Canada Markets

In a recent address to the Manning Networking Conference, Premier Brad Wall of Saskatchewan stated that "if you like free trade with Europe (referring to the Canada-E.U. Trade Agreement), you're going to love freer trade with Asia." He went on to say that in five years, the combined Asian economies will be 33% larger than the European Union economy. He compares Canada's opportunity in Asia to Wayne Gretzky's famous quote of skating to where the puck is going to be rather than where it currently is, suggesting the puck is in Asia and that is where our focus must be placed.

Yesterday, the Federal government announced Canada's first free trade agreement in the Asia-Pacific region with South Korea. This deal opens the doors to Canada's exporters to the 15th largest economy in the world, expected to increase overall trade by 32% and add $1.7 billion to Canada's economy. The deal is also viewed as an opening towards further trade across the entire Asia-Pacific region.

As indicated on the attached chart, the last year of significant grain exports to South Korea was seen in the 2010/11 crop year, when 1.178 million metric tonnes of wheat were shipped, along with 165,091 mt of durum, 1,358 mt of rye, 519 mt of flax and 4,373 mt of wheat flour. Trade deals between South Korea and the United States and the European Union have since been entered into which has since severely affected Canada's export potential. The Grain Growers of Canada have indicated that tariffs on Canada's agriculture exports currently average 52.7%.

Between 2010 and 2012, Canada's agriculture trade with South Korea averaged $708 million, with wheat, pork, crude and refined canola oil and malt leading all exports. Agriculture exports in 2013 fell to $370 million. In total, 86.8% of agriculture tariff lines will be removed.

Responses from the various commodity groups were very supportive towards liberalized trade with South Korea. The country imports 55,000 metric tonnes of pulses annually, while Murad-Al Katib, President of the Canadian Special Crops Association stated, "It will also give Korean importers access to Canadian pulses and special crops that will compete on the basis of price and quality, not market-distorting tariffs." Current pulse trade with South Korea totals $5 million annually.

The Canola Council of Canada states that canola seed, oil and meal sales total $60 to $90 million annually, which is an amount that could double with the removal of trade-distorting tariffs.

Commodity News Service reports that South Korea is Canada's third largest market for malt exports with roughly 25,000 tonnes shipped annually. The deal will immediately remove tariffs on 13,000 mt, while the tariffs will be removed at a steady pace over 11 years allowing 25,000 mt to ender tariff free, while in year 12, there is unlimited tariff-free access.

Livestock groups are also pleased. In 2002, Canadian beef exports to South Korea totaled $40 million and the country was our fourth largest customer. With sales restricted from May 2003 to February 2012, 2013 exports totaled $7.8 million due to a 40% tariff on both fresh and frozen beef. Reductions in the beef tariff will total 2.6 to 2.7% annually for a 15-year period.

South Korea has also been viewed as Canada's third or fourth most important market for pork exports and currently remains in the top five customers. The Canadian Pork Council refers to a U.S. study which indicates the benefit from their Free Trade Agreement totals $10/hog. Canada exported $76 million in 2013. Current tariffs total 22.5% for chilled port and 25% for frozen pork.

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

(ES)

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