by SYLVAIN CHARLEBOIS (AIMS Senior Fellow)
Despite Canada’s optimism, NAFTA talks seem to be heading nowhere. Wanting to push back on Mexico’s influence over the American economy, Washington now is indicating that the bilateral option with Canada is more appealing. In Trump’s playbook, multilateral deals are highly complex and can only benefit smaller markets to a greater degree. Bilateral deals are perceived as being more predictable, as they make it easier to access potential long-term gains. Whether we agree with this premise or not, what the U.S. believes to be true matters to everyone. But for our agrifood sector, many wonder how life will look like without NAFTA.
Should NAFTA end, there is no doubt that tariffs will rise and will affect cross-border supply chain efficiency. In fact, The Peterson Institute for International Economics suggests tariffs on agricultural commodities and other food products could go up by 3.5% on average for the U.S., 4.2% for Canada, and 7.5% for Mexico. This brings a lot of uncertainty for major agricultural sectors like cattle, hogs, and many grains.
In agrifood, Canada has a trade deficit with the U.S. market. We sell them about $22b worth of goods while the Americans sell us $24b worth of food products, ranging from produce, baked goods, and processed food items. But these numbers hide an inconvenient truth as to what our agrifood economy is about on a global stage. Most of what we sell are raw commodities which have been processed at a very basic level, only to buy them back, packaged or in a bottle, at 20 times the price.
This is perhaps the wake-up call Canada needed. For years, Canada has been a trade-reliant, agricultural economy and has never been compelled to become more strategic about trade. Our global position on agrifood trades has been weak at best. With over 120 marketing boards across the country, our economy has been obsessed with countervailing oligopolistic powers upstream to protect our farmers. Farming needs support, but most of our agricultural policies have been at the expense of companies in processing and distribution. Some companies have successfully hedged against Ottawa’s decades-long nonchalant focus on trades. Saputo in Montreal and AGT in Saskatchewan are some brilliant examples. It is only recently, with attempts to join TPP and with CETA, that Ottawa has shown signs that it realizes it needs to up its game on trades.
With NAFTA, we can blame Washington all we want, but Canada has not demonstrated that it wants to liberalize its trading position either. Ottawa has perhaps signaled it wants to modernize the tri-country trade pact, but it seemed unwilling to make any major concessions. We seem content to play defense against Goliath. Some of the most vibrant agrifood economies in the world have been proactively engaged on the global stage in order to give their agrifood sector a sense of purpose. Meanwhile, as the rest of the world progresses, we continue to support cartel-esque agencies to support commodity groups like dairy, eggs, poultry, maple syrup and many other sectors. Furthermore, we are still trying to figure out what our agrifood strategy will look like.
To offset Trump’s wrath, Ottawa did everything right to prepare itself accordingly for NAFTA talks — except that Canada has failed to consider itself as an agrifood powerhouse in the making. To get there, we need a shift, a paradigmatic change in our mindset. Washington is now inviting Canada to address a dilemma, which, to this day, we have never wanted to deliberately face. CETA was a miracle and it happened in spite of ourselves. Canada is not even close to having a trade deal with the second largest economy in the world, China. If this was not a priority for Ottawa, it should be.
Now that NAFTA seems to be on life-support, Canada should start thinking about its supply management and how it could reform it so it makes sense to the rest of the world, not just us. It also should also think of ways we can capitalize on our new trading friends, the EU. A new deal with the U.S. could put Canada in a very enviable position. We also need to think about increasing our processing capacity, and sell semi-processed or finished food goods to the rest of the world, and not just wheat, barley, or beef. Research suggests that exporting companies are always more innovative. For any agrifood economy, it is always challenging to build a competitive advantage with raw commodities. Belief in your own products is one thing, but the rest of the world has to approve to build a brand.
The cruel truth is that Canada’s agrifood influence is completely irrelevant to the rest of the world. The Trans-Pacific Partnership was created, and killed, and Canada’s opinion hardly mattered. U.S. media barely covered Trudeau’s latest visit to Washington. So instead of trying to please an ambivalent neighbour, it is time for Canada to seek more new friends on the world stage.