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Canadian Livestock Industry Fears Consequences of Canadian Duties on U.S. Corn

by 5m Editor
9 January 2006, at 12:00am

CANADA - Farm-Scape: Episode 2017. Farm-Scape is a Wonderworks Canada production and is distributed courtesy of Manitoba Pork Council and Sask Pork.

Farm-Scape, Episode 2017

The Canadian livestock industry is expressing its concern in the wake of last month's decision by the Canada Border Services Agency (CBSA) to impose provisional duties on unprocessed grain imported into Canada from the United States.

The duties, which total $1.65 U.S. per bushel ($0.58 U.S. anti-dumping and $1.07 U.S. countervail), took effect December 15 and affect unprocessed corn originating in or exported from the United States.

According to a CBSA statement or reasons released last week that outlines the rationale for the ruling, this includes, “whole kernel grain corn and grain corn that has been milled to a limited degree such that the milled product preserves all the constituent parts of whole kernel and is chemically identical to whole kernel grain corn.“

Grain corn that has been mixed with other grains or oilseeds that could later be separated from the grain corn is also subject to the provisional duties.

Duties Imposed in Response to Complaints Filed by Canadian Corn Growers

The duties were the result of complaints filed in August by the Canadian Corn Growers (CCG), which includes the Ontario Corn Producers’ Association, the Manitoba Corn Growers Association, Inc. and La Fédération des producteurs de cultures commerciales du Québec (FPCCQ). In its complaint the corn growers group alleged unfairly subsidized corn being dumped into Canada at prices below its cost of production is causing harm to Canadian corn producers.

The CBSA decision followed a three month investigation and came on the heels of a mid-November preliminary finding by the Canadian International Trade Tribunal (CITT) that there is reasonable evidence that unprocessed U.S. grain corn imported into Canada is harming domestic corn producers.

Canadian Livestock Producers Expect to Bear the Brunt of the Decision

The Animal Industry Corn Users, which includes the Canadian Pork Council (CPC), the Canadian Cattlemen's Association (CCA) and the Animal Nutrition Association of Canada (ANAC), estimates the duties will increase the cost of U.S. corn by 75 percent.

Canadian Pork Council President Clare Schlegel suggests it’s vain to believe a duty on U.S. corn will shock the Americans into changing their domestic policy. “From a livestock producers perspective we feel like we’re pawns in a game that’s being played here and that the Canadian corn industry is using trade laws to try to get at an imbalance between Canada and the United States. We think there should be other solutions to fix the problem that we have in North America.“

Schlegel expects livestock producers to use every avenue available to deal with the situation and suggests one option will be to make use of a provision that allows importers who export their finished product back into the U.S. to gain relief from the duties.

“They’ll simply make a business decision at this point,“ he says. “They have to be defensive. For some they may look at setting up a drawback situation where they use all American corn and sell finished hogs back into the U.S. or even early weans.“

Duties Expected to Increase Risk of New U.S. Trade Action Against Canadian Swine

Manitoba Pork Council Chairman Karl Kynoch estimates, “This is going to add about $20 per head to our cost of production to finish a hog out so it puts our break even point about $20 a head higher than it was before.“

He warns, “This in turn could put us at risk of another U.S. trade action on hogs also. When you increase our cost of production you also increase our dumping margin if we were to be challenged so we could end up paying 20 bucks extra for corn and then paying $20 extra on another duty if we we’re faced with a trade challenge on live hogs going south again.“

He maintains, “We couldn’t have had this corn duty come on in a worse year for Manitoba. In Eastern Manitoba we virtually have no crop this year as all the cropland was flooded out. So it’s going to have a huge detrimental impact on eastern Manitoba as producers were already hit with increased freight costs to bring grain in. Now they're hit with this duty.“

Sask Pork General Manager Neil Ketilson agrees, “You increase the price of feed in Saskatchewan and, because we’re situated in a North American market, it will really make people think about sending more of the weanlings and isoweans down into the United States to be fed on the cheap U.S. corn and then they will be processed there.“

He estimates the duty will add a third to the cost of feeding hogs in Eastern Canada, where corn is used more extensively, which will also push up feed costs in Saskatchewan.

Canadian Processors Also Expected to be Impacted

Ketilson adds, “In turn we have to be very concerned about the ongoing supply of market animals. Given the new announcements of the two packing plants in western Canada to look after the increased supply, I’m sure there will be many discussions in terms of what the supply is going to look like in a year or two and what the implications will be to the processing plants.“

“The other thing we need to think about is what is the U.S. reaction going to be if that happens in any significant way? Will there be another countervail or dumping action levied across to see if they can’t reduce or eliminate the supply of live hogs into Canada?“

Maple Leaf senior director of business development for vertical coordination Garry Stott agrees the duties are not good for the Canadian industry. “I do empathize with the situation that the corn growers, or in fact all feed grain growers, are in – Not just in eastern Canada, but western Canada – But this is not the solution. It just causes more hardship on their neighbors in the livestock industry and will certainly increase the costs of finishing not only hogs in Canada but all livestock so this is not the answer. I hope it’s short lived.“

Stott says, long term, despite the duties, Maple Leaf and its subsidiary Elite Swine remain committed to finishing out more of the hogs that are presently being farrowed in Canada. He says, “This is our mandate and we’re going to stay the course on that.“

Alignment of Agricultural Support Programs Called For

Stott insists, “In the long term we have to look at this industry for what it is, and it is an integrated North American industry. Certainly I think the issues that have brought this corn countervail on is the fact that our agricultural support programs are not aligned. In other words there at different levels in the U.S. than they are in Canada, and I guess the corn growers are feeling they’re at a competitive disadvantage. So what we’re going to have to do is align our programs, align our industries on both sides of the border.“

Final Rulings Expected by Mid-March

The Canadian Border Services Agency is expected to make a final decision by March 15. Meanwhile, during the second phase of its investigation, additional information will be reviewed and the calculations of normal value, export price, and amount of subsidy will be finalized. If the agency is satisfied that the goods were dumped and/or subsidized, and that the margin of dumping or amount of subsidy is significant, a final determination will be made. Otherwise the investigation will terminate and any provisional duty paid, or security posted, will be returned to importers.

As well, the Canadian International Trade Tribunal is conducting a more detailed review of the question of injury to the Canadian industry and is expected to issue its final decision by April 18. If the CITT finds the imports are not harming or threatening harm to Canadian producers the duties will be terminated and all provisional duties collected, or security posted, will be returned. However, if the CITT finds the imports are harming domestic producers, the duties will be upheld.

Ketilson observes, “There’s a whole host of things that are up in the air and this certainly doesn’t help. It really adds to the uncertainty and makes it much much more difficult for the producers out there in terms of what decisions they're going to make in the long term.“

Politicians Urged to Take a Stand During Federal Election Campaign

Kynoch believes this corn duty problem just highlights the need for all political parties to share their vision of a comprehensive and responsive Canadian agricultural policy that can fairly address the legitimate concerns of all farmers. He suggests, with the federal election campaign in full swing, we can only hope the politicians won’t forget who really puts the food on their plate.

Schlegel adds, “At a time when we're looking at expanding our markets in EU, Japan, Korea, around the world, here we are fighting a relatively internal battle. Our government needs to respond.“

For Farmscape.Ca, I'm Bruce Cochrane.

5m Editor