Trade agreements boost markets for Canadian commodities

In an economic landscape littered with news about the Canadian dollar, threats of recession and daily updates on commodity prices, the new Canada Korea Free Trade Agreement (CKFTA) is hardly fodder for coffee shop conversations. But that shouldn’t detract from the fact that this agreement — along with the Trans-Pacific Partnership (TPP ) and Canada and European Comprehensive Trade Agreement (CE TA), still in the works — will have an impact on agricultural production and markets.

The CKFTA came into effect January 1, 2015. At the macro-economic level, the deal is important because it’s Canada’s first free trade agreement (FTA) in the Asia-Pacific region, says Peter Kuperis, director, Domestic and International Trade Policy Branch, Alberta Agriculture and Rural Development.

According to federal stats, the deal gives Canada access to Asia’s fourth largest economy (number 15 in the world), and is expected to increase Canadian exports to South Korea by more than 30 per cent, a figure that equates to a $1. 7 billion boost to the Canadian economy.

While specific agricultural markets will take time to develop, the CKFTA signals significant reductions in tariffs imposed on Canadian commodities. “Korea is a relatively new market for us and there will be rewards down the road,” says J. P. Gervais, chief economist with Farm Credit Canada.

Kuperis says the new deal effectively eliminates tariffs for canola seed and oats. In other markets, the deal sets dutyfree quotas.

Further significant features include:

  • An 8 per cent tariff on canola oil sold to South Korea drops to zero over seven years
  • The refined canola oil tariff drops from 10 per cent to zero in three years
  • The 27 per cent tariff on pulses will be phased out over five years
  • Duties on a host of processed grain products are set to fall.

The deal also includes a decline in beef and pork tariffs, which should strengthen domestic markets for barley and other feedstocks, adds Kuperis.

Positioned for strength

Canada’s experience with the North American Free Trade Agreement (NA FTA) showcases the value of FTAs, says data from the federal government. In 2012, trilateral (Canada/U.S./Mexico) trade within North America came close to US$1. 1 trillion, up from US$289 billion in 1993, the year before NA FTA came into effect.

“The deal transformed North American livestock markets and provided duty-free access to the U.S. in terms of crops and oilseeds,” says Kuperis. The treaty increased Canadian access to U.S. wheat markets, too. More recently, it opened markets for oats (U.S.) and canary seed (Mexico), and helped a Mexican oat processor invest in an Alberta-based facility.

That said, individual Canadian farmers aren’t positioned to reap short-term gains from CKFTA, says Brian Wittal, a marketing and risk management consultant with Alberta- based PRO COM Marketing Ltd.

In the early days, Wittal expects new access to Korean markets to focus on volume trades. “Down the road, there may be niche markets available for certain products,” he says, adding that farmer ties to those sourcing markets and sales will be critical.

The bottom line for Canadian farmers is that we grow food for other nondomestic markets, says Gervais. Canada exports 50 per cent of its canola seed, 80 per cent of its canola meal and 80 per cent of its durum. Numbers like that, he says, mean trade deals are essential for a nation that doesn’t have the population to sustain the agricultural production that we’re putting together year after year.

While it’s helpful to share a border with the world’s largest economy, diversification away from the United States is important, he adds.

To position their farms for strength in global trade, Gervais says farmers should adopt a CEO -type role in their businesses. On the production front, producers can continue to serve as “doers. ” “But when it comes to marketing,” he says, “surround yourself with a network of folks that are able to provide you with expertise and alliances. ”

For example, knowing that Canada is working on a trade deal with India, the largest importer of pulse crops, should guide farmers who are thinking strategically about what they might be growing in five years, says Gervais.

A market-focused approach will help Canadian farmers deal with a trade environment increasingly impacted by the provisions of international trade deals, adds Kuperis.

While the TPP is not yet inked, notable progress has been made. “It’s shaping up very ambitiously on rules about movement of goods, people and investment,” says Kuperis. By the end of 2014, 12 countries were part of the mix including the U.S., Canada, Mexico and Japan. Kuperis is not sure where the TPP is moving on tariffs but says canola will probably come out well and get lots of duty-free access across TPP regions.

“The next thing to watch for is countries lining up to join,” he says. “South Korea has expressed strong interest in joining the TPP and if they do I think the next question will be, ‘will China join?’”

Like TPP , timelines for CE TA currently under negotiation are difficult to pin down. But the end goal is solid, with the elimination of tariffs across all qualities of wheat. While CE TA won’t change how the European Union approves GMO crops, it should speed up the process, says Kuperis.

Canadian farmers grow some really high-quality ingredients, he adds. “One of the hopes we have for CE TA is that better access to some of the European markets may attract European investment into the food processing industry here. ” FF