What will the TPP mean for your farm?

AME Management: Overall, Canadian farmers get increased market access from TTP, plus better dispute settlement.

Photo: Thinkstock

The October 2015 Trans Pacific Partnership (TPP) agreement is a substantial trade treaty for its 12 members, and like other trade treaties, it will introduce concessions on market access, such as tariff reductions and increased import quotas, as discussed below.

But there is also considerable focus on food safety regulations as well as on biotechnology and organic standards, since these can be major sources of non-tariff barriers (eg. I may try to make my food inspection rules or my organic standards a little different than yours so I can keep yours out).

TPP addresses transparency in such rules, using science-based criteria, and it also establishes dispute-settlement processes for some or all of them.

These may eventually be the most important parts of TPP. When market access barriers come down following trade negotiations, protectionist pressure is brought on legislators to replace them with non-tariff barriers, as illustrated by the U.S. mandatory country-of-origin labelling (MCOOL) that took Canada’s beef and pork industries eight years to finally bring down.

Market Access

The agricultural and food prize in TPP was the highly protected Japanese market, followed by Vietnam and Malaysia. Improved access to these markets will provide opportunities for many farm products, especially if additional countries eventually join, such as China.

Many of the remaining signatories, although potential markets for some Canadian products, tend either to be Canada’s competitors, such as Australia, the U.S., Chile and New Zealand, or they are relatively small, such as Brunei, Singapore and Peru.

In addition to Canada’s gains in access, TPP levels the field with Australia, which had a major advantage in the Japanese market for products like beef and canola through a bilateral treaty between the two countries.

TPP also contains potential gains for Canadian farms, agribusinesses and food companies. Some major opportunities are:

Japan reduces its 39 per cent tariffs for beef and pork to 9 per cent over nine years, and will phase out additional “over gate” tariffs on pork.
Vietnam and Malaysia phase out or substantially reduce tariffs for beef and pork (and most other products). Current Vietnamese tariffs are around 30 per cent. Detractors point out that these countries don’t import much, a fact consistent with 30 per cent tariffs!
TPP will substantially reduce tariffs for grains and phase out of Japan’s respective 10.9 y/kg and 13.2 y/kg tariffs on crude and refined canola oil.
Where tariffs are not immediately phased out, many countries will establish tariff rate quotas (TRQs), under which an amount of product can be shipped at no or very low tariffs.

Supply management captured the most Canadian media coverage during the negotiations. The U.S. and New Zealand hammered Canada publicly, but in the end the yardsticks didn’t move that much. Canada increased dairy TRQs by 3.25 per cent and those for chicken, eggs and turkeys by 2.1, 2.3 and 2.0 per cent, respectively.

Still, Canada’s dairy industry will have little opportunity to use U.S. TRQs and it faces increased pressure from the limited increase in our TRQs, largely because of decisions the industry made several years ago. These resulted in agreement by Canada that all Canadian dairy exports are subsidized and, therefore, not allowed. The problem is that Canada is short of dairy fats, but has a surplus in protein. Since Canada essentially can’t export, that creates a growing surplus of skim milk powder.

Even a 3.25 per cent increase in imports, along with increased cheese TRQs in the European agreement, will put considerable pressure on Canada’s dairy industry at its current prices.

Several alternatives exist for adjustment, but all suggest that “adjustment” will be the order of the day for dairy farmers.

Canadian poultry industries have put themselves in a more positive position and can likely see some adjustment toward being more export oriented, so long as it is done carefully without encouraging trade disputes.

Bottom Line

The Harper government had offered supply management compensation if the deal injured them, but at press time, the Trudeau government had yet to lock itself into a specific compensation package. It is our expectation that the Liberals will focus support on agriculture, because its strength is essential in this economic environment.

That said, the treaty’s ratification means most Canadian farmers will not only have increased opportunity, but also an increased need to be competitive with other countries that also got improved access.

Larry Martin

Larry Martin is a principal of Agri-Food Management Excellence and is one of the instructors in AME’s Canadian Total Excellence in Agriculture Management (CTEAM) program.

Source: Country Guide