Canada is the single most important market for Canadian pork products. However, Canadian domestic pork consumption has plateaued making Canada’s hog industry increasingly reliant on export markets in order to grow production and increase carcass values.

Facing stiff competition from other major pork exporters like the United States, the European Union and Brazil, Canada must maintain an aggressive export strategy that preserves existing markets from competition, identifies new export opportunities, and fends off trade disrupting market access barriers.

Introduction: Why Trade Matters

Canada’s economy is based on trade, and agriculture is one of Canada’s most trade intensive sectors. In 2012 Canada exported almost C$44 billion in agriculture and food products, representing half of all the food grown or manufactured in the country and making Canada the fifth largest agri-food exporter in the world. Today, agriculture production and food processing account for 11 per cent of Canada’s goods GDP and agri-food exports represent almost 10 per cent of Canada’s total merchandise trade¹.

Canada’s pork industry is particularly reliant on trade. Since 1990, Canadian pork production has increased by almost 80 per cent notwithstanding both a decline in domestic per-capita pork consumption and significant growth in pork imports (Table 1).

In short, the growth in Canada’s hog industry is mainly the result of export opportunities. Today, two-thirds of Canada’s pork is exported and Canada is the 3rd largest pork exporter in the world after the European Union (EU) and the United States (US).

The Challenge: Opportunities and Barriers

In 2013, Canada exported $3.2 billion in pork products to 99 countries around the world with 90 per cent of sales going to 10 countries including the US, Japan, China, Russia and Mexico (Table 2). With domestic pork consumption plateaued, growth in Canadian pork sales will require additional sales into these or new markets.

New export opportunities do exist and the current Canadian policy environment bodes well for domestic pork exporters: pork is already the most consumed meat in the world³ and changing global consumption patterns are boosting demand for pork products particularly in the Asia Pacific region; the Canadian government’s ambitious trade agenda is focused on opening markets for Canadian exporters, including Canada’s agri-food sectors; and the Canadian hog industry has developed the influence, capacity and expertise to support growth in foreign markets.

The pork industry’s rising influence was demonstrated most recently in negotiations for the Canada-EU Comprehensive and Economic Trade Agreement (CETA), where Canada secured new pork access into the EU estimated to be worth, when the deal is fully implemented, up to $400 million a year. Canada’s pork sector was among the most successful beneficiaries of these negotiations.

But continued success in export markets is far from guaranteed. As Canadian exporters strive to secure new export opportunities through bi-lateral and regional trade deals they face stiff competition. Other pork producing countries like the EU, the US, Brazil, Chile and Mexico are themselves aggressively pursuing preferential access into key pork markets like Japan, Russia, China and South Korea (Table 3).

The need to secure key export markets ahead of our competitors is paramount. Since the EU and the US concluded free trade deals with South Korea, placing Canada at a competitive disadvantage in that market, Canadian pork exports to Korea have fallen from a high of $233 million in 2011 to just $76 million in 2013. Even where we have the upper hand, there is still work to be done. Canada did well in the CETA, but other major pork exporters like the US and Brazil are now negotiating their own trade deals with the EU. In this and other key markets, Canadian exporters must reinforce any trade advantage by quickly securing commercial relations and cementing their competitive position.

Canadian pork exporters must also remain vigilant in responding to market access issues that plague them even in their most stable markets. Market access issues can include everything from Country of Origin Labelling (COOL) regulations in our largest trading partner, the US, to differences in processing standards in areas like the EU, to the management of Minimum Residue Levels for veterinary products like ractopamine in countries around the world. As agri-food trade expands, countries are increasingly relying on non-tariff barriers like these to manage import levels and to support their own domestic agriculture sectors.

Canada’s hog industry will need to invest increasing resources to continue overcoming the trade challenges these barriers present. Even more, industry will need to invest in both economic and political intelligence in key markets in order to identify, and possibly mitigate, potential problems early on.

Trade Priorities for the Canadian Pork Sector

Export growth will require a multi-pronged strategy to preserve existing markets from competitors, identify new export opportunities, and fend off market access barriers.

Canada’s pork industry has identified five key trade priorities that will help the industry to achieve this goal.

The European Union

The Canada-EU CETA is an example of how Canada’s hog industry can benefit from opening new markets. Europe is the only important pork-consuming region into which Canada has little effective market access. Europe remains closed to most countries – despite being the second largest pork consumer and largest exporter in the world the EU imports just 0.2 per cent of its domestic consumption. With a population of 500 million, the EU is a key export interest for Canada’s pork sector.

To date, high tariffs and onerous import administration rules have limited Canada’s pork exports to the European Union. In 2013 Canadian pork exports to all 28 EU members states were just 4,000 tonnes, compared to total Canadian pork exports of over 1.1 million tonnes. But this is about to change. In October 2013, Canada and the EU announced that they had reached an agreement in principle on the CETA, a landmark trade deal that will increase Canada’s agri-food exports to the EU by an estimated $1.5 billion a year. Significantly, the CETA will also make Canada the first major global pork exporter to secure access into the EU market.

Finalising the CETA is a priority. When implemented, it will grant Canada duty-free access for 80,000 tonnes of Canadian pork, to be phased in over several years, and immediate duty-free access for processed pork products. The Canadian Pork Council estimates that the CETA will result in up to $400 million in new pork exports to the EU each year.

South Korea

A free trade agreement (FTA) with South Korea is also a top priority for the Canadian pork industry. This interest is driven by Canada’s need to regain ground relative to its major competitors – the US, the EU and Chile – all of which now have trade deals with Korea.

Korea provides clear and painful evidence of what happens when Canada loses its competitive position in export markets. For many years, South Korea was a stable and high value market for Canadian pork. Although Korea imposed high tariffs on pork products – 25 per cent on frozen and 22.5 per cent on fresh/chilled products – these applied to all countries creating a level playing field. Now these tariffs are being phased out for countries like the US, the EU and Chile under their FTAs.

For example, under the Korea-US FTA (KORUS), which came into effect in 2012, most tariffs will be eliminated on US frozen pork and processed pork products by 2016 and fresh-chilled pork will be duty free by 2022.

Since these FTA’s have come into effect, Canada’s pork exports to South Korea have suffered (Table 4). Many factors impact trade – in 2012 total Korean imports fell as a result of domestic oversupply. However, a comparison of Korea’s pork imports from 2011 and 2012 by country reveals that Canada suffered more. Those countries that had FTA’s with Korea – the EU, the US and Chile – were significantly less impacted.

The situation with Korea demonstrates how vulnerable Canada’s position can be, even in its most secure markets. Having lost its competitive footing, the Canadian hog industry must press for Canada to finalise its own FTA with Korea and minimise any further damage.

Japan

Japan is the largest importer and 5th largest consumer of pork in the world. It is also Canada’s most important and stable export market after the US, with shipments of 193,000 tonnes worth $813 million in 2013. In 2013, Canada was Japan’s second largest pork supplier after the US with a 17 per cent share of total Japanese pork imports and a 10 per cent share of domestic consumption. Chilled pork now represents more than 60 per cent of the total Canadian pork exports to Japan.

Today, Japan applies tariff and non-tariff barriers on imports from all its major pork suppliers. This includes an import tariff of 4.3 per cent on pork products. Japan also maintains a complex gate price system (minimum import prices) for pork products and an emergency “snapback” measure that returns the gate price to a bound level whenever total imports in a given quarter are 19 per cent higher than the previous three-year average from the start of the Japanese fiscal year to the end of that quarter. This could raise the minimum import price by approximately 25 per cent. While the snapback has not been activated since 2005, its existence creates uncertainty in the market place.

Until now, Japan’s import barriers have resulted in a level playing field for its major pork importers. But the ground could be shifting. Japan is currently negotiating trade deals with all of its major pork suppliers including with the EU and Canada through separate bilateral trade negotiations and with the US, Canada, Mexico and Chile through the Trans Pacific Partnership (TPP).

The goal of any free trade deal is the elimination of all trade restrictions but, at a minimum, a trade deal must secure Canada an advantage over its competitors. This is critically important in Japan where domestic consumption is flat. But with so many countries in the fold, it will be challenging for Canada to negotiate a trade deal with Japan that gives it an advantage over its competitors – particularly the US or the EU.

Canada’s best hope is to secure a trade deal with Japan, either through the bilateral negotiations or through the TPP, that keeps the Canadian pork industry on a level playing field with these other countries. If Canada fails it risks, similar to what has unfolded in South Korea, the loss of another major pork export market.

Country-of-Origin Labelling (COOL)

COOL is an example of how non-tariff-barriers, imposed unilaterally, can have a devastating impact on trade and on the domestic hog sector. In 2008 the US introduced mandatory COOL for fresh beef and pork sold in US retail outlets. Under COOL, meat can only be labelled as being a product of the US (Label A) if the source animal is born, raised and slaughtered in the United States. Meat from animals born or raised in other countries but slaughtered in the US must be segregated and assigned different labels (the new COOL rule having eliminated comingling) to show the country or countries in which each of the three stages – birth, raising and slaughter – takes place.

Given the highly integrated nature of the North American livestock sector, COOL has had a significant disruptive effect on trade. Because COOL adds costs for feedlots, processors and packers who must segregate animals and/or meat most US pork processors have stopped buying Canadian-born pigs. Those few that still do are buying them only on certain days or are even at discounted prices. The Canadian hog industry estimates that COOL has resulted in over $400 million a year in losses to Canada’s hog industry through lost sales, added costs and reduced hog prices.

Canada launched a WTO complaint against the US and in 2012 the WTO determined that COOL does discriminate against foreign livestock and violates the US’s trade obligations. To comply with the WTO decision, the US amended COOL but the new provisions – requiring that labels specify the country of birth, raising and slaughter, and eliminating the flexibility of comingling – have made matters worse. Canada and Mexico have challenged the US’s response at the WTO but this final step will take another 12 to 18 months to finally resolve.

Canada’s ultimate goal is to resolve the issue with the US. This could be accomplished through amendments to COOL that provide for meat from all animals processed in the US to be labelled the same way regardless of where the animal is born or raised. If the US does not comply with a WTO ruling, Canada’s only option will be to retaliate by applying tariffs on US products. Canada has released a list of US products that could be the targets of retaliation.

COOL demonstrates the significant impact trade barriers can have and the importance of industry vigilance in monitoring and responding to the political situation in our key export markets.

Feed-based Market Access Requirements

Increasingly, Canada’s pork industry is being shut out of export markets by production or processing requirements imposed unilaterally, and often in defiance of international standards, by foreign governments. These Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary Issues (SPS) impede the smooth flow of agri-food trade. A particular problem for the pork industry is the inconsistent approaches to managing the use of veterinary health products (such as antibiotics) and additives (such as ractopamine) in feed.

An example of this is the disparate treatment of ractopamine, a feed additive used to promote leanness in animals, in various countries around the world. The international standard setting body, Codex, has approved safe residue limits for ractopamine in meats.

As well many countries, including Canada, the US, Japan, Korea and Mexico, have evaluated ractopamine and determined that meat from animals raised with it is safe for human consumption. Notwithstanding this, large pork importers like Russia and China have banned ractopamine – in the case of Russia, with limited notice. The impact was significant. In 2012, Canada exported $207 million in pork products to Russia. In 2013, after the ban was imposed, Canadian pork exports dropped to just $92 million. In addition to the lost sales, Canada must now implement a ractopamine-free protocol to demonstrate to Russia compliance with its ban and to regain lost ground.

The impact of these trade disruptions can be significant. Disparate regulatory standards, different approval and inspection systems, regulations that are not grounded in science and inconsistent adherence to policies developed by international bodies such as the OIE and Codex are a growing and costly issue for food exporters. For this reason, TBT and SPS provisions, such as specifying harmonization of standards and of standard-setting processes, have become of critical importance in virtually all trade agreements Canada now negotiates and Canada has invested considerable resources into monitoring and managing these issues in its major export markets.

Conclusion

Two-thirds of Canada’s pork products are exported, making export markets vital to the health and continued growth of Canada’s hog industry.

The Canadian hog industry has significant opportunities abroad. The growing global demand for pork, Canada’s national trade strategy that supports the agri-food sector, and the domestic hog industry’s significant trade experience and strong reputation all weigh in Canada’s favour.

But as Canada strives to increase its pork exports, other major pork exporters, like the US, the EU, Brazil, Mexico and Chile, are focused on the same goal.

To maintain and grow its exports, Canada’s hog industry will have to protect existing markets from competition, identify and open new markets ahead of its competitors, and diligently fight market access barriers set up to impede trade.

A multi-pronged dedicated trade strategy and a commitment of resources in all of Canada’s major pork markets will be necessary to ensure continued success.

Acknowledgements: The research and production of this paper was made possible with funding from the Canadian Pork Council. The Canadian Pork Council (CPC) serves as the national voice for hog producers in Canada.

Literature Cited

1. http://cafta.org/pages/agri-food-exports/
2. 2012. Supply and Disposition of Meats – Canada. Statistics Canada, Agriculture Division, Agriculture Commodities Section.
3. Malinda Geisler and Kelly Collins. July 2012. Pork International Markets Profile. Agricultural Marketing Resource Center, Iowa State University.
4. Statistics Canada. Prepared by AAFC/MISB/AID/Red Meat Section. February 2014. Canadian Domestic Exports of Pork Products to All Countries.
5. November 2013. USDA Foreign Agricultural Service. Livestock and Poultry: World Markets
6. and Trade.
7. December 2013. USDA Gain Report. Korea - Republic of Livestock and Products Semiannual.
8. GAIN Report Number: KS1316.

Reference

Sullivan K. 2014. International trade: Barriers and opportunities for Canada's pork sector. Proceedings of the London Swine Conference. London, Ontario, Canada. 26 to 27 March 2014. p98-104.

Further Reading

You can view other papers presented at the 2014 London Swine Conference by clicking here.

November 2014