SUPPLY MANAGEMENT, GRAIN GRADING AND THE PATH FORWARD
BY SAM GREEN
Policy and Markets Analyst, Alberta Wheat Commission and Alberta Barley
With the renegotiation of NAFTA slated to begin in just a few short weeks, the Alberta Wheat Commission (AWC) has been working diligently to assess the potential impacts of these trade talks on the Canadian grains sector, and to communicate producers’ concerns to the federal government.
Key to these efforts was AWC’s contribution to the Government of Canada’s NAFTA consultations — a public forum hosted by the government that allowed Canadian businesses, civil society, individuals, and any other concerned stakeholders to provide their take on NAFTA, including what is currently working, what can be improved, and where government priorities should lie as they move forward with the renegotiation process.
NAFTA has been a boon for Canadian agricultural producers, facilitating cross border trade and commerce, and fueling the economic performance and growth of this highly export driven sector. The trade agreement has achieved this mainly through the continued reduction of tariffs on agricultural goods, but also through measures addressing non-tariff trade barriers, sanitary and phytosanitary (SPS) regulations, regulatory cooperation councils, and clear cut rules of origin.
Turning our back on the agreement, and losing these important measures contained within NAFTA would be devastating for the agricultural sector at large, and especially so for the grains sector. Accordingly, AWC’s primary recommendation to the government was for, at a minimum, a continuance of these measures and of the agreement as a whole.
The importance of this message is supported by some simple statistics. Nearly 65 percent of Canadian wheat is exported annually. The United States is the single largest market for Canadian farmers’ wheat, importing an average of over two million tonnes of this essential commodity annually over the last five years. Mexico also represents a significant export market for Canadian wheat, and is the seventh largest importer of Canada’s product worldwide. NAFTA is the cornerstone of these trading relationships, and provides the framework within which this cross-border commerce occurs. And the benefits are not only in Canada’s favour — all three countries benefit immensely from the increased trade resulting from the agreement.
Nevertheless, the three countries will come together on August 16 2017, to begin negotiations. As the impetus behind this movement, the United States is likely to be driving the agenda in these initial talks. And agriculture is near the top of the list. Two key issues, identified both in Donald Trump’s prolific use of twitter and in the United States Trade Representative’s (USTR’s) Summary of Objectives for the NAFTA Renegotiation, are likely to come to the forefront of these negotiations: Canadian grain grading, and the use of tariff rate quota (TRQ) systems in supply managed agricultural sectors.
AWC’s submission to the Government of Canada addresses both of these issues head on, and provides recommendations around how they should be managed so as to mitigate the impact on wheat producers.
As producers of wheat and other grains are dependent on export markets for their livelihood, AWC supports the reduction or removal of all tariff and non-tariff trade barriers on all agricultural commodities. This position was made clear in AWC’s submission to the government consultations. Furthermore, AWC’s submission acknowledges the Government’s resolute defence of Canada’s supply managed sectors, but offers a cautionary reminder that government actions in this area should keep in mind the potential impact on other, far larger and more representative, sectors of agriculture. In short, AWC’s submission neither advocates for or against supply management, but warns that Canada’s refusal to negotiate changes to this system could negatively impact export-reliant sectors and commodities, such as grains.
Upon arrival at a Canadian elevator, American grain is given the lowest possible grade. This grade is assigned even if the grain is of a registered Canadian variety. In our view, this represents a barrier to the free flow of grain across our border. While Canadian elevators do purchase U.S. wheat based on its quality specifications and pay accordingly, assigning the lowest grade is an unnecessary irritant to U.S. farmers. Given the relatively low volume of American grain imports into Canada, and similar qualities of American and Canadian grain, allowing American grown grain to be graded according to the same standards as Canadian grown grain, provided that it is a registered Canadian variety, would not negatively affect Canadian producers. Accordingly, AWC’s submission recommends that, should this issue be raised during negotiations, Canada should express a willingness to make the necessary changes to the grain grading process. An added benefit of this position is that cooperating with our American counterparts on this issue could help Canadian negotiators achieve their goals in other areas.
Despite the current successes of NAFTA, and beyond addressing these contentious issues, there is much that Canada can achieve in the coming negotiations that will make the agreement even more robust and advantageous for Canada’s grain farmers. AWC identified a number of these areas in its submission, including improved SPS measures similar to those found in the TPP, improved regulatory cooperation, maximum residue limit (MRL) and crop input approval synchronicity, an agreement on the treatment of modern plant breeding techniques, and cooperation on low level presence (LLP) policies. A modernized NAFTA that addressed these issues would serve to encourage further economic growth in the grain’s sectors across all three borders in the years to come, and ensure that the agreement is prepared to address the issues of tomorrow.
In sum, we believe that maintaining a healthy trading relationship with both the United States and Mexico should be a top priority for Canadian negotiators. Canadian negotiators should emphasize Canada’s willingness to cooperate and its commitment to free and fair trade. Canada’s grain system has undergone a number of significant changes since the implementation of NAFTA that have addressed long-standing U.S. concerns, such as the elimination of the single desk marketing system, removal of kernel visual distinguishability (KVD), and the streamlining of the variety registration system to allow registration of U.S. varieties in Canada. NAFTA negotiations should proceed with the same spirit, and should seek to address issues and arrive at solutions in a way that ensures the future prosperity of all countries, sectors, and stakeholders.