I would first like to thank the members of the House of Commons Standing Committee on International Trade for inviting Canada Pork International to present its position for the second time on a trade agreement between Canada and the Republic of South Korea. Things have evolved significantly since our first appearance before this Committee in June 2006.
Before I proceed any further, I wish to formally introduce our organization and the sector it represents. Canada Pork International is a joint initiative of the Canadian Meat Council, representing the pork packers and trading companies, and of the Canadian Pork Council, which is the national hog producer organization. Specifically established to be the export market development agency of the Canadian pork industry, Canada Pork International is mandated to identify export market opportunities and to seek and maintain access to foreign export markets.
In 2007, the Canadian pork industry exported for over 1 million tonnes of products, worth around $2.5 billion, to nearly 100 different countries and this does not include the 8 million live hogs, worth over 700 million dollars, being shipped annually to the US.
Canada now ranks as the world’s third leading pork exporter, only preceded by the European Union and the United States. We were first before the steep depreciation of the US dollar. Brazil and Chile also constitute competitors that need to be taken seriously. Canada’s share of the total world’s pork trade is nearly 22%. As more than 50% of Canadian pork production is exported every year, exports are essential to ensure that the Canadian pork industry continues to prosper.
Despite the return of US beef on the Korea market and the highest levels in years reached by the Canadian dollars, the Republic of Korea was Canada’s fifth largest pork export market in 2007 with sales approaching $130 million. In the years that followed the exclusion of Korean exports to the Japanese market because of a foot and mouth disease outbreak in 2000, Korea was mostly a commodity market. However, Canada and other suppliers such as the United States are shipping increasing amounts of chilled pork into Korea that are destined directly to the retail and HRI sectors. Korea is probably the best market in the world for shoulder butts, and a significant market for bellies. In order to prosper and to survive, the Canadian pork industry needs to have access to all the markets offering the highest returns for each part of the animal.
Canadian pork exports to that country doubled between 2004 and 2005. We expect that this market will continue to grow over time, albeit at a lower pace. In spite of those impressive results, the strengthening of the Canadian dollar was also felt in that market as our American competitors tripled their sales in Korea to become the leading foreign supplier.
High production costs, continuing problems with swine disease outbreaks, implementation of strict environmental regulations and an aging producer base will not allow the South Korean national production to keep pace in the long term with an ever increasing demand. In fact, it is likely to decrease when Korea will ban in 2008 the disposal of swine manure in the deep sea, which accounts for 25% of all disposal methods and amounts to 2.3 million tones. In light of what I just mentioned, Korean pork imports are forecast to almost double in the next ten years and could reach 600,000 tonnes.
As you are all aware, in the spring of 2007 the U.S. and Korean governments reached an agreement that will seek the elimination of most tariffs on pork for a period of seven years, originally leading to a complete elimination by 2014. Canadian pork exports to Korea cannot be sustained for more than one year after the beginning of the phasing out of the tariffs on pork without being completely kept out of the Korean market. It is therefore not only crucial that Canada reaches an FTA with Korea, but it is imperative that the gap between the signature of the U.S. agreement and ours does not result in a tariff reduction schedule that is different from ours.
The Canadian pork industry is currently going through its most severe financial crisis in history. We are expecting that a significant number of hog producers will continue to cease their activities because of the hard time caused by the conjunction of the record-high Canadian dollar, the record-high feed prices due to the high demand for corn by the subsidized ethanol sector in the U.S., and a worldwide oversupply situation of meat proteins. In the current context, the signature of an FTA with Korea is not considered as a bonus that can give Canadian pork exports an edge over our competitors. It is simply a question of survival of our exports in the market and not taking any further blow that can make our situation grow ever worse.
Canada Pork International is starting this year a retail promotion campaign in Korea for Canadian chilled pork. In the case where Canada would be unable to reach a free trade agreement with Korea, efforts to tap into the growing opportunities provided by the Korean fresh pork market would have to be abandoned. The implementation in 1995 of the WTO Uruguay Round Agreement forced the Republic of Korea to open its much-protected pork market. Aside from the last three years, where the U.S. dollar has started to come down, Canada has been the leading foreign pork supplier to Korea, with a market share of around 25%. This was achieved through hard work from Canadian exporters and the strong support provided by the Canadian government.
In recent market studies Canadian pork clearly stood out as the preferred product among Korean importers because of its quality and its consistency. We would like to be able to take that story further and become the preferred supplier among Korean consumers. Disappearing is not an option we want to consider at this point.
In 2004 Korea and Chile signed a free trade agreement by which Chilean pork has recently emerged as a fierce competitor that will receive unlimited duty-free access by 2014. In a scenario where the U.S. Congress will reject the U.S.A.-Korea FTA and Canada was able to reach an FTA with Korea, we strongly believe that our exports to Korea could reach $500 million in the next five years.
We understand that the FTA negotiations have progressed to a situation where we have an agreement in agriculture for basically all products except for beef and pork and that the Korean side has a smaller appetite to give to Canada the conditions they granted to the US, because of the strong pressure applied by domestic livestock producers after the signature of the FTA with the United States. It is crucial, and has been our negotiation position now that we know what our competitors have obtained, that Canada receives a treatment that is better or at least equivalent to the one given to the US, if we do not want to see our pork exports to Korea and by the same token a significant part of our producers disappear. The inclusion of a Most Favored Nation (MFN) provision in our FTA is the key to a successful FTA with Korea. It would protect us against a better agreement that other competitors such as the EU could get in the future. We have kept in close contact with Canadian bilateral negotiators for agriculture to make sure that our position is known and clear.
So far, none of the FTA negotiations undertaken by the Canadian Government with trading partners such as EFTA (Switzerland, Iceland, Norway and Lichtenstein), Jordan, Singapore (0% tariff already) and the CA4, can provide access that is significant enough to provide real relief to our industry. The Canada-Korea FTA is the only one that really matters to us and we desperately need it to happen.
Thank you.