International Trade Committee on Feb. 4th, 2008

[The Chair, Conservative, Lee Richardson]

Thank you.

Monsieur André.

[Guy André, Bloc, Berthier—Maskinongé, QC]

Good afternoon. I'm very pleased that you're with us today. I'm very much interested in agriculture. You're very important for us in Quebec and for Canada as a whole. I would also say that you are important in the rural world as well. I come from a rural riding, and I'm always concerned about how agriculture is doing. When it doesn't do well, the rural community does poorly as well. There's a lot of talk about the survival of our rural communities and the fact that survival is directly related to the good health of agriculture.

I listened to you all, and I of course noted that you seemed to be unanimously in favour of the Canada-Korea Agreement. The elimination of tariffs will enable you to export more to Korea. One issue is the difficulties the pork and beef industries are experiencing, and I'm going to come back to that later. Wine and canola, among others, are also very important sectors for you. Moreover, as you are no doubt aware, representatives of other sectors have appeared before this committee. We've met with representatives of the automotive industry, and they presented data showing that a free trade agreement with Korea would push Canada's trade balance with that country into a significant deficit.

As parliamentarians, we want to ensure that the agreement is fair. We want it to benefit the agricultural sector because we believe in it, but we note that other sectors are less comfortable with this agreement. Have you determined whether the agreement might in fact be favourable to one sector and unfavourable to another? Do you believe it would be possible to negotiate provisions that would make this agreement less harmful to the manufacturing sector, while supporting exports to a greater degree? In your view, what room to manoeuvre could we exploit?

As regards BSE, the beef association stated that we should suspend our negotiations with Korea until it opens its borders to beef. What is your opinion on that subject?

[Edouard Asnong]

As regards your first question, I haven't conducted an analysis—and I don't believe that Martin has either—on a potential trade deficit that might be caused by better access to Korean motor vehicles in Canada. We haven't conducted that exercise. However, we have done an evaluation of the free trade agreement that the Americans have managed to negotiate. I don't know either what's provided for the automotive sector in that agreement. That situation perhaps explains why the agreement has not yet been approved in the United States. One thing is certain: we can't let others sign agreements that simply take us out of the market. We can't; that would be suicidal. In those conditions, it would be better to shut down immediately.

[John Masswohl]

If we look at what the opportunities for beef in Korea would be....and that's what we're looking at, because we represent independent farmers, small producers, and basically we get paid to represent them, and I know that the auto manufacturers and large multinational companies have people who represent them and do that very well. But as we look at beef, in my presentation I talked about how Korea and Mexico, from 1994 to 2002, sort of traded places between our third and fourth largest export markets. Back in 1994, we were sending about 1,500 to 2,000 tonnes of beef to both Korea and Mexico per year. It was very close. Let me just look at my numbers. That was about $2 million or $3 million worth. As we get into the late 1990s, we've seen good growth into Korea; we're shipping 17,000 tonnes, and that represents about $30 million worth of beef. But now that in the 1990s we implemented our trade agreement with Mexico, our exports to Mexico have just exploded. We're sending in the neighbourhood of 70,000 to 80,000 tonnes of beef to Mexico each year--that's with our U.S. competitors right on their doorstep--getting up into $300 million worth of beef.

So we can see what can happen with a tariff reduction and we know that the Korean market is very sensitive to that tariff reduction. Think of it--a 40% tariff. If we can get that reduced down to zero, we can do trade in the neighbourhood of what we've done in Mexico into Korea. So I think it's a matter of going to trade in the order of $30 million a year to $300 million a year. I think we could see a very dramatic increase in our exports to Korea.

I'm trying to remember what your last question was.

[Guy André, Bloc, Berthier—Maskinongé, QC]

The evidence given by the Canada Beef Export Federation stated that we should stop free trade negotiations with Korea until the country opens its borders to processed beef products from Canada. Its representatives stated that in June 2006. I'd like to hear your comments on that subject.

[John Masswohl]

Right. Thank you for that reminder.

About a year and a half ago--and I think that's when the beef export federation was here--we discussed with them what our strategy with Korea should be. At that time we were extremely frustrated that Korea would not even speak to the Canadian veterinary negotiators about opening. I'm pleased that since that time, especially since we received the controlled risk status at the world animal health organization, Korea has been a little more open in talking to us.

Where we sit right now is that Korea has an eight-step process that they've given us for opening the market, and we are currently at step six. Step six is negotiating what the products will be, what the access will be. Step seven is that they make it public, and step eight is that they come over here and look at our plants. So we're very close to the end.

I would like to stress that our request is not that negotiations be suspended. In fact, we would like the negotiations to be intensified to get to the finish line, and if that happens, then we will be one of the strongest supporters of this free trade agreement.

[The Chair, Conservative, Lee Richardson]

Thank you.

[Robert J. Keyes]

Mr. André, I would just say that we've looked at this vis-à-vis our--

[The Chair, Conservative, Lee Richardson]

Excuse me, Mr. Keyes. We have exceeded the time for each question. In the first round we ask each member to limit questions and answers to seven minutes. We have exceeded eight with Mr. André's question. So I'll have to get you to catch up in the next round.

Mr. Miller.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Thank you, Mr. Chairman.

To all the witnesses, thanks very much for coming here today.

We heard a little bit of discussion, and I just want to carry some of Mr. André's questions a little further. I'll try to keep my questions brief and perhaps we could do that in the answers. I have a lot of them here.

First of all, I just heard Mr. Masswohl talk about how potentially they could move beef sales up to $300 million. Do you have any figures for the other sectors, in either tonnes or dollars, where a Korea free trade agreement might help your industry? If you don't have any of them we can move on, but....

[Martin Lavoie]

Well, there are different scenarios to it. I know for sure what the result of our not having a free trade agreement when our competitors do is going to be: in more than a year, this is going to be zero.

As you know, things are changing quickly in the meat sector, with foreign animal disease and currency exchange. In a context where the U.S. would still have access to that market, where we have competition with the U.S., we would easily reach, I think, $300 million; and if they're not there, I think there's $500 million to be shared. We've talked also about the reduction of the domestic production in Korea, which is going to be significant. The figures on the forecast come from a study that we buy. It's forecast from here to 2015, and we based our numbers on this. That meat is going to be displaced from other markets. There's a production capacity in there, but there are some signals for increased consumption, increased revenues, and diminution of domestic production. To us, all of that leads to greater opportunities.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Okay, thank you.

Are there any figures from Mr. Keyes or Mr. Hickling?

[Dave Hickling]

Our current market is about $45 million worth of sales of canola oil. We think we can double or triple that with a successful free trade agreement over time.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Okay, thank you.

Carrying that farther, have you any kind of estimate on what the value-added part of Canadian...whether it be livestock or other, might be? Is there any room for some gain in value-added in our industry?

Again, try to keep the answers brief if you can.

[Martin Lavoie]

In the last three years in--I don't know how it was translated into English--chilled pork, which is fresh pork, our sales have really been picking up. This is where the U.S. made most of their growth. There are obviously a lot of opportunities in this sector.

As we mentioned, we are launching a retail promotion campaign this year in Korea. There are two markets in which we do that: Japan, which is our largest market, and a small project we have in Singapore. It's a small and wealthy market. We are in over one hundred countries. That alone shows the importance of the value-added part.

Obviously we should not underestimate the commodity product, because we're also sending neckbones and backbones to Korea. They're frozen products for soup making. These are the dollars that could make the difference at the end of the day between making money and losing money. It's crucial that we use the whole animal in the pork business.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

John, go ahead.

[John Masswohl]

I was going to say, as I look at the trade, how it's evolved with Korea. It used to be that we sent mostly tongues and stomachs, the beef offals. They face an 18% tariff in Korea. The beef cuts, like the rib-eyes, the short ribs, the chuck roll, have a higher value. Those face a 40% tariff. But since we put a Canadian Beef Export Federation office in Korea, which helps account for some of that growth, most of the growth has been into those higher-value cuts. I just look at the stats. In 1993, the average Canadian dollars per kilogram was $2.56, whereas in 2002 it was $3.45. So the value per kilo of what we've moved into Korea has moved up.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

It has moved up.

There's been a lot of talk about a number of issues, but particularly about the high dollar in comparison with the American dollar, and especially about what it's done to agriculture in general, but in particular to the livestock industry right now. That has a lot of us thinking. Because we export so much--not just agricultural products, but everything--to the United States, should we be diversifying our export market? The easy answer seems to be yes.

Are there any comments towards that from anybody?

[Martin Lavoie]

Canada Pork International was created to diversify exports away from the U.S. market. Actually, our mandate for promotion excludes the U.S.

I think we realized that after a few countervail duty inquiries. It goes back to the beginning of the 1990s, where we made that decision. So obviously it's extremely important for us to diversify away from the U.S. market.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

So the more of these types of agreements, Mr. Lavoie, the better, in your opinion. Would that be a fair statement?

[Martin Lavoie]

Yes, especially for significant markets such as Korea. We're facing a situation where some of our competitors, such as Chile, have done a fantastic job in reaching Korea, the EU, and Mexico, and with Japan. I think, as I mentioned, we've been focusing on markets that do not matter as much to us.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

For my last question unless I have more time, going back, Mr. Keyes, to some of the comments you made about your industry—and I'd like all of you to comment on this if you can—would you not agree that this, possibly an agreement with Korea, would have the potential of opening up other markets in Asia? What kind of potential do you see there?

[Robert J. Keyes]

Yes, I think it would certainly help our other markets in Asia. We have a good market in Japan, but it has tailed off. But in the region, absolutely, being there through Korea will have a big impact.

In answer to your last question, diversification, diversification, diversification is the way we have to go, and we're seeing that now. Korea has overtaken the United States as our number one icewine market last year. So there's very strong growth, and all the signs are very positive for that. And of course we want to provide the red and white wines to go with these other wonderful meat products that we're talking about here, so it's a complementary effort.

[Dave Hickling]

If I could add to that from the canola side, there are a number of other countries in Asia that have prohibitive tariffs or differential tariffs on canola oil. Korea's neighbours across the Yellow Sea, which is one of our largest markets, has a very significant impact on the price of canola oil. Anything we can do as a foothold into that region, especially if it's based on a successful outcome, on fair tariff reduction, I think, would act as a template for other markets in the area.

[The Chair, Conservative, Lee Richardson]

Thank you. Larry, I think we have to cut it off there. You're at about eight minutes.

We'll move to Mr. Julian.