Volume 4 Issue 7 • February 28, 2011

In This Issue ...


Canada re-examines potential for a free trade agreement with Japan

Last week, the Governments of Canada and Japan announced they were launching a joint study to examine the potential for an economic partnership agreement (that's what they call a free trade agreement these days). In light of that, it is worthwhile to examine the current beef trade with Japan and where the Canadian Cattlemen's Association (CCA) hopes it will go.

CanFax Market BriefsFollowing a two-and-a-half year prohibition starting in May 2003, Japan resumed Canadian beef imports in late 2005 but limited them to cattle under 21 months of age.  Although we ultimately need a full resumption of trade with Japan, we have identified the interim step of raising the age limit from 21 to 30 months as very commercially meaningful.  Canada formally requested the raising of the age limit nearly three years ago, but there has been virtually no progress since that time.  It is our hope that the initiation of this study could be a catalyst to re-engage with Japan on this restriction.

Prior to BSE, Japan was becoming one of the most important export markets for Canadian beef, ranked third behind the U.S. and Mexico in both volume and total value of exports. Canada's volume of exports grew each year from 1990 through 2001 and shipped nearly 30,000 tonnes annually between 1999 and 2001.

The market took a bit of a step back in the fall of 2001 after Japan diagnosed its own first case of BSE.  Because the Japanese government at the time handled BSE poorly, Japanese consumers shied away from all beef. Fortunately, Japanese consumers have regained confidence in beef over the past decade, but the Japanese government remains hesitant to test such confidence by expanding trade to allow beef from cattle over 21 months old. In the meantime, our restricted access has been gradually increasing with shipments of 2,500 tonnes in 2006, 3,800 tonnes in 2007, 5,700 tonnes in 2008 and 10,700 tonnes in 2009. When the 2010 numbers are finalized, we expect they will be nearing 13,500 tonnes.

Canada has achieved these export levels despite the imposition of a 38.5 per cent import duty in Japan.  In fact, when beef imports increase beyond a certain trigger level, Japan increases the import tariff up to their maximum WTO permitted level of 50 per cent. Obviously it will be a very high priority for the CCA to achieve the elimination of this import tariff through a free trade agreement between Canada and Japan.

The process for reaching an FTA with Japan will include several steps. The joint study that has been launched is only a first step. During this phase of this study, the CCA will ensure that the Government of Canada is fully aware of the trade issues that the Canadian beef industry needs addressed. Hopefully the study will conclude that an FTA is beneficial to both countries and the next step of negotiating an agreement will proceed. The Government's announcement did not indicate how long this joint study will take, but we recall that the joint study preceding the Canada-EU negotiations took approximately one year.


Rising price of oil impacts loonie, agriculture

The civil unrest in Libya and elsewhere in North Africa has propelled the price of oil to highs not seen since October 2008. Last week, oil prices continued their upward march to push through $100 per barrel as tensions mounted in Libya after Moammar Gadhafi announced he'd die a martyr before resigning and violent clashes intensified.

Should the situation escalate and oil production be disrupted, many analysts expect the price of oil to spike to $150 per barrel or higher by the spring. Some, like the Japanese bank Nomura, suggested recently that crude oil could reach $220 per barrel if Libya and Algeria were to halt oil production together.

While oil prices were somewhat calmer Monday, due in part to reassurances from Saudi Arabia that it would boost production to cover any shortfalls, the rising price of crude will of course impact a lot of industries in Canada, including agriculture and transportation.

Todd Hirsch, Senior Economist with ATB Financial, said in agriculture, input costs will be affected and of course, transportation costs are a big piece of that.

"Cattle producers specifically have had a lot of hits in the last 10 years and there just hasn't seemed to be much good news at all. Now, when maybe prices are turning around a little bit, they are hit with higher input costs, specifically the transportation costs," he said.

Last week, Statistics Canada reported that farm cash receipts for cattle and calves reached $6.15 billion in 2010, a 5.4 per cent gain from a year earlier. The increase was largely attributed to a 5.1 per cent increase in prices.

While the extent of the impact of higher oil prices will depend on the specific operation, Hirsch said generally speaking the input costs for transportation for fuel for cattle ranchers "would be significant and it will chew right into the bottom line for producers."

Grain and oilseed farmers are a little better insulated because they are getting better prices for their commodities, he noted. Hirsch expects those prices will continue to increase in 2011, providing a buffer against rising input costs.

The escalating price of oil is sending the Canadian dollar higher as well. Last Thursday, the dollar roared to a nearly three-year high against the U.S. dollar. Today, the loonie rose to its highest level in three years against the greenback on positive fourth quarter GDP data released by Statistics Canada. This scenario comes as the Bank of Canada readies to announce its decision on the target for the overnight rate, on March 1.

Hirsch doesn't expect the Bank of Canada to raise interest rates and said the only thing that could possibly affect the Canadian dollar is the language the Bank of Canada uses in its press release around when rate increases might come.

"So far there is absolutely not a whiff of inflation in Canada. We're really in a sweet spot right now. We're not standing on that edge of deflation like the U.S. and we're not seeing European and Chinese-style inflation," Hirsch said.

Indeed Canada is about the only country right now with inflation very nicely contained – right about where the Bank of Canada wants it, he noted, and even a little lower. As such, there is no immediate pressure for the Bank to raise interest rates.

If, however, the bank, in its press release, uses language that inflation pressures globally are starting to build and the Bank will monitor it – "in other words if they make it sound like rate increases are coming in May," that could send the dollar higher, Hirsch said.

More likely the scenario will be 'inflationary pressures in Canada are entirely benign' – signalling to markets that the Bank is not going to raise rates until July or August "and that will calm the dollar down and it might even send it back below par," Hirsch said.


The DNA solution for BVD?

BVD can infect cattle of all ages, making it a very costly disease to the beef industry. Both killed and modified live BVD vaccines are available. Killed vaccines are safer to use (particularly on the breeding herd), but inspire a smaller immune response and require a booster. Modified live vaccines produce a stronger immune response, so they do not require a booster. However, the strong immune response to modified live BVD vaccines may suppress the immune response to other vaccines given at the same time. Modified live vaccines must also be used with caution in the breeding herd. Researchers at VIDO have been working on a DNA vaccine that may combine safety and effectiveness, and may even work in very young calves. Click here to read more.


Final countdown to the 2011 CCA Annual General Meeting

The 2011 CCA Annual General Meeting is fast approaching! The event runs March 7-11, 2011 at the Delta Ottawa Hotel and Suites in Ottawa. Producers and industry representatives are invited and encouraged to attend. Click here to download the agenda.

Questions? Contact the CCA office at 403.275.8558, ext. 405 or email jenkinsp@cattle.ca.


CCA 2010 Annual Report now online!

The CCA 2010 Annual Report is available online. To view the report, click here.

CCA Action News

Staff Contributors: John Masswohl, Reynold Bergen
Written, edited and compiled by: Gina Teel and Tracy Sakatch

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The Canadian Cattlemen's Association is the national voice for nearly 83,000 Canadian beef cattle producers.

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