2017 prices.

As for poultry, the report found USMCA “would provide additional access or clarify the level of access to the Canadian import markets for U.S. poultry, eggs, egg products, and hatching chicks and eggs. U.S. products already claim the majority share of Canadian imports of most of these products.”

The post Opinion: Hurdles remain for North American trade agreement appeared first on Farmtario.

Under fast-track rules, the United States cannot start talks with the EU, Japan and the United Kingdom until 90 days after notifying Congress.

Why it matters: The United Kingdom, the European Union and Japan represent three of the U.S.’s largest trading partners. New trade agreements between them and the U.S. would significantly alter existing trade patterns and change how Canada markets its commodities.

“We will continue to expand U.S. trade and investment by negotiating trade agreements with Japan, the EU and the United Kingdom,” U.S. Trade Representative Robert Lighthizer said in a statement.

“We are committed to concluding these negotiations with timely and substantive results for American workers, farmers, ranchers, and businesses.”

The letters from Lighthizer to Congress come weeks after the United States won agreement on reworking the North American Free Trade Agreement (NAFTA) with Mexico and Canada, and as the administration faces continuing trade friction with China.

The administration aims to “address both tariff and non-tariff barriers and to achieve fairer, more balanced trade” with the EU and Japan, the letters said.

Japan “is an important but still too often underperforming market for U.S. exporters of goods,” the letter said. It said the United States had a US$69-billion trade deficit in goods with Japan, much of that in the auto sector.

In Tokyo, chief cabinet secretary Yoshihide Suga said Japan would protect its interests, based on a joint statement issued at a Japan-U.S. summit on Sept. 26.

“It will not be an easy negotiation,” Suga told a regular news conference.

“But we would like to proceed with talks in line with our stance that we will push where necessary and defend our position where necessary, in a way that protects our national interests.”

The letter on the EU said the EU and the U.S. have $1.1 trillion in annual two-way trade, “the largest and most complex” economic relationship in the world, and added that the U.S. has a $151.4 billion trade deficit in goods.

The letter to Congress on Britain said it planned to start talks “as soon as it is ready” after Britain exits the EU on March 29. The U.S. wants to develop “cutting edge obligations for emerging sectors where U.S. and U.K. innovators and entrepreneurs are most competitive.”

Representative Kevin Brady, the chair of the House Ways and Means Committee, said, “These three economies are some of our largest and most important trading partners, but they are also markets in which U.S. farmers, manufacturers, and service providers face significant barriers.”

Senator Ron Wyden, the top Democrat on the Finance Committee that oversees trade issues, said, “The administration must take the time to tackle trade barriers comprehensively.”

He urged that the opportunity be used to set a high bar in areas such as labour rights, environmental protection and digital trade to benefit American workers and businesses, adding that “a quick, partial deal that only addresses some problems” should be avoided.

The post Trump administration plans new trade talks with EU, UK, Japan appeared first on Farmtario.

Stability of markets is important for trading commodities and a completed North American trade deal will help remove concerns about potential change in the market.

“This agreement ensures that the existing strong trade relationship between Canada, the U.S. and Mexico will continue. This relationship is vital to the prosperity of the Ontario grain industry and the USMCA will provide stability that will benefit grain farmers across Ontario,” said Markus Haerle, chair, Grain Farmers of Ontario. “As this and other agreements, such as CPTPP are ratified, that stability will continue to grow.”

Uncertainly in global markets has hit hog farmers hard – especially the effects of the U.S.-China trade war that dropped North American hog prices.

“We look forward to a stabilized pork market that will allow pork producers in Canada, the United States and Mexico to support one another in producing high quality pork and contributing to growing the economy in their respective countries,” said Rick Bergmann, chair of the Canadian Pork Council.

Pork is the poster child for North American economic integration, so an agreement that allows that to continue will mean less disruption in the sector. That integration helps encourage farmers in Canada and the U.S. to work together on areas such as animal health, the organization said.

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Two of the world’s largest economies, the United States and China, are fighting an ongoing trade war and Canada finds itself caught in the middle.

The U.S. is our largest trading partner. The connection between our two economies runs deep. Many of our supply chains are highly integrated. Billions of dollars of goods cross the border every day, with many of those goods crossing the frontier multiple times.

Many Canadian commodity prices, notably within the livestock industry, are based off of American prices, and the Chicago Mercantile Exchange has been subject to wide swings and noticeable price declines.

Easing Canada off of its American addiction is on Ottawa’s radar.

Since taking office, Prime Minister Justin Trudeau’s government has vowed to diversify Canada’s trade portfolio, promising to open new markets and ease Canada’s reliance on the U.S.

That’s easier said than done.

The global economy is shifting. Protectionism, once a rarity in a globalized world, continues to creep in.

The World Trade Organization is under siege, thanks in large part to the American refusal to make the necessary appointments.

U.S. President Donald Trump’s administration has discussed rejecting outright the World Trade Organization, a position other nations, including Canada, have pushed back on.

Disputes between Canada and India on pulse exports remain.

Italy has halted Canadian durum imports and is refusing to approve the Comprehensive and Economic Free Trade Agreement with the European Union.

The European Union and the United Kingdom seem unable to negotiate a smooth Brexit agreement.

On Sept. 17, MPs kicked off the first round of parliamentary debate on the Comprehensive and Progressive Trans Pacific Partnership, which emerged after Trump pulled the U.S. out of the 12-member Trans Pacific Partnership in January 2017.

International Trade Minister Jim Carr has said Canada wants to be among the first six countries to ratify the agreement, required for it to come into effect.

The race is on.

Three countries have already ratified the deal: Mexico, Singapore and Japan. Several other countries are close.

The Liberals refused a Conservative request to call the House of Commons back this summer to work on the ratification legislation, a decision the Conservatives should be expected to capitalize on if the trade deal is not ratified by Canada in time.

The NDP have said it is opposed to the CPTPP. (They actually refuse to call it the CPTPP because in their view the deal is neither comprehensive nor progressive.)

Then there’s the North American Free Trade Agreement (NAFTA). Its fate remained up in the air.

Canadian and American negotiators have been hunkered down in Washington trying to find resolutions to a number of sticky subjects, dairy markets and a dispute resolution among them.

American officials have said a deal must be reached by Oct. 1 if a trilateral agreement between Canada, Mexico and the U.S. is to be sent to the U.S. Congress for consideration.

That deal, U.S. officials have stressed, must include a concession from Canada on dairy.

Adding to the NAFTA pressure is a shift in position from Mexico City. The Mexican government has now said publicly it’s willing to move ahead with a bilateral deal with the U.S., without Canada.

Mexican officials want a NAFTA agreement-in-principle signed before the new Mexican president is formally sworn-in in December.

However, it’s unclear whether the U.S. Congress would accept a two-nation deal. Under the current Trade Promotion Authority legislation, Congress had only authorized a trilateral negotiation.

Any new NAFTA trade deal must be approved by Congress, as does any NAFTA termination.

Trump, for his part, has repeatedly threatened to hit Canada with new import tariffs on Canadian automobile exports, a move experts warn would likely send Ontario into a recession.

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For St-Albert and about 25 other farmer-owned co-ops active in Ontario, several factors rise to the top when looking at the keys to success.

Why it matters: Co-operatively governed enterprises are a way small businesspeople can maintain decision-making power and ensure profit isn’t the only goal. But they face the same pressures as for-profit companies, which creates difficult choices.

“First and foremost, our cheese recipe has endured the test of time,” said St-Albert’s Business Development Director Éric Léveillé, when asked about the company’s continued vitality.

Léveillé was clear that St-Albert knows those outside influences well. Having survived a devastating fire in 2013, (with considerable help, from co-operative, but community minded competitor Gay Lea Foods), the 34 dairy farmer member/owners of the award-winning cheesemaker now face threats from international trade deals.

“Conditions have never been as unfavourable to small- and medium-sized co-ops as they are now,” Léveillé said. “With CETA (Comprehensive Economic and Trade Agreement between Canada and Europe) and now NAFTA (North American Free Trade Agreement) coming into play, these agreements are putting greater strain on our ability to get a return on our investments. St-Albert may have done better than most, but we are concerned about our fellow (small) cheesemakers in Canada.”

Léveillé is certain that the company’s “strong bond to the French Canadian culture of eastern Ontario” will, “protect us from being swallowed up by larger entities.”

“Our members had turned down many offers over the years to sell St-Albert because it is part of our community’s fabric and they want to preserve it as they do their culture,” he told Farmtario.

The value of community

Erin Morgan, executive director of the Ontario Co-operative Association, says being tied to a rural community isn’t confined to French-speaking farmers, or to eastern Ontario.

It’s true that back in the 1860s, French-speaking farmers were pioneers in Canada’s co-operative movement — a movement that eventually spawned over 1,200 co-operatively-run creameries and cheese factories stretching from Windsor, Ont., to Windsor, Nova Scotia and beyond. Another key piece of co-operative history in Canada came in 1900 when Alphonse Desjardins originated Quebec’s system of caisses populaires (credit unions), which operate under similar principles and now stretch across the country.

Morgan’s first job out of school was managing the OntarBio organic farmers’ co-operative, which went on to become the Organic Meadow co-op. The co-op was later forced to sell the Organic Meadow brand and Guelph-based dairy processing plant.

After stints with Ontario Bean Growers and the Grain Farmers of Ontario, Morgan returned to the co-operative sector more than two years ago as executive director of an umbrella lobby organization representing more than 1,500 co-operatively-run businesses in all sectors of the province’s economy.

“For me, I had only worked for one co-operative, so it didn’t expose me to the depth of the co-op sector,” she said.

Co-operatives don’t leave

She did, however, understand the value of farmers owning the business and being involved in the decision-making and she was already aware of the seven business principles that come along with operating as a co-operative, set out back in 1844 by a group of innovators gathered in Rochdale, England.

“It opened my eyes to how versatile the co-operative model is” and to all the different ways that organizations can incorporate those key co-operative values into day-to-day business and longer-term business strategy.

More than a year into her new position, Morgan recalls having an “ah-hah” moment when speaking with then-opposition MPP Ernie Hardeman as part of the Co-operative Association’s “provincial co-op caucus” initiative, Morgan learned of the long-serving Oxford MPP’s own experiences dealing with co-operatively held businesses in his home riding.

“What he said to me is that the value of co-operatives is that they don’t leave. They are community-based organizations that rely on the well-being of the community to remain strong, so they’re committed to giving back to that community and helping that community stay strong.”

With Hardeman now occupying the office of Minister of Agriculture, Food and Rural Affairs, Morgan hopes this places the co-operative movement on solid footing in terms of provincial government support.

The veteran MPP’s assertion that co-ops care about their communities, meanwhile, has no stronger backers in Ontario than the leadership at Gay Lea Foods. The Guelph-based co-op recently celebrated 60 years in business.

“A lot of these co-ops really strive to improve the economic landscape of rural Ontario for everybody, no matter whether you’re a (co-op) member or not,” Morgan said.

Gay Lea faced a difficult choice whether to upgrade an older factory in Teeswater, where the co-op started in 1958, or expand its Guelph plant, which was probably more cost effective. It chose Teeswater.

“It showed they have a much more holistic view of growing their business; something totally different from another kind of business that would just be looking at pure profit,” Morgan said.

After being nominated by Morgan, Gay Lea was handed the 2018 Large Co-op of the Year award by Co-operatives and Mutuals Canada.

“It’s important that we have good economic jobs in communities (like Teeswater)… It’s way too easy to be able to consolidate plants, move them into the greater Toronto area and ignore what happens north of Highway 401. But it’s not what our values are. It’s not what we’re investing in,” said Gay Lea chief executive officer Michael Barrett in his acceptance speech.

“It’s about recognizing that we’re of the community, by the community and for the community.”

The others of the original seven co-operative principles are voluntary membership open to all socio-economic strata; one member one vote; patronage dividends to member/owners; autonomy for member/owners; support of training and education; and co-operation among co-operatives.

Financial rewards for owners

The practice of paying annual dividends is sometimes cited as a drawback to co-operative business models because in years when the company loses money, co-op bylaws require that the executive at least consider rewarding owners financially.

But Appin-area crop farmer Richard Tanner, who has served on the board of directors of the AGRIS farm-inputs co-operative (or on the board of one of its two predecessor organizations, the Orford Co-op) every year except two since 1995, insists declaring dividends makes co-ops stand alone in the marketplace.

“It may not always have been in cash, sometimes it has only been in new shares in the co-op, but I believe for every year in recent memory we’ve paid patronage. It’s not something you see nearly as much in the private sector,” he said.

The past few years has seen AGRIS pay out a combination of cash plus new shares to the owners of the co-op, with the amount based on how much business they do with AGRIS and its affiliates.

Co-operation among co-operatives is critical, Morgan said. She cites Gay Lea’s granting of processing capacity after the St-Albert fire, as well as AGRIS’s financial start-up support for the Cellulosic Sugar Producers Co-operative.

She said 22 companies are classified under provincial guidelines as “agricultural co-ops,” representing $455 million in annual revenue. This makes them the fifth largest co-op sector in the province, behind Insurance, Credit Unions, Manufacturing and Wholesale Trade.

Gay Lea is currently classified as a manufacturing company under the government’s tracking system. If Gay Lea is moved into the agricultural sector, it becomes the third largest co-op sector in Ontario.

Keys to success

Other keys to success, according to Tanner, are good employees — and good customers.

“And in order to have loyal customers, you’ve got to be competitive in the marketplace.”

A business can’t expect to charge significantly more for products and services just because it’s a co-op.

Co-ops are prone to the same economies of scale that influence for-profit businesses. As in many other sectors of the economy, there has been a trend in agricultural co-ops for mergers leading to larger and fewer companies.

Morgan’s former employer, Organic Meadow, is now owned by British Columbia-based, farmer-owned co-operative Agrifoods International. The Ontario-based co-op that formerly owned the Organic Meadow brand and processing facility continues under the name Ontario Organic Farmers Co-operative, but without the benefit of what used to be its predominant source of income.

Amalgamations, not takeovers

Many former members of the United Co-operatives of Ontario group of companies are now part of the massive United States-based Growmark network of co-ops. AGRIS is an amalgamation of two farm-input co-ops that resisted that Growmark trend, the former Orford and Pointe-aux-Roches co-ops, which joined in 2006.

But this is a positive trend, said Tanner, especially if the alternative is to sell into the private sector or cease operations altogether. Amalgamations, he said, allow the companies to maintain frontline staff and maintain economic presence in their communities, while decreasing middle and upper management costs — something that might not be good for all middle and upper managers, but generally is good for the financial health of the co-op and its owners.

“In today’s world, if I had another Pointe-aux-Roches co-op that came along and wanted to amalgamate, I would do it in a minute,” he said. “It’s not like in the private world where you might buy another company and totally change it. We’re buying another co-op, and they’re just like us. We’re exactly the same.”

Five keys to success for agricultural co-ops

1. Good employees
Business is business. With co-ops, the only staffing decision typically made by the board of directors is for the top job, but from that top job trickles down the message to all other staff people. So it’s crucial that the board of directors gets it right.

2. Co-ops helping co-ops
This is one of the original seven principles of co-ops first set out in 1844 in Rochdale, England. Ask St-Albert Cheese after Gay Lea Foods offered processing capacity following a devastating 2013 fire: Help from other co-ops, even if they’re direct competitors, can be a lifesaver.

3. Active in the community
Whether you view community as the town and region in which you operate and provide employment, or you view community as the entire farm sector that you’re a part of, being supportive is a signal that you’re here for the long term.

4. Competitive in the marketplace
It might be good public relations to sponsor community projects and help out other small businesses, but that only takes you so far. If you charge significantly more for products or services than private competitors, you can’t expect financially strapped customers to remain loyal.

5. Annual dividends
It’s what sets co-ops apart. Member/owners buy shares, usually inexpensive, with the expectation that they’ll share at least a small part of the bounty on an annual basis.

The post Principles still guide Ontario co-ops today appeared first on Farmtario.

In the fourth round of the NAFTA discussions, the U.S. negotiators tabled a proposal to eliminate Canada’s supply management system for dairy, poultry, and eggs, which Canada’s Agriculture Minister Lawrence MacAulay responded by calling it a “non-starter.”

Canada’s recent track record in trade negotiations has been to offer increased access to dairy and poultry through a mechanism called Tariff Rate Quotas (TRQs), which denotes a minimum market access for imports before tariffs become applied. Changes in TRQs can affect imports without having an impact on tariff levels. However, questions can be raised about the wisdom of this approach.

Why it matters: By raising TRQs on supply managed products, Canada allows more foreign competition for those goods in the Canadian marketplace. However, offering lower tariffs during trade agreement negotiations might be a better option.

To prevent imports from undermining them, Canada imposes tariffs of between 150-300 per cent on supply managed dairy and poultry products, which are allowed by the World Trade Organization (WTO). WTO also mandates a minimum market access using the TRQ mechanism. In Canada’s case, TRQs are essentially from five to eight per cent of domestic consumption.

Tariffs work in conjunction with TRQs: once the TRQ for a product is full; i.e. when the amount allowed in duty free is imported, the tariff applies against any further imports.

For example, Canada’s tariff on butter is slightly less than 300 per cent. So, assuming the TRQ is eight per cent of domestic consumption, as soon as that quantity is imported, any remaining imports are subject to the 300 per cent tariff. Imports are tariff free within the quota, but highly protected thereafter.

The strategic policy issue

In trade negotiations, the importing country can offer market access by reducing tariffs, increasing TRQ, or a combination of the two.

To date, Canada has been willing to increase TRQs for dairy and poultry in trade negotiations. In the Comprehensive Economic and Trade Agreement (CETA), Europe got 16,000 tonnes of TRQ for high quality cheeses and 1,700 for industrial cheese. In the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Canada gave 3.25 per cent more TRQ for dairy and two per cent each for chicken, turkey and eggs. With other access already given up, this means Canada has given just under 10 per cent of Canadian consumption to other countries.

How should the government proceed on NAFTA? Current data suggest major reductions in Canadian tariffs would not give up much protection. Butter will illustrate. Canada’s milk prices are based on support prices for butter and skim milk powder. Canada’s current support price for butter is $8/kilogram. The intent of the tariff is to keep imports out by making their landed cost (their price plus transportation and tariff) higher than $8.

The U.S. Department of Agriculture’s average wholesale price of butter in late March 2018 was US$4.85 per kg. Given the weaker Canadian loonie (US $0.7680), this gives a U.S. price in Canadian funds of C$6.22. So, ignoring transportation costs, U.S. butter within its TRQ can be sold in Canada for a very healthy profit of $1.78 ($8.00 – $6.22).

But the 300 per cent tariff (again ignoring transportation costs) at $6.22 is $18.66. Adding the tariff to the cost of $6.22 gives a landed price of $24.88.

In other words, in the current situation of relatively low dairy prices in the U.S., Canada’s tariff is far higher than needed to protect the Canadian market. This is rather like using an artillery barrage to kill a fly when a flyswatter would suffice: in this example, the fly swatter would be a minimum $1.78 tariff.

Implications

Because the tariffs for supply managed products are so high, giving up a lot of tariff gives up only a little protection, whereas giving up a little TRQ gives up a lot of protection. Canadian tariffs are far higher than needed to protect the domestic market.

We should expect two arguments against negotiating tariffs rather than TRQs. The first is that exporting countries can do the same arithmetic and conclude that TRQs are much better for them because the drop in Canadian tariffs required to have real impact on market access is so large. But there’s nothing in the history of trade negotiation that says the exporting countries get to choose how importers provide more market access. Canada has no obligation to give up TRQs.

The second argument is one that members of the supply management industry have made for 30 years. It’s the “slippery slope” argument: i.e., if we give up any tariff at all, there will be no end to demands to give up even more in trade negotiations. While that’s clearly true, giving up more and more TRQ is not a slope. It’s falling off a cliff: we simply give increasing parts of the domestic market to foreign suppliers and take it away from domestic farmers. At least with lower tariffs the domestic industry would still have substantial protection, would be able to adjust to meet foreign imports, thereby having a chance to compete in its own country’s market.

There is clearly a choice.

Originally published in the Macdonald-Laurier Institute’s Inside Policy Magazine.

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The United States filed five separate complaints in Geneva July 16 after several countries, including Canada, imposed retaliatory tariffs against a wide range of American goods after Washington imposed an import tariff on steel and aluminum products in June.

Canada imposed a $16.6 billion tariff package July 1 after formally challenging the U.S. steel and aluminum tariffs at the WTO. The European Union and Mexico have filed similar challenges, arguing Washington’s insistence the penalties are necessary because of national security is illegal.

Now, the Trump administration is arguing the tariffs being imposed against the United States violate international trade rules.

This, despite the fact President Donald Trump has spent the better part of two years railing against the usefulness and effectiveness of the international trade body, with the United States accused of holding up WTO appointments.

The shift in the global trading world has North American farmers especially nervous.

Agriculture’s perishable nature has long made it a target in domestic and international spats — even when the dispute has nothing to do with food and/or farming. It’s also heavily dependent on exports. When markets are lost, it reverberates throughout the supply chain.

It’s why farm groups in the United States and Canada pleaded so vocally for a “do no harm” approach when the renegotiation of the North American Free Trade Agreement (NAFTA) was announced.

Now, as world trade tensions continue to mount, farmers — including many American farmers who voted for Trump in 2016 — around the world are finding themselves caught in the crosshairs.

While Canada’s list of goods does not currently include any primary agriculture products, it does include a number of processed food items (such as ketchup, mayonnaise, soup, pizza and quiches).

That has food manufacturers in this country, many of which have parent companies in the United States, nervous. In a statement July 5, the Food and Consumer Products of Canada association warned Canada’s tariff package
could hurt consumers on both sides of the border.

In recent weeks, Canadians themselves have also shown, at least anecdotally, they’re willing to dig in their heels against Trump’s trade spat — while adjusting their shopping, eating and travel habits in the process.

Based on the bare shelves at the local grocery store, French’s ketchup is in, it seems. Heinz ketchup? Not so much.

Meanwhile, Canadian commodity prices have also taken a tumble — thanks to the fact they’re tied to the Chicago Mercantile Exchange, which has been hit with the ongoing trade brouhaha between the United States and China.

When the world’s two largest economies are feuding, everyone feels the hit, particularly when $200 billion in goods is involved.

China has put U.S. soybeans and pork on is retaliatory hit list — a move that when combined with the expectation American farmers could harvest bin-busting crops this fall, sent American soybean prices to 10-year lows.

Pork prices have also slumped. Here at home Canadian prices have dropped nine per cent this year compared to 2017.

While risk isn’t a new phenomenon for farmers, no business likes to deal with economic uncertainty forever. Investments become harder to make.

Remaining competitive becomes more and more challenging — especially if the United States follows through on its promise to ensure American farmers don’t suffer undue consequences from the China-Washington trade fight.

Add to that rising protectionism in Canada’s other key trading markets, including India and Italy, and the federal government’s promise to diversify the country’s portfolio remains under stress.

Yet, despite the mud-flinging and tariff-launching, there remains a sense of optimism among economists and trade experts who say the current trade feud could still find a positive resolution.

For now the end to all this remains unclear. Predictability is unlikely to re-emerge anytime soon.

All one can do is try and prepare for the unexpected.

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Despite the existence of highly integrated economies, protectionism is growing in popularity — spurred on by a White House that seems to be doing everything in its power to cut the United States off from the rest of the world, even if it means losing longstanding allies in the process.

For decades, Canada and the United States have had a longstanding friendship. The two countries share the longest undefended border in the world. Goods cross the border multiple times as part of their supply chains.

Canadians flee to the United States in the winter. Americans traditionally flocked here in the summer — enjoying the vast natural beauty and treasures this country has to offer.

We’re neighbours. Allies. We’ve cried together, smiled together, laughed together and even died together.

We haven’t always agreed. There have been tensions before.

Yet it’s safe to say few expected Canada and the United States would become embroiled in a full-fledged trade war — that seems to have no end in sight.

The Trudeau government imposed $16.6 billion in retaliatory tariffs on a laundry list of American goods on July 1.

The tariffs come after the Trump administration imposed a 25 per cent tariff on steel imports and a 10 per cent tariff on aluminum imports June 1, citing national security.

Canada’s called the tariffs “absurd,” “illegal” and “unacceptable.” The tariffs have been challenged both at the World Trade Organization and NAFTA.

Washington hasn’t backed down. The U.S. president has even floated the idea of imposing an additional 25 per cent tariff on all vehicles that cross the American border — a move that the Canadian auto parts manufacturing association said to MPs in June would likely trigger a recession in Ontario.

At an announcement June 29 in Hamilton, Foreign Affairs Minister Chrystia Freeland told reporters the Americans have no grounds to escalate the trade situation further. Canada’s tariff response, she said, was “measured.”

The problem is that “measured” isn’t a word many would use to describe the Trump White House.

No one knows how long this trade war will go on. No one knows what the end marker is.

Former Prime Minister Stephen Harper cautioned during a June 27 speech in London, England the ongoing global trade and continued threats to longstanding global alliances and institutions could extend beyond Trump’s tenure.

“Whether Donald Trump succeeds or not as president, ultimately, I do think that the re-alignment or the change of the approach that he is bringing is, to some degree, bound to outlast his presidency,” he said.

“I think the trend towards the United States beginning to act less consciously systemically and more consciously in its own national interest or, for a lack of a better term, ‘America First’ — I think that elements of that are going to outlive the Trump presidency. That’s my prediction.”

If Harper’s prediction is true, the result will be continued economic uncertainty. Businesses hates uncertainty. Governments traditionally hate uncertainty.

Canadian industry is already nervous. Many steel and aluminum producers have warned that if help didn’t come soon, they could be out of business within months.

More than few warned their entire livelihoods are at stake.

The Trudeau government has unveiled a $2 billion federal aid package for the steel and aluminum industries in an attempt to mitigate some the pain. The package includes additional financing and innovation funding aimed at helping businesses diversify and stay afloat.

The longer the trade situation lasts, the more uncertainty and concern that is expected — and the greater the risk other countries could see protectionist shifts themselves. (India ring a bell anyone?)

Ottawa must also realize that many Canadians haven’t lived through an economic contraction like this before in more than decade. While history often repeats itself, for many, the current situation is new territory.

Reassurance and a steady hand at the helm will be sought by all.

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