Good afternoon. My name is Ray Price. I'm the president of Sunterra Meats, and this year, I'm the president of the Canadian Meat Council.
It's certainly a pleasure to be here today to speak to you on the topic of an economic partnership with Japan. The Canadian Meat Council is a long-standing national industry association that's been representing federally registered meat packers and processors of beef, pork, horse, lamb, and veal since 1919. Canada's meat processing, packing, and rendering industry is the largest food processing sector in Canada, with close to 70,000 employees and gross annual sales of over $24 billion.
At the outset, let me say that the Canadian Meat Council is a very strong proponent of free and open international trade. We welcome the government's initiative to negotiate an economic partnership with Japan. With trade representing 63.9% of our economy, Canada already has one of the most open, globally competitive economies in the world.
With regard to meat products, Canada already allows free, open access to imports from all countries in the world for pork, lamb, and horse meat, with zero import duties and no quantitative restrictions.
Canada's beef and veal industry is keen to open up access to beef imports from Japan in exchange for free and open access to its market.
Trade is incredibly important to our industry, as we have the ability to produce a lot more food than Canada's 34.9 million citizens can consume. In 2011, we exported over $1.3 billion of beef and veal and over $3.2 billion of pork to over 150 countries around the world. Of that amount, $852 million of pork, $81 million of beef and veal, and $16 million of horse meat were destined for Japan.
Japan is the third largest economy in the world after the United States and the People's Republic of China. It has a large affluent population of nearly 128 million. Its imports are estimated to represent 60% of agricultural and food products consumed domestically each year.
The Japanese market imports over $8 billion of pork and beef products, even with their very punitive tariff and import structure. In 2010, Japan consumed 21% of Canada's meat exports, or 7.5% of Canadian food manufacturing exports. Needless to say, there are definitely untapped opportunities in Japan. An economic partnership with Japan represents an opportunity for our industry to secure and grow our exports of chilled and frozen meat products to that country.
What should we be looking for to enhance market access? There are non-tariff barriers that can distort trade. In 2003, Japan put in place a total prohibition on Canadian beef, lamb, and bison imports in response to the discovery of the first domestic case of BSE in Canada. In December 2005, it partially lifted the prohibition to allow beef only from Canadian cattle 20 months and under. That restriction remains in place today, despite a request by the Government of Canada in 2008 to allow the further expansion of imports.
We acknowledge the support of the Government of Canada in convincing the Japanese authorities to remove these age restrictions. Opening access to beef under 30 months of age would be a good first step, and we understand that this is under consideration in Japan at this time. We also would like to have lamb and bison access reopened, as all imports of these products were caught up in the BSE closure in 2003.
On a go forward basis, the economic partnership agreement with Japan is a positive development for the Canadian meat processing industry. The agreement should set the framework to remove some of the non-tariff barriers that can still limit market access.
With respect to tariffs, Japan's applied tariff on beef is 38.5% on the Canadian side. With the reduction or removal of these trade barriers, we believe that the potential for beef exports to Japan could easily triple to reach $250 million to $275 million.
Unlike beef, Japan's pork regime has been operating under a complex differential duty system known as the gate price system. Gate price is a minimum import system set at 524 yen per kilogram of pork cuts, to which a 4.3% duty is levied. The gate price amounts to $6.55 Canadian per kilo, with another 28¢ of duty, at today's exchange rate. In a simplistic way, if you ask what the impact of that is, well, right now, a pig in Canada is worth about $130. In Japan, the same pig is worth $430. From that perspective, it makes a big difference in the protection it affords the Japanese. It's obvious that the gate price has that big an impact.
In addition to what I mentioned, there is also a safeguard system that actually will kick in if imports are triggered more than a certain level over the average of the previous three years. That has disrupted the flow of meat products in the past as well.
With respect to pork products, the objective of the economic partnership agreement should be focused on seeking substantial reductions in pork tariffs and on reform of the gate price and safeguard systems.
By way of illustration of the potential impact of an agreement for both beef and pork, Mexico signed an EPA with Japan in 2005, even though compared to Canada they are really not a competitive place for producing pork and beef. Their pork exports to Japan increased by over 60% in the four years after the agreement came into force. As for beef, there have been dramatic increases as well.
Prior to the EPA, there was very little beef exported to Japan from Mexico. Now Mexico sells more beef to Japan than Canada does.
While all trade deals are complicated, perhaps a simple example can be used to show the impact. If the 4.3% tariff on pork was eliminated for Canada, it would be roughly about $12 per head of increased revenue. That's significant for Canadian processors and producers. Similarly a 7.7% reduction in the beef tariff, which is what Mexico has for their portion of shipments, could be the equivalent to over $70 per head in beef.
Of course, there is also a great risk in not doing a deal, as Barry just mentioned, using the Korean example. If we don't do a deal, we would be in a much worse place than where we would be if we could get a deal done.
In closing, allow me to reiterate that the Canadian Meat Council fully supports the government's trade strategy. An economic partnership with Japan is an important component of that strategy. Fundamentally, Canada is a competitive, high-quality producer of meat, with the geographical advantage of having the closest North American ports to Japan. Without a doubt, the economic partnership agreement with Japan will enhance agricultural trade flows to Japan. It also will allow Canadian meat packers, processors, and livestock producers to enhance their viability and diversify their markets through increased trade.
Thank you for the opportunity to share our comments with you. I'll be pleased to answer your questions.