OTTAWA — The Conservative government could help turn Canada’s agri-food sector into a powerful “growth engine” for the national economy by negotiating trade deals that would help farmers access booming Asian markets, according to a study to be released Monday.
But trade success will require Ottawa to take on politically powerful dairy and poultry producers, located primarily in Ontario and Quebec, that are shielded from competition with sky-high tariffs and an elaborate quota system, according to former chief agricultural trade negotiator Mike Gifford.
Canada is seeking to join the U.S. and other Asia-Pacific nations now negotiating the so-called Trans-Pacific Partnership (TPP), but other countries are demanding that Canada abandon the supply management system protecting the dairy and poultry sectors.
The federal government has insisted it will defend Canadian interests at the negotiating table, but hasn’t ruled out making concessions on these demands.
“Political sensitivities notwithstanding, the rest of the economy, including the 80 per cent of Canadian agriculture that is tied to world prices, cannot afford to be held hostage to demands by dairy and poultry producers to preserve the status quo,” Gifford writes in a report commissioned by the Canadian Council of Chief Executives, which represents major companies that deploy $4.5 trillion in assets and employ 1.4 million people.
The report says the traditional boom-and-bust cycle in farming is being dramatically altered by income growth and urbanization across Asia and in particular China and India.
That has resulted in an unprecedented expansion in middle class consumers with extra income to purchase meats, vegetable oils, dairy products, fruit, sugar, processed foods and restaurant meals.
“The rise of China, India and other emerging markets has dramatically changed the outlook for Canadian farmers and agricultural processors,” the author argues.
“Asia’s expanding appetite for imported food provides Canadian agricultural producers with golden opportunities to grow and prosper — provided that the federal and provincial governments and industry work together to identify and overcome a variety of external and internal challenges.”
The TPP agreement is currently being negotiated by the U.S., Australia, New Zealand, Chile, Peru, Singapore, Vietnam, Malaysia, and Brunei. Japan, which has a heavily protected rice sector that has been a major annoyance for Japan’s trade partners, has also signalled its desire to enter negotiations.
While countries like Australia, New Zealand and the U.S. have complained openly about Canada’s supply management system, Canadian officials have noted that other countries have protectionist agriculture measures they won’t want to abandon at the negotiating table.
Gifford said Ottawa doesn’t have to completely abandon the poultry and dairy farmers, a move both the New Democrat and Liberal parties are warning is about to happen.
Instead, he proposes that Canada consider a partial liberalization of both sectors to allow a modest increase in access to foreign producers in those areas.
But that would require immediate steps to help prepare Canadian producers for increased foreign competition, though Gifford acknowledges that adjustment measures could be costly. The value of the quotas in the dairy sector alone amount to an estimated $25 billion.
Gifford noted that imports amount to about three to four per cent of Canadian dairy consumption and less than nine per cent of chicken consumption, so there is “scope” to expand those figures.
The stakes are high if Canada fails to sign on to a TPP deal that includes Japan, according to Gifford.
“Canada’s agricultural exports to Japan are currently in the $3 billion range and most face high tariffs (canola seed is the main exception),” he writes.
“If Japan signed on to the TPP agreement but Canada did not, Canada would undoubtedly lose market share in Japan and could well see its exports decline in absolute terms.”
Canada’s $1 billion in sales of Canadian pork to Japan would be vulnerable to U.S. competition, and Canada could lose its position as a preferred wheat supplier, according to the author.
Among other key points in the report:
• Canada already has a lower-than-average agricultural tariff rate among Asia-Pacific countries, averaging 11.3 per cent. The highest is South Korea, at 48.5 per cent, while New Zealand and Australia are at the bottom with rates under two per cent. However, the report cites government statistics noting that Canada’s rate would fall by more than half, to 5.2 per cent, if the sky-high tariffs in the dairy and poultry sectors were eliminated.
• Canada’s share of China’s agricultural imports has risen since 2006 due mainly to strong demand for oilseeds and oilseed products. A key factor was the government-backed development and aggressive marketing of canola and canola oil. “The canola industry is a tremendous Canadian success story, one that demonstrates what can be achieved when the public and private sectors work together.”
• Canada’s pulse sector — mainly dried peas, beans, chickpeas and lentils — is another success story generating $2.1 billion in annual sales.
• Canadian wheat exports to China have been dramatically curtailed due to government policies by Beijing to make sure domestic production meets most domestic needs. However, Japan remains a huge buyer of Canadian wheat as well as pork and various processed foods.