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Free Trade Agreements and their Potential Implications for Agri-Food in Quebec and Canada Maurice Doyon in conjunction with Raymond Dupuis FCC Annual Public.

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Presentation on theme: "Free Trade Agreements and their Potential Implications for Agri-Food in Quebec and Canada Maurice Doyon in conjunction with Raymond Dupuis FCC Annual Public."— Presentation transcript:

1 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

2 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.Pork b.Specialty cheeses c.Maple syrup 6.Conclusions 2

3 Importance of Foreign Markets to the Agri-Food Industry in Canada and Quebec 3

4 4 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.

5 $21.8B GDP 475,189 jobs Quebec In 2012, the agri-food industry generated 12% of all jobs and 7% of GDP in Quebec. * Jobs and direct Gross Domestic Product on 2012 basis; GDP in chained 2007 dollars. Sources:Statistics Canada, Institut de la statistique du Québec, MAPAQ,

6 Domestic Market $21.3B Foreign Market $12.7B Quebec companies supply 53% of the Quebec market. 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. $11.3B $6.7B $6.0B 6

7 7 Quebec’s Bio-Food Trade Partners 2013 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.

8 Overview of CKFTA 8

9 Overview of CKFTA Agreement in principle signed March 11, 2014 Enters into force in early

10 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

11 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

12 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

13 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. 13

14 Produits de la mer 14 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 supply- managed products, and no increase in in-quota tariff rates for supply- managed products.

15 Produits de la mer 15 AGRI-FOOD PRODUCTS Pork Before After Application 3% 0 % Immediate 18% 0 % Immediate 18% 0 % Immediate 25% 0 % 5-13 years 18% 0 % 11 years 86.8% of tariff lines gradually set at 0% following entry into force of the Agreement Trade practice < < < < Duty Swine genetics Pig fats and lard oils Pure-bred swine Fresh/chilled/frozen pork products Pork offal Certain fresh/chilled/frozen pork products will be subject to transitional safeguard measures

16 Produits de la mer % of tariff lines gradually set at 0% following entry into force of the Agreement Trade practice Duty < < < Beef fats and tallow Bovine genetics Fresh/chilled/frozen beef cuts and some processed beef products Certain fresh/chilled/frozen beef products will be subject to transitional safeguard measures

17 Produits de la mer 17 AGRI-FOOD PRODUCTS Grains and Oilseeds Before After Application 3% 0 % Immediate 108,7% 0 % Immediate 554,8% 0 % Immediate 487% 0 % Immediate 10% 0 % Immediate 86.8% of tariff lines gradually set at 0% following entry into force of the Agreement Trade practice Duty Wheat and durum wheat Rye Oats Soybeans for soy sauce and soy-cake Canola

18 Produits de la mer 18 Trade practice Duty 86.8% of tariff lines gradually set at 0% following entry into force of the Agreement Maple syrup and maple sugar Cranberry and blueberry juice Ice wine Frozen french fries Certain baked/pastry goods Tariff rate quotas < 243% 0 % Natural honey 100 tonnes / 200 tonnes / unlimited Frozen blueberries, cranberries, unlimited 0% 7 yrs Sweetened and unsweetened dried cranberries, unlimited 10 yrs

19 Overview of CETA 19

20 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

21 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

22 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

23 Overview of CETA Bilateral Quebec–EU trade: $25 billion in Quebec trade deficit $11.2 billion! The EU is the top global importer of agri-food products, at over $130 billion in Quebec exported nearly $410 million in agri-food products to the EU in 2013, with tariffs averaging 14%. 23

24 24 AGRI-FOOD PRODUCTS Grains Before After Application 0 % Transition 7 yrs 0 % Transition 7 yrs 0 % Transition 7 yrs 0 % Transition 7 yrs Tariff rate quotas 0 % Transition 7 yrs Trade practice Duty $190/tonne currently 0% but not bound (ceiling) Durum wheat High-quality common wheat currently 0% but not bound (ceiling) Rye and barley < $120/tonne Oats < $114/tonne Low- to medium-quality common wheat – 100,000 tonnes (including Canada's existing share of EU global quota of 38,853 tonnes) < $122/tonne

25 Produits de la mer 25 SEAFOOD Before After Application Live lobster 8 % 0 % Immediate Frozen lobster 6-16 % 0 % Immediate Frozen scallops 8% 0 % Immediate Frozen shrimp 12 % 0 % Immediate Cooked and peeled shrimp, retail 20 % 0 % Immediate Fresh/chilled hake 15 % 0 % Immediate Dried/salted cod 13 % 0 % Immediate Frozen herring 15 % 0 % Immediate Frozen mackerel 20 % 0 % Immediate Fresh/chilled halibut 15 % 0 % Immediate Salmon 15 % 0 % Immediate Processed salmon 5.5 % 0 % Immediate Snow crab 8 % 0 % Immediate Fresh/chilled/frozen mussels 20 % 0 % Immediate Dogfish 6 % 0 % Immediate Trade practice Duty 95.5% of tariff lines set at 0% at entry into force of the Agreement

26 26 Cattle and Bison Before After Application 0 % To be negotiated (3, 5, 7 yrs) 20 % 0 % (3, 5, 7 yrs) Continued access 0 % Immediate 0 % Immediate 0 % Immediate Trade practice Tariff rate quotas 93.6% of tariff lines set at 0% at entry into force of the Agreement 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 To be negotiated Existing beef quota of EU Processed beef (all Chapter 16 lines) Bison – in-quota 3,000 tonnes carcass weight Maple syrup 8%8%

27 27 Trade practice 93.6% of tariff lines set at 0% at entry into force of the Agreement To be negotiated 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 Tariff rate quotas Dairy products – non-supply managed 0 % Immediate

28 28 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.) 92% of tariff lines set at 0% at entry into force and 7.1% of lines excluded (supply- managed)

29 Other Negotiations Currently Under Way 29

30 Produits de la mer 30 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

31 Produits de la mer 31 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

32 Specific Issues 32

33 Issues for Pork 33

34 Issues for Pork South Korea 34 Relative Share of Korean Imports United States Germany Chile

35 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

36 Issues for Pork Europe Ensure market penetration despite barriers Increase efforts over the next 24 months before TTIP (US-EU) 36

37 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. 37

38 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). 38 Value of U.S. exports to the EU (US $000 )Value of U.S. exports (US $000 )

39 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

40 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

41 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

42 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

43 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

44 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

45 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

46 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

47 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

48 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

49 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  Bring cheese producers together to obtain volumes (Distribière’s microbrewery co-op model) and hire dealers to develop the market. 49

50 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

51 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


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