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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