When trade loses its balance

Canada has a $155-million trade deficit with Europe in pork and beef.

For the first 11 months of 2018, Canada exported $4.7 million in pork and $15.5 million worth of beef to the European Union. In the same period, Europe shipped $157 million worth of pork and $18.8 million in beef to Canada.

Those numbers suggest the Comprehensive and Economic Trade Agreement that Canada and the EU reached in 2016 isn’t working out as planned.

When the deal was signed, the federal government and many in the protein industry touted the deal as a big win for livestock producers because it created tariff-free quotas for Canadian beef and pork sold into Europe.

“When completely implemented, CETA is expected to result in $1.5 billion in new agri-food exports, including $600 million in beef, $400 million in pork,” the Canadian Agri-food Trade Alliance said a few years ago.

Defenders of CETA say patience is needed. Europe will buy a lot more Canadian pork and beef once technical issues and obstacles are sorted out, they argue.

That could be possible, but Agriculture Canada import/export data released earlier this month shows Europe is not living up to the spirit of free trade.

  • Canadian pork sales to Europe have been stuck at $4 million a year since 2015, while European pork sales to Canada have gone from $99 million in 2015 to $157 million for the first 11 months of 2018.
  • EU beef exports to Canada were $12,000 in 2015 and almost $19 million for the first 11 months of 2018. However, France bought only $167,000 worth of Canadian beef last year, down from $2.1 million in 2015.
  • Excluding sales to the United Kingdom, Europeans bought less than $8 million worth of Canadian beef in the first 11 months of 2018.

In fact, last year Canada exported $2.6 million in beef to Angola, a country with a per capita gross domestic product of $5,000. That’s about seven times more than Canada sold to Germany and France combined.

A number of Canadian beef producers have noticed the weak sales to Europe. They are frustrated and say the European market is a waste of time.

“CETA is a joke. We’re getting nothing,” Stuart Thiessen, a cattle producer and feedlot operator near Strathmore, Alta., told the Alberta Farmer Express in 2018.

“Last I checked, it was 2,500 head that went to Europe. That’s not even a day’s kill.”

Others say European buyers do want Canadian beef but that it could take years to sort out regulatory issues and increase export volumes. The EU will accept beef only from cattle raised without use of additional growth hormones, and Europe hasn’t approved a carcass wash used in Canada.

The real barrier is that Canada doesn’t have enough cattle that are certified as hormone-free, said John Masswohl, the Canadian Cattlemen’s Association’s director of government and international relations.

“We still have some issues we’re trying to resolve on the regulatory side, but that’s really not the constraining factor right now,” he said.

“It’s trying to get enough cattle produced.”

A cattle producer who wants his herd certified to the EU standard must get a veterinarian to inspect the farm. That vet must be accredited through the Canadian Food Inspection Agency. Right now, only about 50 vets have the accreditation. Most are in Alberta.

To cover Canada’s large geography, “we probably need around 500,” Masswohl said because a vet in Russell, Man., can’t realistically certify a herd 400 kilometres away in Arborg, Man.

“(Plus), there’s only one (accredited vet) in all of Eastern Canada.”

On the positive side, the JBS slaughter plant in Alberta now has a hormone-free beef program for the European market. More ranchers are signing up, and the program is expanding, Masswohl said.

“They’ve worked (out) that supply line…. It seems to be growing.”

While Canada has been slowly adjusting and sorting out regulatory challenges with Europe, beef exporters in EU countries have had no trouble selling into Canada.

Ireland exported $5.1 million in beef to Canada in 2018, up from nothing in 2015.

Ron Davidson, formerly of the Canadian Meat Council, predicted such a scenario a few years ago.

“The day that CETA goes into effect, the 26.5 percent tariff comes off, so the European Union is going to have a huge opening of the Canadian market for beef and veal,” he said.

“The agreement is not balanced. We would just like to be able to take advantage of the quota we’ve got (in Europe).”

Producers were naturally elated when the federal government claimed that CETA would boost Canadian pork exports to Europe by $400 million. However, exports have been stuck at $4 million annually, which is disappointing because hog producers expected much more from CETA.

“I sure did,” said Rick Bergmann, chair of the Canadian Pork Council. “(But) at the end of the day it’s the devil in the details.”

While beef producers must get no-added-hormone certification, pork produced in Canada already meets EU standards because the industry abandoned ractopamine, a growth promotant, several years ago.

The challenge, or devil in the details, lies in processing.

For starters, Europe wants Canadian plants to certify pork as free of trichinella — a parasite. The processing plants don’t have such a certification process because countries that buy Canadian pork, including Japan, the United States, China and Mexico, don’t require testing for trichinella or freezing the pork to kill the parasite.

“The folks in Europe have a certain standard that we have to ensure our plants have, as well,” Bergmann said.

“I understand there are a few plants in Canada that are adjusting … but to my knowledge, so far, it’s been very limited uptake.”

A bigger challenge may be changes in the EU market. When negotiations for CETA began, pork prices in Europe were high and the industry was flourishing. However, Russia introduced import restrictions on European pork in 2013, eliminating a huge export market for the EU.

Now, there is an excess of pork production in Europe and prices are down, so they don’t need imports from Canada to satisfy continental demand.

Still, countries like France, Germany and Poland buy billions worth of pork from other nations within the EU, so there could be an opportunity for Canadian pork in certain markets.

For the moment, Canadian pork exporters have no reason to accommodate the burdensome European rules because the Japanese market is more appealing thanks to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

“We now have preferential access to the U.S. in Japan for pork,” said Al Mussell, research lead with Agri-Food Economic Systems in Guelph, Ont. “Canada already has a market presence in Japan, and it is a great market.”

So far, Canada has played nice with Europe when it comes to beef and pork trade. The basic approach is this: if the EU exports pork and beef to Canada, it means EU farmers are making money because of CETA.

Then, Canada can make the argument that trade should flow both ways so that Canadian and European farmers benefit.

However, there is a chance that Europe could introduce new barriers to Canadian meat, such as rules around veterinary drugs.

“The over-simplification says in the EU, they use … product A, B and C,” said Gary Stordy, the Canadian Pork Council’s director of government and corporate affairs.

“In order to import meat into the EU, you have to use the same products.”

Such a regulation is problematic because Canada has a different climate and different livestock diseases than Europe. As well, an antibiotic used in France may not be available in Canada.

“Some pharmaceutical makers do not register (the product) in every single market,” Stordy said.

In the meantime, livestock industry representatives maintain that Canadian farmers will benefit from CETA. They say European buyers do want Canadian proteins, particularly beef, and exports will increase.

“They absolutely want it. They’re paying over $15 a kilogram for (beef). That’s our highest value market on the planet,” Masswohl said.

“We need to make more of it…. I think it’s the kind of thing where confidence builds confidence.”

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