International Trade Committee on May 3rd, 2012

[John Masswohl]

We're working on a lot of research projects in a number of areas. Some of them are research related to production, feeding cattle, and better forage. It's not only growing better forage and getting better yields on feed grains, because it's such a high cost; it's also how you manage forage. There are things related to the environment, greenhouse gas reductions, and sustainable production. These issues are on the minds of consumers, and more so in some countries than others.

If research can demonstrate why raising cattle in Canada on natural grassland and pasture, keeping that pasture productive, supporting species at risk and migratory birds, and all those sorts of things.... That can be a very good story in a lot of markets. I think the Japanese market has an image of Canada as a country with large open spaces, mountains, clean air—all of those very positive images. Having the research and the ability to tell those stories definitely help us market our product.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Now to our gentleman from the pork industry, I wonder if you can expand on your statement that you expect that pork will be one of the very last items to be dealt with in negotiations, if not the last. Obviously that means there are some sensitivities and difficulties around it. Can you tell us what you see as the context or the difficulties with that issue?

[Jacques Pomerleau]

It's just because of the complexity of the Japanese pork import regime. We will need time to try to figure out the various options to negotiate. It's nothing new here, because we know we'll be the last one to be dealt with at the EU. We are one of the last ones with Korea. It always happens. It's always a sensitive item.

That's the reason, but we are not complaining. I'd rather be at the end, so the negotiators will have the opportunity to fit us in somewhere and get a deal. It will also give us a lot of time to develop a position. Right now, because of that unique pork import regime, we need to figure out what our asks will be.

[Don Davies, NDP, Vancouver Kingsway, BC]

Well, I would suggest sending them some bacon to soften them up.

[Voices]

Oh, oh!

[Don Davies, NDP, Vancouver Kingsway, BC]

I was going to ask you about that. You've also described the Japanese system as “a duty differential system articulated around a minimum import price”.

[Jacques Pomerleau]

Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

If you can, please explain to us how the duty or the tariff is structured in Japan now.

[Jacques Pomerleau]

Oh boy—even my own people do not always understand what the whole thing is about. I will try my best.

In order to get into Japan, each shipment must meet a minimum price, which was established under the WTO Uruguay Round. Before the WTO agreement, it was fluctuating every day based on the actual prices in Japan on hogs, so it was a hog price stabilization system and they were taking the average.

But now it is transformed into an actual minimum price, so if you want to sell your loins or tenderloins to Japan, you have to meet that minimum price. Where we are at a disadvantage is that.... And when you are at that price, you pay a duty of 4.3%. If you're coming in below that price, then you pay the difference between the actual selling price and that gate price, plus the 4.3%. But count on the Japanese ingenuity. Nobody pays that difference, okay, and it creates a big issue in Japan right now.

[Don Davies, NDP, Vancouver Kingsway, BC]

So it's a complex issue.

[Jacques Pomerleau]

It's a very complex issue. Also, we are subject to the same safeguard as the beef industry. That safeguard is 19% in our case. It then kicks up the minimum price by 24%, which means that it becomes even more difficult to sell cheaper cuts.

Also, the fluctuation of the yen is such that.... In any other country, if your dollar devalues, then you have an advantage, but not in Japan. If you have a minimum import price in yen, if your dollar devalues it means you have less ability to sell higher-value products. It's very tricky.

[Don Davies, NDP, Vancouver Kingsway, BC]

Yes.

[The Chair, Conservative, Rob Merrifield]

Thanks very much.

Mr. Keddy, the floor is yours.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

I welcome our witnesses. It's great to have you back again and great to have your support for this agreement.

Also, thank you for that explanation. I didn't mark all of it down, and I don't think I could go back through it again just from memory.

[Jacques Pomerleau]

I could forward to you a 20-page explanation if you need it.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

It's fairly complicated, without question.

A number of points come out of your testimony. The first one I'd like to explore is the international pork marketing fund. You discussed that at some length and discussed the fact that you'd like to see it rolled over for another five years.

Would you assume, though, that the end of the second five-year period would be a sunset and an end clause to allow us to get market presence, not just in Japan but throughout Southeast Asia, China, and other countries as well, and that you would probably be able to self-sustain it yourselves at that point?

[Jacques Pomerleau]

First, the IPMF is similar to the legacy fund of the beef industry. We are talking about two items that are similar.

Okay, I would have to say no—

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Fair enough.

[Jacques Pomerleau]

—because you have to take a look at what our competitors are doing. The Americans especially have very deep pockets. The U.S. budget is close to $25 million or $30 million. Of course they handle both pork and beef, but between the two of us, beef and pork, we don't get close to that amount.

We are not 10% of their exports, okay? That's one thing we have to realize. We are a significant player. We are not as big as the Americans, but we are not that far behind. In pork we are at more than half of what they are exporting. Three years ago they were behind us. They used their significant money....

Let me tell you, though, that we were fortunate that we didn't have an incident like BSE. Otherwise we would have been stopped all over the place.

The U.S. now represents less than 30% of our exports. We have identified other new markets that we could get into if we could finalize agreements. There is big potential for us in Argentina. Australia is a big market for us. People don't realize that. If we were able to eradicate...or to change our health status in Canada, we could make significant inroads in markets like that.

You should see where we are moving with Russia: 15% of our exports are going to Russia. Now we have the ability to move into the high-end, very top restaurants in Moscow. Let me tell you, those guys have the best restaurants in the world right now.

Those are the kinds of things we could do with that fund. It will always evolve. That's why I can't say that we will be self-sustaining after five years.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

No, and I appreciate that. The bottom line becomes that if our competitors in the world marketplace are offering programs that impinge upon our ability to export, then it's important that we find a way to assist our exporters because of that.

So it was just a question. I wasn't trying to cut you off at the knees there.

We look at the potential of this agreement as a fantastic opportunity for Canadian pork, Canadian beef, and a whole realm of exports not just in agriculture but in manufactured goods as well. The Japanese have come to the table for the first time in a long time in a very serious manner, and I don't think any of us would disagree that we can't allow this window of opportunity to escape us. The fact that pork has some special challenges we appreciate; beef has them as well.

Mr. Masswohl, to go from 21 months to 31 months seems to be quite attainable. I would expect that to eliminate the specified risk materials in the Japanese marketplace, where they're very health and safety conscious, especially in their food products, might be a greater challenge.

Do you think there is some ability here to move from the 21 months to the 31 months?

[John Masswohl]

Yes. I'm quite optimistic. In fact there is a process that has started to do that. They have an independent body, called the Food Safety Commission, outside of government. It's a panel of scientific experts. Before the government refers an issue to the Food Safety Commission, they float a trial balloon amongst the public to see what the reaction would be to whatever it is they ask the commission to evaluate. They did float that trial balloon last fall about raising the age from 21 months to 30 months. There was no negative reaction from the public, so they did proceed. The committee has started its work. It's had a couple of meetings.

I expect the next step will be that the Food Safety Commission will do some public consultations of its own, and probably the Food Safety Commission will report back to the government. Then the government, once it has its recommendation—we can't prejudge what that recommendation will be, but let's hope it would be positive, that they recommend the government could increase it to 30 months—would do some formal public consultations.

If that all works out, they would accept the recommendation.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Do I have time for a quick question?

[The Chair, Conservative, Rob Merrifield]

You've got 20 seconds.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I just wondered if either of our witnesses would care to comment on CAFTA's announcement on the trade agreement.

[John Masswohl]

What is CAFTA's announcement?