Thank you, Mr. Chairman. Thank you for holding this hearing on international trade and inviting us to advise the committee on trade policies, which are needed by Canada’s nearly 100,000 cattle producers.
My name is Darcy Davis. I am an elected member of the Canadian Cattlemen’s Association’s board of directors, and I am the vice-chair of our foreign trade committee. I own a cow-calf operation near Acme, Alberta.
With me is John Masswohl, who runs CCA's Ottawa office.
Canada's cattle producers are highly dependent on international trade for our livelihood. We learned very vividly how the loss of access to international markets impacts our industry. When we lost every single one of our export markets for both cattle and beef on May 20, 2003, we lost the outlet for nearly 60% of our national production. Until the United States and Mexico resumed limited imports of Canadian beef in the fall of 2003, our industry was losing approximately $11 million every day.
We have gradually fought our way back into the international market with a series of steps. The public might recall a major milestone being reached when some live cattle exports to the U.S. resumed last July, but there is still a long way to go. Today, we estimate that the industry is still losing $1.2 million to $2 million every day from lack of full access to the U.S. Globally we have partial access to five of what were the top 10 export markets in 2002.
But cattle producers are a strong-willed and determined bunch. We are determined not to be as vulnerable as we were back in May 2003. Firstly, we learned that we have to be less dependent on exporting live cattle, so we have increased slaughter capacity in Canada from 72,000 to a little over 100,000 head per week.
Rather than just export all that extra beef to the United States, the second lesson we learned is that we need to be more diversified in our markets. That leads us directly into the importance of the WTO negotiations. Excessively high tariff protection and non-tariff barriers in several countries impair Canada's ability to export our high-quality beef to their markets.
Europe effectively prevents Canadian beef producers from accessing a market that consumes eight million tonnes of beef per year. Japan’s beef tariff is 38.5%, which can be increased up to 50% whenever they want to protect their domestic market. Korea's beef tariff is 40%. Markets with huge future potential, such as China and India, have beef tariffs in the 25% to 35% range. Either access to these important markets must improve, or Canada will need fewer beef producers.
We understand that Europe, in particular, intends to designate beef as a so-called sensitive product. For this reason, Canadian negotiators must be charged with placing a high priority on ensuring that sensitive products are not exempt from making significant increases to market access. To be very specific, Canadian beef exports to Europe are subject to a minuscule 11,500-tonne quota—shared with the U.S.—at a 20% rate of duty. Beyond the 11,500 tonnes, Canada beef attracts an additional duty in excess of €3,000 per tonne, equating roughly to some 140%.
Canadian negotiators must seek an outcome that does three things to the European beef tariff: first, we have to expand the size of the quota for North American beef up to some 300,000 tonnes; second, we have to eliminate the 20% in-quota tariff; and third, we have to get a significant cut in the over-quota tariff rate.
I also want to note that any beef exported to Europe must meet European standards. The cattle must be raised without using certain growth promotants, and the beef must be processed in a facility configured in a particular manner. If as a cattle producer I decide to produce for the European market, I have to commit to raise my herd according to European standards, and that takes approximately two years for each animal. It is more expensive to raise an animal that way, so I will do it if and only if the market access is there. The 11,500 tonnes isn’t enough access for the cattle producer to make the two-year commitment, and it isn’t enough for the slaughter facilities to make the capital investment.
Overall, we believe Europe should permit some 10% to 15% of its domestic beef consumption to be imported. Currently, they allow about 2%.
I would like to spend a moment to comment on some bilateral free trade initiatives that are currently under way or may be under contemplation, namely with Japan and Korea. These were Canada's third and fourth largest beef export markets in 2002.
We would welcome duty-free access to these markets and support free trade agreements with both, for that reason. However, we have concerns that neither Korea nor Japan are living up to their existing sanitary and phytosanitary obligations. The World Organization for Animal Health, the OIE, requires the acceptance from BSE countries of beef animals up to 30 months old. Japan is currently accepting Canadian boneless beef only from animals under 21 months old, and Korea is providing no access at all.
I hope the prospect of free trade agreements will help to resolve these outstanding issues and create even greater access than we had in 2002. But before Canada signs off an eventual agreement, we have to make an assessment as to whether existing obligations are being respected.
On the beef import side of the equation, Canada's WTO obligation is to allow 76,409 tonnes of duty-free beef imports from non-NAFTA countries. Imports above this quantity are supposed to be subject to a 26.5% duty. However, prior to the BSE crisis in 2003, the Minister of International Trade would routinely authorize supplemental imports so that imports in the neighbourhood of some 130,000 tonnes were annually coming in duty-free from Australia, New Zealand, and South America.
Without supplemental imports, Canadian beef users have utilized domestic beef coming from our new slaughter capacity. If we want to keep the new slaughter capacity, the discontinuance of supplemental imports must be permanent. That said, we would not stand in the way of reciprocity and improved access coming as a result of trade negotiations.
Although my presentation today has focused primarily on market access, I do want to state that the beef industry depends a great deal on a sustainable grain-growing sector. Where there is corn, barley, or wheat, we all know that many factors, including trade-distorting subsidies, have had their impact on Canadian grain growers.
I see three potential futures available to them: one, the WTO will succeed in significantly reducing production and trade-distorting subsidies around the world; two, grain farmers will be protesting on Parliament Hill every year, looking for you to match what others do; or three, there will be fewer grain farmers.
Growing less grain in Canada is not what Canadian cattle producers want. The future of Canada's nearly 100,000 beef producers truly is global. Without exports, approximately 50,000 to 60,000 of us would have to find another way of making a living.
Please ensure that the Government of Canada pursues ambitious export-oriented trade policies that enable Canada's beef sector and the majority of Canadian agriculture to grow.
We'd be pleased to answer any questions. Thank you.