Canada Markets

Farm kids learn from an early age that the cost of a loaf in bread in the store is derived from a few cents worth of wheat combined with a whole lot of politics. One current-day example of how governments are moving to change this by breaking down market-distorting trade barriers is seen in the work of the Canada-EU negotiations, with the recent announcement of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA).

The importance of this deal to Canadians becomes apparent when one considers the sheer size of the European economy. There are 500 million consumers in the 28 nations involved, which generate $17 trillion in economic activity and is viewed as not only the largest but the most "lucrative" market in the world. Total imports into the E.U. total $2.3 trillion annually. Canada now ships $2.4 billion worth of agriculture and food product to the E.U., with the proposed CETA deal expected to increase this figure by $1.5 billion, which includes a $600 million boost in beef exports and $400 million in pork exports.

This was no overnight deal. A Canada-E.U. Summit in March 2004 saw a framework for Canada-EU trade released. A joint study in 2008 furthered the concept, while the actual negotiations for the current trade agreement began in May 2009. Prime Minister Stephen Harper signed what is viewed as an agreement in principle on October 18, 2013 and the deal is expected to take two more years for implementation.

The Canadian government reports that of the greater than 9,000 EU tariff lines, 98% will be duty-free for Canadian product when the deal is implemented. Focusing on agriculture alone, approximately 94% of the tariff lines will be duty free when the agreement is put in place, while over a seven year time span this will move higher to 95%.

Over the course of the 2010 to 2012 period:

--The Province of Alberta shipped $282.5 million in ag production to the EU annually, with the largest exports being wheat at $78.9 million and durum at $48.6 million.

--The Province of Saskatchewan averaged $669.6 million in exports annually

--The Province of Manitoba averaged $139.9 million in exports annually and

--Tthe Province of Ontario averaged $621.8 million annually.

The attached chart indicates the tariff levels that the Canadian industry currently faces. The blue bars represent dollar/metric ton tariffs, with the EU able to charge up to these amounts, which range from up to $114/mt for oats to up to $190/mt for durum, as shown on the chart. Another example of trade-restricting tariffs, not seen on the chart, is in pet foods, where tariff levels can be assessed up to $1,218/mt for cat and dog food. Over the last five years, the government estimates the import price for oats increased the total cost to the importer by 51.7% as a result of the current tariff structure.

The red bars on the accompanying chart represent tariffs assessed as a percentage of the product value and is measured against the secondary vertical axis on the right. In the case of canola oil, the tariff is up to 9.6%, while the tariff for processed pulses and grains starts at 7.7%. The final bar represents what is viewed as the average import tariff for ag products, which is suggested to be at 13.9%. All of the tariffs shown on the chart are to be eliminated.

The benefits to the Canadian industry go beyond the elimination of grain tariffs. 80,000 mt of pork will be allowed into the EU duty-free, a market that Canada has had little access to in the past, while 64,950 mt of beef and 3,000 mt of bison will also flow duty-free. Enhancing the competitiveness of the livestock sector will have a positive impact on feed grain markets in Canada and act to provide more cropping choices for producers.

What do you think about the announcement of the CETA deal? You can share your thoughts on the DTN 360 Poll found on the DTN Homepage.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(ES)

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