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Free Trade Agreements and their Potential Implications for Agri -Food in Quebec and Canada

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 Importance of foreign markets to Quebec’s agri -food industry

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Free Trade Agreements and their Potential Implications for Agri -Food in Quebec and Canada

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  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 • Importance of foreign markets to Quebec’s agri-food industry • Overview of the Canada-Korea Free Trade Agreement (CKFTA) • Overview of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) • Other negotiations currently under way (Japan, TPP, TTIP) • Specific issues • Pork • Specialty cheeses • Maple syrup • Conclusions

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

  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. Quebec In 2012, the agri-food industry generated 12% of all jobs and 7% of GDP in Quebec. 475,189 jobs $21.8B GDP * 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.

  6. Quebec’s Agri-Food Markets2013P Domestic Market $21.3B Foreign Market $12.7B $6.0B $11.3B $6.7B 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.

  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

  9. Overview of CKFTA • Agreement in principle signed March 11, 2014 • Enters into force in early 2015

  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

  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%)

  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

  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.

  14. Produits de la mer 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 AGRI-FOOD PRODUCTS Pork Before After Application 3% 0 % Immediate 18% 0 % Immediate 18% 0 % Immediate 5-13 years 25% 0 % 18% 0 % 11 years 86.8% of tariff lines gradually set at 0% following entry into force of the Agreement Trade practice Duty Pig fats and lard oils < Swine genetics 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 AGRI-FOOD PRODUCTS Beef Before After Application 8% 0 % Immediate 18% 0 % Immediate 72 % 0 % 15years 86.8% 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 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 PRODUITS AGROALIMENTAIRES P roduits transformés, boissons alcoolisées et fruits Before After Application 8 % 0 % Immediate 5 0% 0 % Immediate 1 5 % 0 % Immediate 18 % 0 % Immediate 8 % 0 % Immediate Immediate/21 yrs 30 % 0% 45% 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 Tariff rate quotas 0 % < 243% Natural honey 100 tonnes / 200 tonnes / unlimited 0% Frozen blueberries, cranberries, unlimited 7 yrs Sweetened and unsweetened dried cranberries, unlimited 10yrs

  19. Overview of CETA

  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

  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

  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.

  23. 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%.

  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 currently 0% but not bound (ceiling) High-quality common wheat 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 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 95.5% of tariff lines set at 0% at entry into force of the Agreement Trade practice Duty

  26. Cattle and Bison Before After Application 0 % (3, 5, 7 yrs) 20 % 0 % To be negotiated (3, 5, 7 yrs) Continued access 0 % Immediate 0 % Immediate 0 % Immediate 93.6% of tariff lines set at 0% at entry into force of the Agreement Trade practice Tariff rate quotas 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) To be negotiated High-quality beef - in-quota 11,500 tonnes product weight Existing beef quota of EU Processed beef (all Chapter 16 lines) Bison – in-quota 3,000 tonnes carcass weight 8% Maple syrup

  27. AGRI-FOOD PRODUCTS Pork Before After Application 0 % To be negotiated (3, 5, 7 yrs) 0 % (3, 5, 7 yrs) 93.6% of tariff lines set at 0% at entry into force of the Agreement Trade practice 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) To be negotiated 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 Immediate 0 % Dairy products – non-supply managed

  28. AGRI-FOOD PRODUCTS Dairy and Poultry Before After Application Excluded Excluded Immediate Excluded Excluded Immediate 0 % To be negotiated (3, 5, 7 yrs) 0 % To be negotiated (3, 5, 7 yrs) 0 % To be negotiated phase- out (3, 5, 7 yrs) 92% of tariff lines set at 0% at entry into force and 7.1% of lines excluded (supply-managed) 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.)

  29. Other Negotiations Currently Under Way

  30. Produits de la mer • 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 • 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

  33. Issues for Pork

  34. Issues for Pork • South Korea 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)

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

  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.

  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). 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)

  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.

  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.

  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).

  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.

  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.

  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

  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.

  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.

  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.

  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 2012. • Bring cheese producers together to obtain volumes (Distribière’s microbrewery co-op model) and hire dealers to develop the market.

  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.

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