Budget 2017 was widely portrayed as a measured, stay-the-course affair. With few large-scale spending commitments compared with the previous year, and with geopolitical uncertainties ahead, the government opted to set the tone for future investments and keep a close hold on the public purse strings for now.
But that’s not how farmers saw it.
Farm groups felt the federal budget turned a spotlight onto their industry, focusing on it as one of three industries that will kick-start economic growth, and one of six that could sustain long-term growth. Rather than giving agriculture an honourable mention in the budget speech, the government signalled the farm and food sector as being primed for expansion, said it was ready to invest in it as a strategic sector. It appeared that Finance Minister Bill Morneau intended to act on the advice of his Advisory Council on Economic Growth, chaired by global business guru Dominic Barton. Barton counselled that agricultural investments offered much promise.
While Budget 2017 lacked details on how the government planned to increase agri-food exports to $75 billion annually by 2025, the overall vision was welcome news to farmers. For many, it’s all eyes on 2025, while navigating through an uncertain international trading environment.
How can Canada take its first steps toward this new vision? In terms of international trade, to get the ball rolling the Canadian Federation of Agriculture (CFA) suggests we focus on two immediate areas: expanding markets and streamlining regulations.
Negotiations in response to evolving markets
Exports and international trade are undisputedly the backbone of Canadian agriculture. Canada has consistently ranked in the top five of the world’s largest exporters of agriculture and agri-food products, and we have immense potential to expand our exports to meet the increasing global demand for food. Farmers have been saying for years that agriculture is a strategic sector in Canada, given our vast natural resources, our research and technological know-how, and our skilled labour force.
To harness this potential, clear rules-based trade agreements are now more important than ever. Some of the provisions in the recently ratified Comprehensive Economic and Trade Agreement (CETA) with the EU are welcome; for example, the increase in market access for pork, beef and canola. CETA will nevertheless come at a cost to the dairy industry, so the government should remain focused on a commitment to mitigate any damages any sector would incur as a result of trade agreements.
Farmers were also looking forward to increased access to the Japanese and East Asian markets through the Trans-Pacific Partnership (TPP), but as the US has rejected that agreement, Canada’s priority should be to embark on bilateral talks with Japan.
While total Canadian agri-food exports grew between 2013 and 2015 by about 20 percent to well over $55 billion annually, the United States still accounts for the lion’s share of those exports ($29 billion). In fact, Canada is the number one supplier of agriculture and agri-food products to the US (Mexico accounts for close to $2 billion). So it comes as no surprise that the talk of renegotiating NAFTA is a concern to us. The Canadian agricultural sector accrues significant benefits from NAFTA. The agreement links three economies that total $20 trillion in GDP, which is more than the economic output of the 28 countries in the European Union. Under NAFTA Canadian agricultural exports have grown exponentially, and they promise to grow even more.
However, it is not just Canada that has benefited economically from NAFTA. The US enjoys an agricultural trade surplus with Canada: 29 states in the US export more to Canada than they import from it. All the signatories have significantly benefited.
Removing barriers to competitiveness
Even when tariff barriers are been reduced or eliminated, non-tariff trade barriers often create major obstacles. An example of a non-tariff barrier is when sanitary and phyto-sanitary measures (which protect humans, animals, and plants from diseases, pests, or contaminants) are not science-based; when they are set at levels clearly designed to thwart imports. This speaks to the importance of standards based on sound science and adhered to by all parties to an agreement. When countries saddle up to the bar in trade negotiations, they should always include regulatory discussions of harmonization. It’s one thing to open borders to free trade, but quite another to ensure that differences in regulations don’t create an unlevel playing field. Asymmetrical regulatory regimes can very quickly create a non-tariff trade barrier or create higher production costs, which result in insurmountable competitiveness issues.
One example of different regulations resulting in higher production costs is the difference between Canada’s and the US’s generic pesticide registration regulations. Canada is one of the most difficult countries in the world in which to register a lower cost, generic brand of crop protection product, which increases the cost of production for Canadian grain producers and lowers their competitiveness in international markets.
The recently introduced carbon taxes in Canada will most certainly increase farmers’ input costs and, if the US or other competitor countries don’t implement similar taxes, it will create a competitiveness issue. The impact is especially great when the country is as geographically close to Canada as the US is and has lower costs of production.
The US’s agricultural support payments to farmers are another factor that skews the comparative advantage between it and Canada. Canada’s agricultural industry also faces the challenge that negotiations around support payments are done only at the World Trade Organization (WTO), and the WTO’s support definitions do not define realistically how the vast amount of money the US spends on agriculture affects Canadian farmers. As a result, a grain farmer a few kilometres south of the border can receive a large cash payment directly from the US government, while the Canadian grain farmer just north of the border will receive no government assistance at all.
Because of Canada’s small market and its vast capacity for production, it is absolutely imperative that we increase our profitable market access around the world. And so we celebrate successes such as CETA, we rue the failure of the TPP, we vigorously defend NAFTA, and we pursue more bilateral trade agreements with countries like Japan and China. But we must never forget that in trade negotiations and agreements, we must take a multi-faceted approach. A combination of access through lower tariff rates, harmonization of various regulatory regimes, and our own due diligence with regard to production, transportation and marketing costs, is needed, as the lack of success in these areas can severely hinder our competitiveness.
This article is part of the Canadian Agriculture at the Cutting Edge special feature.
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