If NAFTA ends, is Canada’s food sector prepared?

Bombardier responded to American trade action by marrying a foreign competitor and deciding to move some production to the U.S.

Canadian dairy processors have responded to supply management’s restrictions by buying companies and expanding into the U.S.

How would Canadian-based food companies respond to the cancellation of the North American Free Trade Agreement?

Some economists say that’s something any exporter of food products and ingredients is probably now pondering.

“Agri-food is even more vulnerable than Bombardier or aeronautics because of the fact that the U.S. can use a number of narratives to justify an embargo or extra (restrictions placed on food),” said Dalhousie University food industry expert Sylvain Charlebois.

“You can use public health, food safety, regulations, unharmonized regulations around labelling. There are so many.”

For most food companies, the United States is both a big market and a source of ingredients. So what do they do about U.S. President Donald Trump’s repeated threats to tear up NAFTA?

Three economists said the food industry in North America is such an integrated business that any border problems will be costly for everybody.

“It’s very alarming for food companies,” said Al Mussell of Agrifood Economic Systems, an analysis firm from Guelph, Ont.

Some companies will probably focus on non-U.S. markets for future growth, including those in Asia and Europe. Canada has a new trade deal with the European Union and is talking with both the remaining Trans-Pacific Partnership members and China about future deals.

Charlebois worries that some Canadian companies will simply forget about trade, with that al-ready being a problem in Canadian processing.

Too many Canadian companies are small and choose to just serve domestic markets.

Bertrand Montel, an economist with Groupe AGECO, said food companies need togo through their entire supply and processing chain to see what inputs and outputs might be affected by any sudden ending of NAFTA.

“I would encourage processors to have a quick assessment of their products,” said Montel.

The economists agreed that small border tariffs aren’t the biggest factor spooking food companies. Because of World Trade Organization rules, the U.S. can’t impose tariffs that are beyond the relatively low levels it has for most products imported from Most Favoured Nation states.

However, the ability of U.S. players to manipulate regulations to impose border blockages, justified or not, on Canadian products is a significant concern.

“That’s something that may have more impact on trade flows,” said Montel.

“It could be the bigger factor because there is more uncertainty.”

Mussell said the expansion of Canadian dairy processors such as Saputo and Agropur into the U.S. made sense because of Canada’s stagnant domestic market and its ban from significant exports under WTO agreements.

“They needed a platform to ex-port from, and they can’t do that here,” said Mussell.

However, dairy processors could easily expand south because there were many small U.S. players to take over and the market was fragmented.

That is not the case with most meat and grain based food product areas. Giant U.S. based multinationals dominate most of those areas.

Montel said meat and livestock trade flows north and south today, so meat processors are probably anxious about what happens if NAFTA dies.

However, it won’t be easy for a Canadian meat processor to simply set up production in the U.S., as Canadian dairy companies have done and Bombardier says it is planning to do.

“It’s almost unthinkable to see Olymel take on Smithfield,” said Montel about the challenging future if NAFTA dies.

That may push some to look to Europe and Asia, something Charlebois thinks is smart.

“You’ll see a more globally focused sector,” he said.

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  • Harold

    The NAFTA agreement is a trilateral trade agreement and It exists because there is trade between three countries. Trade and needs creates an agreement – not the other way around – allowing anyone to ignore it; not even President Trump. The concept of a bilateral agreement between Canada and the United States seems to escape the frozen minds of NAFTA fear mongers. How does Canada lose any Trade by exchanging a Trilateral agreement for favor of a bilateral agreement? Does a separate Canadian contract with the United States and a separate Canadian contract with Mexico spell the death to Canadian Trade? Is a trilateral agreement the only agreement – and life that there is – to Trade? I assume that the frozen minds are thinking so and it is unfortunate that they are the ones who are doing the reporting. What the re-signing a 25 year old document means to me, is that the present Day Canadian negotiators are truly incompetent in ability to create something new. There are Canadians who are competent – they obviously are not found in government halls; so is the reporting. Is their fretting, fear, resistance, and display of hands tied, a show of their intelligence? When you have an agreement between three men and the contract expires and one man goes his separate ways, do the needs of that one man walking away vanish or do his needs become immediately urgent? Can Trump ignore it? Who will fill that gap? It will be a separate bilateral agreement with somebody, and reasonably, the hand is forced when you have two close neighbors in commerce. Needs are the basis and are the drive to all contracts – not the contract the basis to needs. Agriculture and needs remain a constant at all times and it is only the incompetent who cannot re-negotiate at the drop of a hat. As long as there is hunger- there is a food sector and hunger itself – not Trump – drives any contracting, but poor contracting drives higher pricing, industry loss, labor loss, higher taxation, food scarcity, democracy loss, and such has been the legacy of the NAFTA agreement and our government. When Trump is pointing at some the elements of the NAFTA agreement that are a failure, those same elements exist for our failure as well. If the paper (NAFTA) says that “you cannot perform something”, it says that you “cannot perform something” and that applies to all three parties even though in hindsight it is bringing harm to your country and is bypassing your own democracy. The failure is written on that paper and not in the imaginations of Trump’s mind. The imaginations of reporters drum up these failures as being non-existent. Trump is pointing to some of the elements, not all of them, and specifically at the elements that never belonged there in the first place which are damaging all three countries – and not just his. So Ed, can you tell us how much NAFTA money the taxpayer has lost in investor state settlement disputes and how many settlements are still on the books yet to be paid? Will you tell us anything about the investor state and who they are and how they are tied to the NAFTA agreement? Will you tell us about how the NAFTA agreement allows foreign control over our very own democracy bypassing us and how this has led to the departure of Canadian industry and Canadian ownership? There is more, but tired of waiting upon you Ed, and the WP, I had to find out the facts elsewhere, however, I get your message Ed, lets sign it quickly and forget all about that. Unlike your question, my question is this: If NAFTA ends, is Canada’s food sector prepared – for an incompetent Government? It is the only thing to fear after an agreement has expired – is it not? I have yet to see anyone fearing the competent and their management; have you? A farmer without government is unlimited in possibilities and its wealth from his labors gained by his own chosen direction; with government – those same unlimited possibilities and wealth should still exist. DO they? How shall the governments report card read? Does a C still mean; “well we’re trying”? and D a failure? According to main stream media, C’s and D’s are now honor roles.

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