World's Best Lobbyists

The Trans Pacific Partnership ("TPP") trade deal has been finalized.  Canada's Supply Management ("SM") System for dairy, chicken, turkey, and eggs has dodged the bullet again.

The TPP deal will cover trade with Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and USA; all of which generate 40% of the world's GDP, and have 800 Million consumers (11.4% of the world's population).

Under TPP, Canada's SM industry will give up 3.25% of the Canadian dairy market to additional imports, 2.3% for eggs, 2.1% for chicken, 2.0% for turkey, and 1.5% for hatching eggs.  Truly trivial.

Canada's entire economy is just 3% of the world's economy, so these SM trade shifts disappear as a rounding error.

The government also negotiated the CETA trade agreement with Europe.

The EU says:

"The Comprehensive Economic and Trade Agreement (CETA) is a freshly negotiated EU-Canada treaty. Once applied, it will offer EU firms more and better business opportunities in Canada and support jobs in Europe."

CETA "removes 99% of customs duties & many other obstacles for business"

The EU Summary says:

Canada will eliminate duties for 90.9% of all its agricultural tariff lines upon entry into force of CETA.  After 7 years, the tariffs for 91.7% of agricultural lines will be eliminated.  The remainder are sensitive products, which will either be offered as a TRQ (dairy) or excluded altogether from liberalisation commitments (chicken and turkey meat, eggs and egg products). The Canadian offer on processed agricultural products (PAPs) -for example wines and spirits, soft drinks, confectionery, cereals-based  products like pasta or biscuits, fruit and vegetable preparations is of particular relevance because PAPs are among the main export interests of the EU and further market opening was one of the main EU negotiating objectives.  With all but a very limited number of the Canadian tariff lines for PAPs now to be liberalised, the EU PAPs industry is expected to gain considerably from CETA.

 
So what about the remaining 1% of goods that will still have custom duties & other obstacles?  My guess is this refers to the SM products of dairy, chicken, turkey, and eggs.  So close to 100% free trade, but SM wins again.

SM gave up virtually nothing for both of these trade deals, but did they get anything in return for this small concession?

Oh, YES!

The Federal Government had a solution for the SM beneficiaries even before they had a TPP deal.  As soon as the TPP deal was announced, the SM benefit package was announced, even though we are supposed to be in a "caretaker" mode due to the Federal election.  Canada's SM compensation package fully protects SM beneficiaries from any impact from both the TPP and CETA deal.

SM gets the following generous gifts from Canada:

• $2.4 Billion to 100% protect SM farm income for the next 10 years of TPP coming into effect, and partially compensate for the following 5 years, for a total of 15 years of protection.
• $1.5 Billion to protect the value of SM farmer's quota (the same quota that was given to SM farmers for free)
• $450 Million for upgrading SM processing plants
• $15 Million market development fund to develop export markets for SM goods

That's a total of $4.365 Billion to be shared by 17,000 SM farmers, so we calculate an average gift of $257,000 per SM farmer.  SM farmers are just 8% of all Canadian farmers, and 0.05% of Canadian citizens.  In spite of that, they now have guaranteed income and guaranteed investments for the next 15 years.

How many other Canadians have similar guarantees in their jobs or businesses?

The details of these two deals are yet to be released.  Some will be winners, while others will struggle under an increased burden.  Many feel (me included) that these deals will be especially beneficial for the multi-national corporations who have little or no allegiance to Canada or Canadians.  For example, starting from the signing of the Free Trade Agreement in Jan. 1988, then NAFTA in 1994, up until Aug. 2015, Canada's manufacturing sector has lost 503,000 jobs, a 25% loss in this important sector of our economy.  In our agriculture sector for the same time period, Canada has lost 340,658 jobs, which is  36.7% of all the jobs in this important sector of our economy.

My complements to SM's Mafia Dons for finding and hiring the world's best lobbyists to protect their interest by whispering in the ear of all politicians and bureaucrats.

Import Chicken: Help the Poor in both Canada & the World?

Some experts think the best way to help the poor, both in Canada and around the world, is to allow free trade in agricultural products to occur.  Supply Management is the worst offender to this goal, and is therefore a prime target for change.

In a recent Blog posting SM is Dead: Mulroney's Trial Balloon, or Loose Cannon?, I raised the question about Mulroney's meaning and purpose on his suggestion to end Supply Management in Canada.  In the news media reporting on Mulroney's speech, it also said,

"...those in favour of reaching a deal [ie. reducing agricultural subsidies and import barriers through free trade treaties] say it would be worth many times as much as all of the foreign aid to the world’s developing nations."

Not being an expert in international trade (who is?), I didn't understand what this meant.  Today, after re-reading the mainstream media reporting on Mulroney's speech, I noticed all of them included this cryptic comment, but nobody explained what it meant.  As I dug deeper and deeper, I finally developed a child-like understanding of this issue.  Perhaps I need to research this much more, but I will share what I have discovered so far.  If I am all wet, perhaps those in the know will see my obvious error, take pity, and guide me in the right direction.

It appears that this statement refers to a study done and book published in 2004 by William R. Cline (a US economist and a Senior Fellow at the Peterson Institute for International Economics) who wrote Trade Policy and Global Poverty

Mr. Cline seems to propose that the fastest and easiest way to reduce poverty on a world-wide basis is to allow free trade for agricultural products.  Of course, agriculture is the global-wide bastion of the most pernicious protectionism.

In support of Mr. Cline's theory, he presents the following evidence:

1. World-wide poverty (ie. the "Poor") is generally defined as someone earning less that US$ 2.00 per day ($730/yr).


2. There are 3 billion Poor in the world.  75% of these Poor live in a rural setting. [I assume that means people living in a rural setting of a developing nation have the means to grow food, and might be able to sell some of that food as an exportable product.]



Figure 1:  Mr. Cline's datapoints showing the correlation
between a developing country's GDP vs. the growth in
their exports.  The lines were added by me.



3. In developing countries, data from the 1980's and 1990's suggest that as their exports grow, local GDP grows also.  See Figure 1.


4. That boost to the economies of developing nations via free trade could be as much as $200 Billion per year.  Half of that boost would be from free trade for agricultural commodities.  The other major sectors for boosting their economies would be from exporting textiles and apparel.


5. Global free trade would raise the GDP by 1.5% to 2% directly.  The dynamic (ie. spin-off) effects would more than double the direct effect, so the total effect (ie. both direct and indirect) would be more than 4%.


6. While the average effect on people would be 4%, the poorest of the poor are estimated to receive the biggest impact of free trade, estimated by Mr. Cline to be double of the average effect (ie. 8% for the Poor vs. 4% on average for all citizens in a developing country).


7. In Mr. Cline's 2007 paper to a USDA conference, he states:   "...the broad empirical relationship between poverty and income shows that the “poverty elasticity” – the percent by which the number of poor declines for a 1 percent rise in their income– is about 2. So multiply once again by 2 and you get a total of 16 percent reduction in the number of poor. Apply that to 300 million [sic, appear he meant 3 Billion] in poverty and you get about 500 million reduction in global poverty."  Therefore, Mr. Cline concludes that free trade would raise the income of Poor people sufficiently to remove 500 million people from the poorest category (ie. earn $2.00/day or less).


8. Free trade for agriculture is essential to achieving these positive effects for the world's poor.  See Figure 2.  WTO defines ag. subsidies as colour-coded boxes, similar to traffic light colours (red= prohibited, amber= caution or subsidies that are to be reduced, green= OK in unlimited quantities, plus blue=amber with conditions that limit the quantities that farmers can produce.  The protectionism of Japan's farmers is legendary, estimated to be equivalent to an 82.1% import tariff when you count true tariffs (76.4%) and domestic subsidies (3.2%).  Canada is the 2nd worst villain in ag. tariffs and subsidies at 52.3%.  The EU is 46.4%, and the US is just 19.9%.  The weighted average for all industrialized nations is 36%.  No wonder Canada is in such huge trouble in trade talks with the US, EU, TPP, and WTO; we're 45% higher in ag. trade barriers than the world average for industrialized nations.





Figure 2:   Mr. Cline's estimates of barriers to free
trade in agricultural.  Japan is seen as the worst, with a
total of 82.1% tariff-equivalent import barrier, with Canada
in 2nd place of this Rogue's Gallery at 52.3% tariff-
equivalent barrier to ag. imports from developing nations.

So that is Mr. Cline's theory in a nutshell.  I assume that is what was being referred to in the story about Mr. Mulroney's call for the end of SM when it said removing ag. subsidies and protectionism would have a greater effect than foreign aid.

In 2012, Canada spent $5.67 Billion on foreign aid according to CIDA's data, which is stingy when compared to our relative wealth and the aid by other OECD nations.  About 69% of Canada’s aid in 2012 was channeled through the Canadian International Development Agency (CIDA), 9% through Finance Canada, and 8.2% through the Department of Foreign Affairs and International Trade, while the International Development Research Center (IDRC) accounts for 3.5%.  About 33.4% of that aid went to Least Developed (or poorest) Countries, another 2.5% went to other Low Income Countries, and 16.8% went to Lower Middle Income countries (41% is not coded by income group). Africa received the highest share at almost 42%, followed by Asia (22%), and the Americas (17%).  Following nearly a decade of sustained increases, Canada's aid spending has stalled and is set to decline in the coming years.

About 69% of Canada’s aid in 2012 was channeled through the Canadian International Development Agency (CIDA), about 9% through Finance Canada and 8.2% through the Department of Foreign Affairs and International Trade, while the International Development Research Center (IDRC) accounts for 3.5%. - See more at: http://cidpnsi.ca/blog/portfolio/canadas-foreign-aid/#sthash.5R7LsQkW.dpuf

As a Small Flocker in Canada, there are a few issues of which I am concerned.

First, I have seen the jars of pickles on my local grocery store shelves that have been imported from India.  I have eaten some of those pickles, as they are significantly cheaper than N. American pickles and seem to have reasonable quality.  I also fret about "what is this world coming to" when Canadian pickle producers have permanently shut their doors, and we are now forced to import from elsewhere.  I assume I would feel equally conflicted about SM products of dairy, chicken, and eggs being imported into Canada at the expense of domestic production.

Secondly, the quality of N. American chicken is a disaster, with bacterial contamination (including superbugs), bad Omega-3 to Omega-6 fatty acid ratios, bad bird welfare habitats, etc.  I assume that 2nd and 3rd world imports might be significantly worse; witness the recent news reports of falsified species in fish imported from South-East Asia, melamine tainted milk in China, and many similar events. As an example of a disaster going someplace to happen, live US chicken was proposed to be exported to China, slaughtered in China, processed and further processed in China to create boxed chicken, then import those packaged chicken products back into the US with no review whatsoever of that entire international supply chain by USDA inspectors (see Blog posting COOL Blowback ).  Canadians need higher quality products, not lower.  Can we be assured of this quality if we are importing SM replacement products from the developing world?

Thirdly, I am cautious of Free Traders and others who pretend to be helping the poor, when in reality they are propaganda shills for Big Ag., the PTB ("Powers That Be"), the NWO ("New World Order"), and the 0.01%'ers.  Exactly who is this Mr. Cline?  CIC (Canadian International Council) seems to support Mr. Cline's research.  Is Mr. Cline a master manipulator, or a straight arrow?  For me, it's too soon to tell, but I am wary about trusting too quickly.

Fourthly, if SM will not yield any ground to domestic Small Flockers, I assume that international small flockers don't have a chance.  I would assume that the poorest of the poor would be small flockers in chicken, and small market gardeners in fruits and vegetables.

Fifthly, if WTO, TPP, and EU trade talks achieve agricultural free trade by some miracle, how long before Big Ag. moves in to their third world countries where they create a monopoly for themselves via unfair or predatory trade practices so as to steal the free trade opportunities away from those who need them most.

By slowly and carefully reducing Canada's import tariffs and subsidies to Canada's #ChickenMafia, I believe that would be beneficial to Canada's consumers and small flockers alike, and would eventually force Canada's #ChickenMafia to dramatically improve, or die.  However, is there a tariff level below which no Canadian chicken farmer can compete, and dropping import tariffs below this threshold will surely kill all the #ChickenMafia, and possibly even Canada's small flockers?  If yes, what is that critical tariff level?

A lot of questions, conflicts, and inconsistencies currently exist inside of me on these SM trade issues.  I assume each of you has a similar list.  These are complex issues, and we need to get them right the first time.  That is exactly why those acting against the best interests of the majority purposefully cloud the issues so as to protect their special interests.

Hopefully with additional study by myself and other, the mud will settle and we can see clearly on the best path to take.

Why Not Export Canadian Chicken?

Note:   This posting is expanded from the response I gave for a comment posted in "Bogus FCR takes $945 Million per year from Canadians".

There are many Canadians who believe that US chicken is terrible, as compared to Canadian chicken. I'm not so sure.

In 2011, Canada imported 159 million kg of chicken, most of it from good 'ol USA (74%), followed by Brazil, Thailand, Chili, and Israel.  If the difference between US and Canadian chicken was so great, people would pick the better ones, and leave the rest to rot on the meat counter.

For example, back in the 1970's Sony Trinitron colour TV's were manufactured in both Japan and California, both to the exact same specifications.  While the technical specs were the same, the California TV's had a varying level of quality, while those made in Japan were virtually identical to each other.  The retail stores in N. America tried to sell TV's from both California and Japan, side by side on the showroom floor.  The customers could distinguish the difference, and would only buy the Japanese version. As long as one TV from Japan was available for comparison, no California TV's got sold.

Small Flock Poultry Farmers believe that Canada should be self-sufficient in supplying chicken for ourselves. We also believe that we should be exporting our Canadian chicken everywhere in the world.

Unfortunately, Canada is a very poor chicken exporter. Of the 7 top OECD chicken exporters in the world, Canada exports just 1.42% of the total exports for these 7 countries, putting us in last place for these 7 countries.

What's stopping Canada from being #1? To me, it seems the the chicken processors are quite happy raping the Canadian public, and are so comfortable in the fat profits derived from this, they have no hunger or interest to look farther afield.

This world-market stuff scares a lot of people.  Once you grow the birds, they have to go to slaughter, or you get stuck with having to continue feeding them.  If you slaughter them after losing your customer, the fresh meat has a limited storage life. If you freeze your surplus product, you have to pay on-going storage costs, and it still has a shelf life limit.  If you don't find a replacement customer with 1 to 3 months, CFC (Chicken Farmers of Canada) will fine you for failing to export per your export license.   Since prospective buyers know all this, and can use it to their advantage, this enables them to back the farmer and/or processor into a corner, refusing to buy unless they drop their price.

This is the same as in the auto industry when we compare GM to Toyota.  GM is notorious for "channel stuffing".  GM has no confirmed sales, but they make the cars anyway, then twist the arms of their dealers to buy the cars, pay interest on the money they borrow to buy the cars, so that the unwanted cars sit on the dealers' lots while they slowly rust.  At the end of the year, it's a fire sale to get rid of the cars.

Alternatively, Toyota only makes a car when a dealership has ordered that car, usually for a specific customer, and then makes the car exactly as the customer has ordered.  No arm twisting required.  No channel stuffing.

For chicken, we can learn from Toyota.  Chicks are ordered only when a confirmed export order for a specific customer has been received, and that customer has provided an irrevocable letter of credit from your friendly neighbourhood bankster.  In this way, when the birds are ready 8 weeks later, whether the customer takes them or not, payment to the farmer is guaranteed by the bank.  That way, the exporter is always protected.  If there are no export orders, then you don't order chicks, or you do some domestic production.

WTO (World Trade Organization) rules forbid a country to do predatory dumping of any product in a foreign market.  That is usually defined as selling the product for a lower price than what is charged domestically.  Since Canada has the world's highest domestic prices for chicken, there isn't one country in the world that Canada can ship to without being subject to a charge of predatory dumping of chicken, illegal under WTO rules.  If Canadians were allowed to purchase chicken at the world price (about half of today's prices in Canada), we could ship to every country in the world without a worry of be accused of dumping.

For another example, look at Canadian wines.  With few exceptions, Canada historically produced only garbage wines (ie. Baby Duck).  However, Canada quickly went from one of the worst to one of the best for our Canadian wine industry after we signed the Free Trade deal with the US.  We were forced to, and the wine industry responded. I believe we can do the same for chicken, if given half a chance.

In 2011, Canada exported 123.4 Million kg of chicken, about 12% of the kg of domestic chicken production; in other words, a paltry after thought.  I believe we can do far better than that.  Why can't Canada grab 50% of the world's export markets?  That would be 4.43 Billion kg of eviscerated chicken exported per year, a little more than what Brazil did in 2011.  If Brazil can do it, why not Canada?  If Canadians consumed 1.07 Billion kg., and we exported 4.43 Billion kg, then Canadian farmers would have to produce a total of 5.5 Billion kg., which is 5.4 times more chicken than what Canada currently produces.  Either we get 5,400 more people to become quota-bearing chicken farmers, or all the current farmers are given 5.4 times the quota they currently have, or some combination in between.  What's wrong with that?
 
Transitioning from our current supply management system towards something better will not be easy.  The Canadian Supply Management System has allowed us to be "fat dumb & happy" for a very long time.  Compared to other countries, Canadian farmers and processors have lost our competitive edge long ago.  For example, New Zealand chicken farmers have a FCR (Feed Conversion Ratio) as low as 1.38 while Ontario chicken farmers have an FCR around 1.82 which is 31.9% worse than world-class.  Since feed costs are about 60% of the total live chicken price, the poor Canadian FCR raises our live bird price by 19.14%.  No wonder Canadian prices are so high.

It takes years, if not decades to get an FCR optimized to be the best in the world.  I have reservations about going down this road due to the impact on the bird's health, and the resulting nutrition level of the meat coming from an "optimized" chicken, but that is what has been going on in the rest of the world.

What would happen if we threw in the towel for chicken supply management?  The rest of the world did that decades ago.  Canada is the only country in the world with a supply management system.  Exactly what do we think Canadians know that the rest of the world is clueless about, so as to explain that we are the only ones left with a Supply Management system?

When New Zealand gave up supply management for their dairy business, they were a insignificant speck on the world's dairy scene. It took 6 long years to rebuild their dairy industry.  Curing their "fat dumb happy" slovenly habits wasn't easy.  Decades of neglect came home to roost in a very short transition period of just 6 years.  After that 6 years in purgatory, the New Zealand dairy industry took off, and is now the #1 dairy product exporter in the world. They learned their lessons the hard way.

Of course, New Zealanders now pay world prices for dairy products, rather than the government tax subsidized prices previously enjoyed. Don't be fooled, for what citizens saved in their left-hand pocket, was pick pocketed out of their right-hand pocket, plus a little extra.  I would suggest that every time any government touches something, they add a significant overhead cost. For a government to tax the public, then send some of those tax dollars back to the dairy industry to subsidize the cost of dairy products, this government bureaucracy adds additional costs above what would be the world-priced products.

When governments use general tax revenues to subsidize dairy products, everybody pays, even those who hate dairy, or are allergic to dairy.  How could that be fair?  Isn't "User Pay" better and more fair?  While I don't have the stats to prove it, it is suggested that the subsidized dairy price previously paid by consumers plus the per capita tax burden required to generate the government subsidy would exceed the non-subsidized dairy prices that are paid on the world markets.

Since the end of New Zealand supply management for dairy, there has been significant consolidations of the New Zealand dairy industry. That is usually not good. In a stable competitive market, there are usually only 3 significant competitors. I suggest that governments must prevent excess consolidation (ie. mergers and acquisitions) by anti-monopoly (anti-trust) legislation such as Canada's Competition Act.

Canada first passed their anti-trust legislation in 1889, one year before the US passed the Sherman Act, the US equivalent. See  a summary of Canada's Competition Act for more info.

We initially learned back in the 1600's that monopolies are bad policy, and need to be avoided like the plague. Unfortunately, sometimes we forget this, and have to re-learn our lessons, just like the current Supply Management System issues we face today.