Friday, March 11, 2016

TPP will have minimal impact on dairy

The Trans-Pacific Partnership trade deal will have only minimal impact on the Canadian dairy industry, says agricultural economist Richard Barichello of the University of British Columbia.

The pace of increasing Canadian demand will match the increase in market access for imports that will be allowed under the TPP. That access will be phased in over five years, roughly doubling the volume of butter to about six per cent of the Canadian market and increasing the import share of the cheese market from about four to about seven per cent.

In fact, the butter imported during 2015 is more than the increased volume allowed under the TPP.

Yet the former Stephen Harper government announced up to $4.3 billion in subsidies for Canadian dairy and poultry farmers to offset the potential impact of the TPP.

Barichello said it’s likely that milk quota prices will increase, but in Ontario and Quebec they are capped.

Dr. Richard Barichello
Al Mussell, research lead for Agri-food Economic Systems and a specialist in Canadian dairy policy, said the industry has a chance now that the trade pressure is off to reform the industry.

One thing that could be considered is increasing production, probably at a reduced price.

Barichello said there is obviously a desire by many dairy farmers to expand their operations.

He was keynote speaker for the first annual George Morris AgriFood Policy Lecture, held recently at the Cutten Club at the edge of the University of Guelph.

When the George Morris Centre closed, it provided funds to the University of Guelph to organize the annual lecture. George Morris was an innovative beef and crops farmer in the Chatham area who provided funding for an agriculture policy think tank – the George Morris Centre.

Barichello said the Trans-Pacific Partnership deal, which is 3,000 pages long, is a complex document that delves into the details for many agricultural commodities and farm policies in the 12 countries involved in the negotiations.

For example, Japan and Vietnam have detailed, multi-phase tariffs and trade barriers governing imports of pork and the TPP deal spells out how much change each of those countries is to make each year until the bottom line is achieved about nine years from now.

Barichello said Canadians will have greater access to the Japanese wheat, beef and pork markets and a significant opportunity to sell pork to Vietnam.

However, these are opportunities only. To turn them into sales and revenues will require astute marketing in the face of stiff competition, mainly from the United States and Australia.

More important than the opportunities are the defenses arising from the TPP. If Canada decides to stay out, it would lose about $465 million a year in wheat exports, about $100 mlllion in beef exports and about $900 million in pork exports to Japan alone.

That’s because those markets would be taken by competitors – again, mainly the U.S. and Australia – who will gain better market access.

Barichello also briefly commented on intellectual property rights, and issue highlighted by Jim Balsillie of Waterloo, former co-leader of Research in Motion which is now Blackberry.

Barichello is far less alarmist than Balsillie, said the experts on this topic are divided in their opinions about the TPP, and said it’s an issue with some surprising impacts on Canadian agriculture.

For example, he said the Ambrosia apple variety, developed by Canadians, earns $5 to $15 million a year in royalties and fees from foreigners every year.

Cherry varieties earn about half that much annually.

The apple fees begin with signing fee per hectare, then move on to a fee per tree, an annual royalty per tree and a royalty on every kilogram of fruit marketed.

The TPP generally extends the length of patent protection.

It also moves regulations to an international level which makes it less risky because some countries and companies have been aggressive in claiming patents and applying protections.

Barichello said the same complaints Balsillie is raising have been raised by others, such as U.S. companies.

One of the risks – and one that cost Research in Motion many tens of millions of dollars – is that “patent trolls” will file lawsuits, even though they’re not using the patents, and count on support from local courts. An international body would likely be more even-handed.

In a panel discussion later with Mussel and Stephen Duff, chief policy advisor at the Ontario Ministry of Agriculture, Food and Rural Affairs, all three said the attention in farm policy will be shifting from trade to domestic farm supports.

Mussell said the Business Risk Management model Canadians have developed seems to have arisen out of federal budget considerations.

Federal and provincial governments got lucky because of a long string of high grain and livestock prices, but now that they’re declining, he said there could be significant claims filed by some very large farm operations.

He questioned whether the governments have the money and the will to pony up or to continue the current level of supports in the upcoming Growing Forward time frame.

He said the United States and European Union face even bigger budget challenges from the declining grain and livestock prices. They are likely to continue their high levels of commodity-specific price supports, even though it will cost them considerable fortunes.

Canada shifted out of commodity-specific price supports in the 1970s and now farmers respond to markets when they decide what to produce.

The exception is supply management where the dairy and poultry farmers basically make their own decisions about pricing, based on what the federal and provincial governments and tariff protections will allow.

That leaves the governments with fewer policy options for domestic supports for those sectors.

Duff said there is pressure to give academics and farm organizations a better chance to influence Business Risk Management policy by allowing them to see and use the data bases the governments have developed and use in negotiating Growing Forward programs.

He said some data-sharing concessions are likely to be offered by OMAFRA.

Barichello said one factor to notice is the rising number of middle and higher-income earners in emerging economies, such as India, China and a large number of Asian countries with significant populations.

As their incomes rise, they want more proteins, such as meat, dairy and soybean products, he said. Many of these economies have annual growth rates of five to seven per cent, he said.

He is a specialist in those areas, especially as an agriculture policy advisor to Vietnam.