Cross-Border Forum on Agricultural Interdependence:Challenges and Opportunities

The Wilson Center's Canada Institute co-hosted the Cross-Border Forum on Agricultural Interdependence with the Government of Alberta on June 29, 2006, in partnership with Miller & Chevalier Chartered. This conference was part of a series of public programs organized by the Government of Alberta in the context of the province's participation in this year's Smithsonian Folklife Festival. The morning portion of the program afforded industry and government representatives an opportunity to engage in a frank, off-the-record discussion on the outlook for farm policy, regulatory convergence, food safety standards, and overall competitiveness in the North American agricultural market, with a particular focus on the livestock and oilseeds industries.

Opening Remarks
Joseph B. Gildenhorn, Chairman, Woodrow Wilson Center Board of Trustees
Charles F. "Chuck" Conner, Deputy Secretary, U.S. Department of Agriculture
The Hon. Shirley McClellan, Alberta Deputy Premier and Minister of Finance

CANADA-U.S. AGRICULTURAL INTERDEPENDENCE AND MARKET INTEGRATION
The Oilseeds Market in Canada and the United States: Prospects for convergence?
Thomas Hammer, President, National Oilseed Processors Association
Barbara Isman, President, Canola Council of Canada

Livestock, beef, and animal feed market: market trends, policy challenges, and regulatory obstacles
Darcy Davis, Chairman, Alberta Beef Producers
Gregg Doud, Chief Economist, National Cattlemen's Beef Association

POLICY AND REGULATORY RESPONSES: TOWARD A NORTH AMERICAN FRAMEWORK?
Prospects for regulatory convergence and harmonization
Charles Lambert, Acting Undersecretary for Marketing and Regulatory Programs, U.S. Department of Agriculture
Brian Evans, Chief Veterinary Officer of Canada, Canadian Food Inspection Agency

North America's farm policy and agricultural competitiveness in light of global trade policy dynamics
The Hon. Doug Horner, Alberta Minister of Agriculture, Food and Rural Development
Jon Huenemann, Principal, International Department, Miller & Chevalier Chartered

KEYNOTE LUNCHEON
Michael Van Dusen, Deputy Director, Woodrow Wilson Center
The Hon. Ralph Klein, Premier of Alberta
Rep. Bob Goodlatte, Chair, House Agriculture Committee

Summary of the Discussion

In his opening remarks, U.S. Deputy Secretary of Agriculture Chuck Conner underscored the growing degree of interdependence between the U.S. and Canadian agricultural sectors, which remain each other's largest export markets. As Deputy Premier of Alberta Shirley McClellan noted, bilateral agricultural trade spans a variety of industries, products, and regions. Premier Klein underscored the importance of agriculture as the "backbone of Alberta's economy." Whereas much attention is often focused on the energy industry, the agricultural sector and the rural economy loom large in Alberta's economic outlook. Indeed, both industries face a number of common challenges, from securing access to labor to ensuring a balanced approach to the environment.

The disruption on cross-border trade flows as a result of the 2003 "mad cow" crisis served to highlight just how integrated each country's agricultural economy was with the other. The impact was felt keenly on both sides of the border along the entire supply chain—from ranchers to slaughterhouses. The ramifications spread well beyond the beef industry, however, affecting dairy producers, animal feed producers, and, of course, consumers. Negotiations to resolve the dispute and resume trade demonstrated the importance of "sound science" as a basis for effective dialogue, according to Deputy Premier McClellan. Barbara Isman echoed this view with regard to the oilseeds sector, noting that both governments are committed to science-based assessments on food safety issues.

Cross-border trade for animals under 30 months old has resumed, but the U.S. ban on cattle older than 30 months remains in effect. Darcy Davis acknowledged the need for due diligence, but also noted that the longer the ban remains in place, the greater the likelihood that Alberta would continue increasing its slaughterhouse capacity (which has already increased from 70,000 to 100,000 animals since the BSE-induced border dispute in 2002). Moreover, the newest plants now meet EU standards, opening up opportunities for new export markets.

Regulatory Cooperation

Charles Lambert detailed the areas where close cooperation flourishes, from establishing common grades and standards to determining similar protocols for assessing plant and animal health. The resolution of the BSE crisis owed much to the extensive collaboration between government officials at all levels in both countries, as do the frequent cases involving other sanitary issues such as foot and mouth disease. Deputy Secretary Conner noted the strong collaboration between the U.S. and Canadian governments on biotechnology, in which Alberta has played a significant role. Close cooperation in biotechnology has helped forge a common approach in multilateral fora, including in the ongoing Doha round. Overall, Brian Evans characterized the level of cooperation as "good, bordering on excellent."

Although often overlooked, regulatory cooperation is critical not just for smooth, free-flowing trade in agricultural goods, but also for maintaining a sustained level of consumer confidence. As Evans explained, the regulatory framework underpins government messaging regarding the characteristics of food products, including their safety, freshness, provenance, etc. Regulating the use of pesticides, the labeling for products containing GMOs, or certifying whether produce is indeed "organic," contributes to public perceptions of food safety. In this regard, another area of growing concern for both Canadian and U.S. officials is the potential threat of avian influenza both to the food chain and human health.

Policy Convergence

The oilseeds industry writ large is an excellent example of market integration and policy convergence between Canada and the United States. As Thomas Hammer noted, duties on oilseeds and soybeans are effectively "at zero." Moreover, bilateral trade is not hobbled by market-distorting entities such as export monopolies, as is the case for grains market with the Canadian Wheat Board. Canada and Mexico are the United States' first and second export market, respectively, and the U.S. market is the largest for Canadian exports. Trade has grown "exponentially" since the Canada-U.S. free trade agreement came into effect in 1989: U.S. exports to Canada, for instance, grew from $262 million in 1989 to $566 million in 2000 and $839 million in 2006. But Hammer stressed that the growth in trade has been "balanced": imports from Canada have followed a practically identical growth rate and levels. Investments too flow freely: almost three quarters of investments in Canada's crushing industry come form the United States.

Many members of the National Oilseed Processors Association (NOPA) are also members of the counterpart organization across the border, the Canadian Oilseed Processors Association (COPA). The resulting overlap has ensured close cooperation between the NOPA and COPA on resolving bilateral issues of concern (e.g., approving common standards to ensure smooth transportation protocols across the border) as well as on forging common approaches to the Doha round of trade negotiations (e.g., forming a coalition with counterparts in Argentina, Brazil, and other countries to create a "level playing field" in the global market). As a result, "we are increasingly seeing Canada, the United States, and Mexico as a single market," according to Hammer.

Biofuels and Renewable Energy Policy

Nevertheless, the convergence in the oilseeds industry is proceeding apace predominantly in the agrifood market, according to Barbara Isman. In contrast, the level of integration in the emerging biofuels sector "could not be more different," she remarked. A key difference is the level of government subsidies in each country (approximately 20% in the case of the U.S. industry compared to a paltry 0.4% in Canada's case). Another recurring obstacle is the tendency for Canadian regulators to model the country's standards based on the framework effective in the United States, but modified to suit a "Made-in-Canada" approach. Industry representatives agreed that such an approach typically proves costly and the differences in regulatory regimes hardly justify the attempts to differentiate Canada's standards from those across the border.

Government officials acknowledged the policy lag in Canada regarding biofuels—a priority only since January 2006. Minister Horner nonetheless emphasized that biodiesel and other alternative fuels were a priority for the Alberta government. He noted that the province was focusing first on working with the federal government to ensure a coherent, nationwide approach to biofuels. A national biodiesel strategy is expected some time this year. Canadian politicians have agreed, however, that a policy designed around subsidies to support a nascent industry would gain little traction. Instead the focus is on developing a sustainable policy based on market and other incentives. Part of a framework would be a mandate for minimum use of biodiesel—possibly five percent by 2010, mirroring a common practice in the United States. That said, Horner cautioned against setting too high the mandated requirements for biofuels as a percentage for total fuel consumption: "we must be careful not to impose a mandate that we cannot produce"; otherwise, the province would have to resort to imports to make up the shortfall, hardly an ideal option from the perspective of developing a nascent industry.

Yet the industry will not wait for the Canadian government to emerge with a clear policy on biofuels. Isman warned that if a strategy were not forthcoming soon, investments would flow south of the border, especially for infrastructure projects supporting alternative fuel production. In the short term, it would make little difference, she conceded, but down the road, Canada's lack of a clear policy on biofuels and incentives to ensure its implementation could leave Canadian growers in a position to supply only the raw materials, with the infrastructure for the value-added production of alternative fuels located in the United States.

Agricultural and Trade Policy

As the governments shape their trade policy strategies heading into the next stage of the Doha round, Minister Horner reminded participants of the need to keep global trends in perspective as leaders tackle problems among their local farming constituencies. He explained the challenges facing Alberta's rural economy as it enters the 21st century.

The demographics of rural Alberta are shifting dramatically as farming practices evolve either toward (relatively large-scale) commercial operations or "part-time farming," where farm income is but one source of revenue (i.e., farmers supplementing their income with jobs in the energy or other industries). There is also a growing segment of farm owners who retain their activity not so much for economic reasons—they tend to be well off or otherwise successful—as for the "lifestyle value" it confers. Another draw on farm labor is the energy industry, which attracts ever scarcer talent as growth in the sector continues. Among those who remain active in the rural economy, some rely on subsidies to supplement their incomes, as is the case in many other countries. That said, Minister Horner outlined the policy considerations the provincial government is currently debating, including the challenge of decoupling income support programs from disaster relief as well as managing water resources (the agricultural sector accounts for the largest share of water consumption, well ahead of the energy sector).

Minister Horner stressed the importance of market access for Alberta's agricultural sector to continue thriving. Beyond the immediate issues related to access to the U.S. market, there is also the question of WTO rules on market access worldwide. As new competitors such as China—the "elephant in the room"—and Brazil emerge and new growth markets such biofuels begin to take shape, ensuring market access remains critical for North American agriculture to remain competitive in global markets.

Deputy Secretary Conner remarked that U.S. officials went into this week's WTO negotiations with a sense of urgency, as the timeframe for agreeing to a framework and striking a deal is fast shrinking in light of the June 2007 deadline by which President Bush will no longer have Trade Promotion Authority. One participant noted the importance of reconsidering trade rules already in force within North America, some of which are outright "anachronistic" in the context of modern trade policy governance (e.g., several persons agreed that antidumping laws were outdated but still often used to thwart free trade).

Jon Huenemann, putting the broader issue of North American agricultural economic integration into historical context, noted that the NAFTA eliminated in a fairly comprehensive way a series of border measure impediments to trade in agriculture and food. At the same time, the NAFTA did not address the domestic policy structures related to agriculture and food production, and more precisely the domestic policy asymmetries that are in many respects profound. These asymmetries, whether they be regulatory or domestic programs designed to support agricultural producers, were a significant factor in what is a substantial litany of agricultural trade irritants in spite of the discussion at the conference of areas of policy harmonization success across North America. So while respectively Mexico, the U.S. and Canada are "invested" to an unprecedented degree in agricultural trade in North America and trade integration continues to grow in a number of sectors, policymakers are also increasingly invested in a substantial number of agricultural trade problems that have become the central focus of the trade policy agenda within North America.

Furthermore, precisely because of the changing global pattern and competitiveness of emerging players outside of North America, Huenemann posed the question of whether it is time for policymakers in all three countries to more closely examine ways to tackle elements of the existing policy asymmetries left unaddressed by the NAFTA in an effort to enhance North America's agriculture and food production platform competitiveness. Huenemann noted the genesis of any such effort would have to start with a sufficient push from the agriculture and food industries across the region.

David N. Biette
Director, Canada Institute

Drafted by Christophe Leroy