It looks like (and I hesitate to write this), that the harvest for Eastern Canadian farmers has gone extremely well. The last few Falls have seen days and days of rain, mud in potato fields, storage problems, and high moisture levels in soybean and corn, in other words lots of frustration. Fingers crossed that somewhat optimistic price forecasts hold.
The big news has been the announcement of a trade deal with Europe. There will be winners and losers like in any trade agreement, well-heeled consumers the most obvious beneficiaries. It's ironic that like the U.S. Free Trade deal it took last-minute negotiating by an unpopular Conservative government desperate to make a deal for political reasons as much as anything else. That doesn't mean it's a bad deal, just that Canada wasn't negotiating from strength. Higher drug costs alone will be a burden for people without drug plans, and stretched provincial health budgets.
What does it mean for agriculture? I'll include a column I wrote on the impact on the dairy industry which will be negative, but let's look at what this means for the supposed winners, livestock farmers. The beef and pork producers still left have gone through very tough times, low prices and high feed costs. Getting greater access to millions of well-heeled consumers in the E.U. has to be a plus, but let's look a little closer. It will be mostly western Canadian beef and pork producers who will benefit from this. They have lower costs, and most importantly the processing capacity to go after E.U. markets. The biggest change will be in the big beef feedlots which will have to stop using growth hormones, an E.U. requirement. If some of the western beef and pork that would normally go onto the Canadian market ends up being exported, it will certainly be a benefit to producers here (don't forget that the Maritimes doesn't produce enough beef and pork to supply local markets). But also don't forget that the E.U. is now negotiating a trade deal with the U.S., and it will certainly include increased access for American beef and pork producers too, so Canadian (and Maritime) producers will once more be competing with much larger and subsidized U.S. production.
It would be folly for Canada not to pursue new trading opportunities given the ongoing decline in the United States. Decades of a low Canadian dollar after the signing of the U.S. FTA meant there was easy money shipping south of the border. Now with a stronger Canadian dollar (and yes some Dutch Disease thrown in), exporting hasn't been as profitable. But there are always unexpected wrinkles, as this recent column from Mark Bittman points out. The dairy column follows.
On Becoming China’s Farm Team
By MARK BITTMAN
Look at the $4.7 billion purchase in September of the pork producer Smithfield Foods by Shuanghui International Holdings Ltd. -- the Chinese firm that counts Goldman Sachs among its backers -- from the standpoint of the Chinese. As this century’s economic titan, they had to “take a position” in United States pork. China’s population of nearly 1.4 billion is not only growing rapidly but growing wealthier rapidly, and flattering us by emulating our consumption patterns (for better or worse) while having trouble replicating some of our production systems.
China has notorious problems with food safety; urban Chinese consumers distrust the quality and safety of their own food system, and express clear preference for imported food when it is available. What to do when you are the largest pork supplier in China, you have production and quality problems, must meet the ravenous demand for more meat from hundreds of millions of paying consumers, and the international supply is abundant? You buy the world’s largest pork producer and processor, together with that firm’s vaunted supply chain, quality controls, brand value and consumer appeal.
Sadly, there may be only one potential upside to this deal for most Americans, and that one is ironic. We might see a marginal improvement in the quality of industrially produced pork by ridding it of ractopamine, a lean-meat growth stimulant whose effects on humans are sufficiently questionable that its use for meat production is illegal in the European Union, Russia and China. Smithfield says that as of June, 50 percent of its pork is ractopamine-free, the better to please its new masters.
But can Americans buy Smithfield pork without ractopamine? Maybe, maybe not. At the moment, there’s no way to know.
The other upsides are for the Chinese, and of course, Smithfield shareholders, though Smithfield executives would have you believe otherwise. Larry Pope, Smithfield’s C.E.O., who is no doubt glowing about what turned out to be a $34-per-share premium, was cheerleading in his testimony this past summer before the Senate committee on Agriculture, Nutrition and Forestry. He said that the purchase -- the biggest ever of a United States company by a Chinese one -- “provides enormous benefits … for American manufacturing and agriculture,” and claims it will result in more production, jobs and exports.
“It’ll be the same old Smithfield, only better,” Mr. Pope said.
The Chinese produce and consume half the world’s pigs. They have a pork strategic reserve not unlike our petroleum reserve. Really. They’ll buy more pork from us when they can and need to, but not simply because a Chinese company owns the factory. (Would you, for example, be more likely to buy a Kia if Goldman Sachs bought the Korean carmaker? For that matter, can you be certain that they haven’t?) If they did, and pork became scarcer, prices would climb; producers might consider that a good thing but consumers would not. Almost anything that reduces consumption of industrially produced meat is a plus, but reducing its production is equally important, and there’s the rub, or one of them.
The benefits for Shuanghui are crystal clear: As is the case with 90 percent of the pork produced in the United States, almost all of Smithfield’s “farms” use now standard techniques, including large (average: 2,000 pigs) concentrated animal feeding operations, or CAFOs,in which pigs are confined, fed with legal but problematic drugs and use enormous amounts of feed, water and energy while generating giant lagoons of manure. (That Smithfield has made some progress in manure disposal and even confinement are minor if not insignificant factors when the entire production model is assessed.)
Smithfield has also bred what might be the world’s leanest and therefore most profitable pork, using genetic research paid for in part with tax dollars through public support of research at land-grant universities. Technologically speaking, the almost inconceivably huge Chinese pork industry is primitive. This is an instantaneous technology transfer that doesn’t involve spying but cash.
Given what they just outsourced, why would the Chinese not want to buy the whole shebang? According to Kai Olson-Sawyer, a research and policy analyst at the Grace Communications Foundation who has blogged extensively on this subject, “The CAFO system has major impacts on environmental and human health, rural communities and animal welfare. And basically, taxpayers pay for it all: we subsidize the production of cheap grain used as feed, and are ultimately stuck bearing the environmental, public health and socioeconomic costs of industrial livestock production.”
The fact is that China is going to be a net importer of food more or less forever: it’s got a fifth of the world’s population (and eats a fifth of the world’s food), but only nine percent of its agricultural land and scarce water resources. (The average pig takes nearly 600 gallons of water to produce a pound of meat.)
So even more than a technology grab, the Smithfield deal is a land and water grab. We still have the world’s most enviable combination of arable land, rainfall and temperate weather, and there’s no practical technological substitute for any of these. It’s the consumption of these resources, along with the manure deposits, that make the Smithfield deal, to paraphrase Warren Buffett, a form of colonization by purchase rather than conquest. In short, the deal, as Minxin Pei wrote in Fortune, is “really about owning access to America’s safe farmland and clean water supplies.”
Put aside for a moment the arguments of those who see a better way to eat and produce food more sustainably. And put aside that most Americans remain ignorant of how food is produced and the effect that production has on land, water, energy and even climate. Just say this: all agriculture has impact, which means it uses resources and leaves behind waste. We implicitly accept some of that impact because we want, for example, the pork.
The Smithfield-Shuanghui deal guarantees China the pork while offloading the downsides (the “externalities”) of pork production onto The Land of the Free. It guarantees us cropland devoted to chemical-dependent monoculture; continued overuse of water and other resources, none of which we can afford to squander; and great big stinking piles of manure. In sum, it transfers the environmental damage of large-scale pork production from China to the United States without even guaranteeing us pork with as few chemicals as that shipped to China.Welcome to China’s farm team.
Spilled Milk... More to Come?
It will be months before the fine print of the Canada-Europe trade deal is hammered out and made public. The initial headlines had hog and beef farmers, and the seafood industry, winning new market access to a large wealthy market that’s still reeling from a horse meat scandal, while dairy farmers are viewed as the losers, with cheese imports from Europe more than doubling from around 13 thousand tonnes to 30 thousand tonnes. Any Canadian production this European cheese displaces will be felt right back to the farmer supplying the milk. Not surprisingly the response from Dairy Farmers of Canada, the well financed lobbying arm of the dairy industry, is outrage.
Let’s look a little closer. Almost all of the increase is for what’s called “fine” cheese. No one seems to know quite what that means in the trade deal, but we can guess that the very good cheddar that ADL produces here on PEI for example is not considered a “fine” cheese. In Canada “fine” cheeses come from the small artisanal producers that have developed across the country over the last few years, producing several award winning cheeses. Here on PEI Chef Jeff McCourt told CBC he’s bought. moving and expanding the former Cheese Lady’s Gouda operation to produce high-end artisanal cheeses, and will be hurt by the European invasion. In Europe dairy farmers are subsidized so can sell their milk cheaper to end users like cheese makers. Under the supply management system here, processors and consumers pay a regulated price tied to the cost of production. There are no government subsidies.
Interestingly many news stories said Canada would now be able export dairy products to Europe. That runs counter to recent international trade decisions which have ruled that Canadian farmers can’t be involved in export markets. Tribunals have said that Canadian farmers enjoy a higher domestic price (because of supply management) and can’t use that to compete unfairly in export markets. Don’t forget that that’s exactly what European farmers do, the difference being their subsidy comes from E.U. governments rather than the marketplace.
The other thing we don’t know is who will be licensed to import the European cheese. Up until now Canadian cheese producers have handled any imports and simply added them to the products they offered retailers. This gave them a chance to control the marketing of imported cheese and lesson the impact on Canadian production. If the big grocery retailers get the import permits, then they’ll simply want to move as much product as possible and will do more damage to Canadian producers. And this is where Canadian consumers will play a role. If they continue to support “local” cheese, which could be more expensive, then again the impact of the European imports won’t be as great.
The most worrying part for Canada’s dairy industry is that market concessions were made at all. What’s to stop New Zealand, Australia and the U.S. in the ongoing Trans Pacific Partnership trade talks from saying you’ve agreed to new European imports, we want our share of the Canadian market too. Now the TPP is years away from a deal, and with fourteen countries all with their own agendas at the table, may never find agreement, but the dairy industry will have to redouble it’s effort to influence Canada’s bargaining position. If New Zealand, the Walmart of the dairy business (cheap milk, cheap butter) gets increased access to Canadian butter and cheddar cheese markets, then PEI, New Brunswick and Quebec dairy farmers will be hit hard. (If you want an eye-opener, google “dirty dairying” and check out the environmental impact of cheap milk production in New Zealand. You might come to like your local Canadian dairy farmer a little more.)
Canada is a trading nation and moving away from such a huge dependence on the U.S. market is a good thing. And with Europe’s higher standards for animal husbandry, and prohibition against growth hormones in beef, the deal will push some welcome changes to livestock production in Canada. And don’t forget that the lobster stunning equipment made by Charlottetown Metal Products went to a New Brunswick company trying to hold onto its German markets. So even lobsters may get treated a little better if this deal goes through.
So let’s keep supporting Canadian cheese makers, and worry about the next big trade deal. That’s the one that could do some real damage to dairy producers.