Transcript AECG 2013

Free Trade Agreements
and their Potential Implications
for Agri-Food in Quebec and Canada
Maurice Doyon
in conjunction with
Raymond Dupuis
FCC Annual Public Meeting
August 20, 2014
Presentation Outline
1.
Importance of foreign markets to Quebec’s agri-food industry
2.
Overview of the Canada-Korea Free Trade Agreement (CKFTA)
3.
Overview of the Canada-European Union Comprehensive Economic and
Trade Agreement (CETA)
4.
Other negotiations currently under way (Japan, TPP, TTIP)
5.
Specific issues
a.
b.
c.
6.
Pork
Specialty cheeses
Maple syrup
Conclusions
2
Importance of Foreign Markets to the
Agri-Food Industry in Canada and
Quebec
3
Canada
•
In 2012, Canada’s agri-food industry generated 12.5% of all jobs and 6.7% of
Canada’s GDP.
•
$103.5 billion in GDP
•
2.1 million jobs
•
Canada’s export sales grew 8.1% in 2012 to a total of $43.6 billion, making
the country the fifth largest exporter in the world.
•
It is estimated that about half of the value of Canada’s primary farm
production is exported, either as primary products or as processed food
and beverages.
4
Quebec
In 2012, the agri-food industry generated 12% of all jobs and 7% of GDP in Quebec.
Restaurants and Drinks
Outlets
4,919
198,353
Retail Trade
3,261
3,000
124,961
6,827
3,767
$21.8B
GDP
27,702
Wholesale Trade
63,554
Food, Beverage Processing
and Tobacco
60,619
Agriculture and Fishing
475,189
jobs
* Jobs and direct Gross Domestic Product on 2012 basis; GDP in chained 2007 dollars.
Sources:
Statistics Canada, Institut de la statistique du Québec, MAPAQ, 2012.
5
Domestic Market
$21.3B
Foreign Market
$12.7B
Imports
23%
Local
53%
Buy from
RoC
21%
$11.3B
Quebec companies supply 53% of the
Quebec market.
Sales to RoC
54%
$6.7B
Exports
46%
$6.0B
The foreign market accounts for
53% of all sales by Quebec
industry.
P: Preliminary
Sources: Statistics Canada, Institut de la statistique du Québec, MAPAQ and researcher compilations.
6
Quebec’s Bio-Food Trade Partners
2013
Exports
$6.0B
Imports
$5.7B
Others
10%
BRICS
11%
BRICS
7%
European
Union
30%
European
Union
7%
Other TPP
11%
Mexico
2%
United
States
63%
Other TPP
9%
Mexico
1%
Others
22%
United
States
27%
Note: BRICS (Brazil, Russia, India, China, South Africa); Transpacific Partnership (TPP), includes Australia, Brunei
Darussalam, Canada, Chile, United States, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam.
Source: Statistics Canada.
7
Overview of
CKFTA
8
Overview of CKFTA
•
Agreement in principle signed March 11, 2014
•
Enters into force in early 2015
9
Overview of CKFTA
•
Preferential access to a market of 50 million Korean
consumers with GDP of $1.1 trillion (Canada: $1.8
trillion)
•
Anticipated spinoffs: 32% increase in exports and
$1.7 billion annual boost to the Canadian economy
10
Overview of CKFTA
•
Elimination of customs duties on 98% of South Korean
tariff lines, which covers practically all imports from
Canada
•
Currently, Korea’s tariffs are on average three times
higher than Canada’s (13.3% compared with 4.3%)
11
Overview of CKFTA
Agricultural and agri-food products:
•
Average customs duties of 52.7% imposed by Korea in
2012
•
Elimination of duties on 86.8% of tariff lines
12
Overview of CKFTA
•
Quebec exported nearly $72.6 million in agri-food
products to South Korea in 2013, nearly half of which
were pork products.
Quebec’s Agri-Food Exports
to South Korea ($M)
150.0
43.1
100.0
50.0
-
29.0
28.9
29.2
25.3
22.0
24.1
2004
46.5
2005
67.4
2006
59.2
2007
Pork products
61.3
2008
27.4
52.5
2009
32.3
33.0
91.8
48.3
42.4
2010
2011
2012
39.1
33.5
2013
Other agri-food products
13
AGRI-FOOD PRODUCTS
86.8% of tariff lines gradually set at
0% following entry into force of the
Agreement;
Most dairy products, poultry and
poultry products, ginseng and
related products, rice and rice
products, refined sugar and most
tobacco products are not covered.
50.7% of tariff lines set at 0% at
entry into force of the Agreement;
36.3% of tariff lines set at 0% five
years after entry into force of the
Agreement;
13% of tariff lines excluded,
including over-quota supplymanaged products, and no increase
in in-quota tariff rates for supplymanaged products.
14
AGRI-FOOD PRODUCTS
Pork
86.8% of tariff lines gradually
set at 0% following entry into force
of the Agreement
Before
Trade practice
Duty
Pig fats and lard oils
<
Swine genetics
Pure-bred swine
<
Fresh/chilled/frozen pork products
<
Pork offal
<
3%
18%
18%
25%
18%
After
Application
0%
0%
0%
0%
0%
Immediate
Immediate
Immediate
5-13 years
11 years
Certain fresh/chilled/frozen pork products will be subject to transitional safeguard
measures
15
AGRI-FOOD PRODUCTS
Beef
86.8% of tariff lines gradually
set at 0% following entry into force
of the Agreement
Trade practice
Duty
Before
Beef fats and tallow
<
Bovine genetics
Fresh/chilled/frozen beef cuts and some
processed beef products
8%
< 18%
< 72%
After
Application
0%
0%
0%
Immediate
Immediate
15 years
Certain fresh/chilled/frozen beef products will be subject to transitional safeguard
measures
16
AGRI-FOOD PRODUCTS
Grains and Oilseeds
86.8% of tariff lines gradually
set at 0% following entry into force
of the Agreement
Trade practice
Before
After
Application
3%
108,7%
554,8%
487%
10%
0%
0%
0%
0%
0%
Immediate
Immediate
Immediate
Immediate
Immediate
Duty
Wheat and durum wheat
Rye
Oats
Soybeans for soy sauce and soy-cake
Canola
17
PRODUITS AGROALIMENTAIRES
Produits transformés, boissons alcoolisées et fruits
86.8% of tariff lines gradually
set at 0% following entry into force
of the Agreement
Trade practice
Duty
Maple syrup and maple sugar
Cranberry and blueberry juice
Ice wine
Frozen french fries
Certain baked/pastry goods
Before
8%
50%
15%
18%
8%
After
0%
0%
0%
0%
0%
Application
Immediate
Immediate
Immediate
Immediate
Immediate
Tariff rate quotas
Frozen blueberries, cranberries, unlimited
30 %
0 % Immediate/21 yrs
0%
7 yrs
Sweetened and unsweetened dried cranberries,
unlimited
45%
0%
Natural honey 100 tonnes / 200 tonnes / unlimited
< 243%
10 yrs
18
Overview
of CETA
19
Overview of CETA
•
Four years of negotiations at federal/provincial level
•
Agreement in principle signed October 18, 2013
•
Ratification process involving 10 Canadian provinces
and 28 European nations
•
Initially scheduled for entry into force after 24 months,
i.e. early 2016, but may take till late 2016 or early 2017
according to negotiators
20
Overview of CETA
•
Preferential access to a market of 510 million
European consumers
•
With NAFTA, Quebec is now at the heart of a healthy
market of nearly 1 billion people (980 million)
accounting for half of global Gross Domestic Product
(GDP)
•
In 2012, EU imports = $2.3 trillion, Canada’s GDP =
$1.8 trillion
21
Overview of CETA
Trade in goods:
•
According to the agreement in principle, 99% of EU
tariff lines will be free of duty on Canadian products,
including 100% of the 7,000 non-agricultural tariff lines
and over 95% of the 1,900 agricultural tariff lines.
22
Overview of CETA
•
Bilateral Quebec–EU trade: $25 billion in 2013. Quebec
trade deficit $11.2 billion!
•
The EU is the top global importer of agri-food
products, at over $130 billion in 2012.
•
Quebec exported nearly $410 million in agri-food
products to the EU in 2013, with tariffs averaging 14%.
23
AGRI-FOOD PRODUCTS
Grains
Trade practice
Before
After
Application
Duty
Durum wheat
$190/tonne
currently 0%
but not bound
(ceiling)
High-quality common wheat
currently 0%
but not bound
(ceiling)
Rye and barley
< $120/tonne
Oats
< $114/tonne
0%
Transition 7 yrs
0%
Transition 7 yrs
0%
Transition 7 yrs
0%
Transition 7 yrs
0%
Transition 7 yrs
Tariff rate quotas
Low- to medium-quality common wheat – 100,000
tonnes (including Canada's existing share of EU
global quota of 38,853 tonnes)
< $122/tonne
24
SEAFOOD
95.5% of tariff lines set at 0% at entry into
force of the Agreement
Trade practice
Before
After
Application
8%
6-16 %
8%
12 %
20 %
15 %
13 %
15 %
20 %
15 %
15 %
5.5 %
8%
20 %
6%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Immediate
Duty
Live lobster
Frozen lobster
Frozen scallops
Frozen shrimp
Cooked and peeled shrimp, retail
Fresh/chilled hake
Dried/salted cod
Frozen herring
Frozen mackerel
Fresh/chilled halibut
Salmon
Processed salmon
Snow crab
Fresh/chilled/frozen mussels
Dogfish
25
Cattle and Bison
Trade practice
93.6% of tariff lines set at 0% at entry
into force of the Agreement
Before
After
Application
Tariff rate quotas
0 % To be negotiated
(3, 5, 7 yrs)
Beef and veal – in-quota 50,000 tonnes carcass
weight (35,000 tonnes fresh and chilled and 15,000
tonnes frozen) (including Canada's share of
hormone-free meat of 4,160 tonnes)
High-quality beef - in-quota 11,500 tonnes product
weight
20 %
Existing beef quota of EU
Processed beef (all Chapter 16 lines)
Bison – in-quota 3,000 tonnes carcass weight
Maple syrup
8%
0 % To be negotiated
(3, 5, 7 yrs)
Continued access
0%
Immediate
0%
Immediate
0%
Immediate
26
AGRI-FOOD PRODUCTS
Pork
93.6% of tariff lines set at 0% at entry
into force of the Agreement
Trade practice
Before
After
Application
Tariff rate quotas
Pork – in-quota 81,000 tonnes carcass weight,
fresh, chilled and frozen) (including Canada's share of EU quota
of 6,011 tonnes)
Pig fat and salted, dried, smoked and cured boneless pork, and
all other processed pork products covered by Ch. 16 tariff lines,
such as sausages
0%
To be negotiated
(3, 5, 7 yrs)
0%
To be negotiated
(3, 5, 7 yrs)
Tariff rate quotas
Dairy products – non-supply managed
0%
Immediate
27
AGRI-FOOD PRODUCTS
Dairy and Poultry
92% of tariff lines set at 0% at entry
into force and 7.1% of lines excluded (supplymanaged)
Trade practice
Poultry and eggs – over-quota
All dairy products, except cheese – in-quota
Specialty cheeses – in-quota 16,800 tonnes
(including reallocation of 800 tonnes from existing
WTO to new EU members)
Industrial-use cheese – in-quota 1,700 tonnes
Milk protein substances (like U.S.)
Before
After
Excluded Excluded
Excluded Excluded
Application
Immediate
Immediate
0%
To be negotiated
(3, 5, 7 yrs)
0 % To be negotiated
(3, 5, 7 yrs)
0 % To be negotiated
phase(3, 5,7 yrs)
out
28
Other Negotiations
Currently Under Way
29
Other Negotiations Currently Under Way
Canada-Japan Economic Partnership Agreement (CJEPA)
(initiated in 2012)
• Market of 127 million consumers with a GDP of $5 trillion
• Sizeable agri-food export market for Canada ($3.9 billion in 2013)
• Canada second largest supplier of pork ($700 million) and
soybeans ($296 million) in 2013
• Negotiations conducted alongside those of the United States and
look to be a prerequisite for the TPP
30
Other Negotiations Currently Under Way
Transpacific Partnership (TPP)
• Canada joined the negotiations in October 2012
• Potential market of 765 million consumers and nearly 40% of
global GDP
• Twelve countries included (Australia, Brunei Darussalam,
Canada, Chile, United States, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, Vietnam)
• Agreement expected by late 2014
Transatlantic Trade and Investment Partnership (TTIP)
• United States – European Union
31
Specific Issues
32
Issues for Pork
International Data on the Pork Industry
K MT (carcass w eight equivalent)
2010
2011
2012
2013
Imports
Japan
China
Mexico
Russia
Hong Kong
United States
South Korea
Canada
Ukraine
Australia
Philippines
Other
World total
1,198
415
687
916
347
390
382
183
146
183
159
885
5,891
1,254
758
594
971
432
364
640
204
119
175
145
955
6,611
1,259
730
706
1,045
414
364
502
241
281
194
138
1,022
6,896
1,223
770
783
868
399
399
388
221
204
183
172
1,052
6,662
Exports
United States
European Union
Canada
Brazil
China
Chile
Mexico
Belarus
Australia
Vietnam
Norway
Other
World total
1,915
1,705
1,159
619
278
130
78
62
41
19
6
19
6,031
2,354
2,150
1,197
584
244
139
86
85
41
25
4
38
6,947
2,441
2,165
1,243
661
235
180
95
104
36
25
6
69
7,260
2,264
2,232
1,246
585
244
164
111
74
36
25
7
31
7,019
United States Departm ent of Agriculture, Foreign Agricultural Service
Date create 18/04/2014 14:04:51
33
Issues for Pork
South Korea
Relative Share of Korean Imports
United States
Germany
Chile
34
Issues for Pork
South Korea

Ensure market penetration despite barriers

Increase efforts to recapture our market, particularly from the U.S.
and Europe, which have displaced us primarily due to their free
trade agreements

South Korea has resumed production following foot and mouth
disease (volume)
35
Issues for Pork
Europe

Ensure market penetration despite barriers

Increase efforts over the next 24 months before TTIP (US-EU)
36
Issues with CETA for Maple Syrup

Two producer nations worldwide; Canada will have an 8% edge over the
U.S.

In a context of growth in the U.S. maple sector (150% since 2000), this is very
good news.
40,000
U.S. maple syrup production (000 lb)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
37
Issues for Maple Syrup

Our companies may be able to use this advantage to increase
development and penetration of European markets ($42 million last
year).

The U.S. is a marginal player but is growing rapidly (EU 1,060% and 460%
worldwide).
Value of U.S. exports to the EU (US $000 )
Value of U.S. exports (US $000 )
38
Issues for the Dairy Sector

Quota of 16,000 tonnes of fine cheeses, likely over five or seven
years

Quota of 1,700 tonnes of industrial-use cheeses (5-7 years)

Free access to European milk protein substances (same as for
U.S.) (5-7 years)
39
Issues for the Dairy Sector
Cheese

The fine cheese quota is particularly distressing, especially
for Quebec, which will be the one most affected (80% of our
goat’s milk is made into fine cheese).

16,000 tonnes is 4% of our overall cheese production, but 32%
of the fine cheese volume. Quebec produces about 50% of
Canada’s cheese and 60% of its fine cheese.

Until now, our quota was 20,400 tonnes and Europe held
14,000 tonnes of that quota. The 17,700-tonne increase
represents about 0.25% of European cheese production.
40
Issues for the Dairy Sector
Cheese

A critical variable is how the quota is allocated.

We know that cheese imported under the new quotas will be
sold at the domestic price, generating significant rent for quota
holders without impacting the price for the consumer.

We know that holders must use 100% of their import quota (rent)
in order to keep it.
41
Issues for the Dairy Sector
Cheese

We know that about 80 entities hold import quotas, including
distributors such as Loblaws and processors like Agropur and
Saputo.

The increase in quota over seven years will be equal to or
greater than the domestic demand (but a loss in any case).
42
Issues for the Dairy Sector
Cheese

If the new quota is allocated on a pro-rated basis

We will be making one group richer based on past history rather
than on merit or competition.

No justification, in our view, for distributors or individuals.
43
Issues for the Dairy Sector
Cheese

If the new quota is allocated on a pro-rated basis

Agropur and Saputo: may be seen as compensation for fine
cheese producers. Some of the rent will go back to Agropur’s
producer members (not the case for Saputo). Historically, Agropur
has used its quota to develop the domestic market.

Overall, milk and fine cheese producers will not benefit at all.
44
Issues for the Dairy Sector
Cheese

If the new quota is allocated to fine cheese producers

CILQ position adjusted based on size

Reinforces promotion and identification (“Aliments du Québec”
label), agricultural tourism, harmonization of standards,
consolidation program
45
Issues for the Dairy Sector
Cheese

Why allocate the import quotas rather than auction them?

Take the money obtained and apply it to development projects for
fine cheese producers to allow them to compete, grow the
domestic market and explore exports

If we do not recover the volumes, Quebec’s dairy producers are
not penalized.
46
Issues for the Dairy Sector
Cheese
What does the 16,000 kg rent for imported fine cheeses mean?
 Producer price differential basis


1 hectolitre of milk in Quebec: $80 or $8 per 1 kg of cheese
1 hectolitre of milk in France: $55 or $5.50 per 1 kg of cheese
A difference of $2.50 per kg of cheese, or 45%
If we use discounted dollars over a five-year period and deduct import
costs, we get a value of $145 million or $29 million per year.
47
Issues for the Dairy Sector
Cheese
 Consumer price differential basis


Basket of 14 cheeses, comparing Quebec City and Grenoble
Average of $37/kg in Quebec City versus $18/kg in Grenoble
Difference of $19/kg of cheese or 110%
If we use discounted dollars over a five-year period and deduct import
costs, we get a value of $1.232 billion over five years or $246 million per
year.
48
Issues for the Dairy Sector
Cheese

Examples of development projects

Explore niche markets in New York and Boston. Murray’s Cheese
NYC sells cheese for $48 to $72/kg. The price of milk in Quebec is
$8/kg.

Saxelby NYC sells cheese for $89/kg.

We exported over 6,000 tonnes of specialty cheese to the U.S. in
2012.

Bring cheese producers together to obtain volumes (Distribière’s
microbrewery co-op model) and hire dealers to develop the market.
49
Conclusion
Quebec’s agri-food industry is highly dependent on foreign markets
and mainly exports processed products.
Bilateral and multilateral agreements are critical to our economy and
our bio-food sector.
However, they affect the way we do business, they disrupt the status
quo and upset our comfort level.
The issue is to take advantage, see the glass as half full rather than
half empty.
50
Conclusion
For the sectors that theoretically come out ahead: ensure that the
potential benefits materialize by making sure we actually access the
markets and by working harder to develop markets.
For supply-managed enterprises: strengthen the important parts,
take the opportunity to modernize the system, change the threats
(which are significant) into opportunities.
There are choices and decisions to make and attitudes to adopt.
This is the difference between success and failure.
51