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Trade Agreements and Potato Markets

How a revised Trans-Pacific Partnership agreement would impact Canadian potato growers.

It is hoped that when it is ratified, the Trans-Pacific Partnership (TPP) will open new export markets for Canadian potatoes.

But when U.S. President Donald Trump signed an executive order to withdraw from the trade agreement in January, it put negotiation among the remaining 11 nations in flux.

Before we go into what might happen, let’s look at the current potato export “lay of the land” among the nations involved. According to the International Trade division of Global Affairs Canada (GAC), Canada has no current trade agreements with TPP partners Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam. We already have agreements with Chile, Mexico and Peru (no duties), and of all our potato and potato product exports to TPP countries, these three import the vast majority (95 per cent) – an average of $1.2 billion a year in 2013, 2014 and 2015. This breaks down to $176 million in potatoes and potato seed, $363,000 frozen potatoes and $1 billion in processed potatoes. On the import side, from 2013 to 2015, Canada imported an annual average of $325.2 million of potatoes and potato products from TPP partner countries.

“With regards to Canada’s TPP consultations, we made a commitment to consult with Canadians on this agreement, and that is what we are doing,” notes GAC spokesperson Natasha Nystrom. “A broad cross-section of Canadians have been consulted, and it is clear that there are some who support the agreement, some who have concerns regarding specific aspects of the agreement and some who have further questions.”

The House Committee on International Trade is also studying the TPP and accepted written submissions until Jan. 27 of this year. Nystrom says the Asia-Pacific is an important region and a priority market for the Government of Canada.

“We are open to any opportunity to advance our economic interests in the region, including with TPP countries,” she says. “And we would support any initiative that would be in Canada’s interest.”

As for possible changes to the North American Free Trade Agreement (NAFTA), U.S. President Donald Trump has yet to pursue any. Currently there are no tariffs affecting potatoes and potato products in that agreement. Potato processors therefore tend to treat the U.S. and Canada as one entity, with plants on both sides of the border.

Industry Insight

The TPP would eliminate most tariffs within three years of entry into force on potato and potato products, with the remainder of tariffs eliminated within four to 15 years or upon entry into force (see sidebar).

We asked Brenda Simmons, vice chair of the Canadian Potato Council (CPC), which represents Canada’s nearly 1,300 potato producers, for her thoughts on the potential benefits and possible detractions of the TPP and potential changes to NAFTA. She notes first off that the Canadian potato industry is very interested in developing new export markets for processed potato products, as well as seed potatoes, table stock potatoes and fresh potatoes for processing in other countries.

She explains, however, that potatoes are somewhat different from many other commodities in that, “even when free trade agreements are negotiated by Canada with another country, it does not automatically result in access for our potatoes. Additional work is often required on the part of trade and phytosanitary officials in Canada to negotiate access for potatoes.”

Simmons cites South Korea as an example. Canada finalized a free trade agreement with South Korea in 2015, but it contained no potato access. “We’ve been seeking support from federal officials to do the work necessary to enable us to access that market,” she notes. “The United States potato industry does have access to South Korea, and ships in excess of $10 million in fresh potatoes to them annually. We’d like to see similar access to that and several other significant and expanding export markets.”

United Potato Growers of Canada (UPGC) President Kevin MacIsaac thinks a TPP deal will be of particular value for processed potato products.

“Japan is an important market for french fries, even though the U.S. ships far more than we do into that country,” he says. “Removal of the 13.6 per cent tariff currently on prepared potatoes would certainly be positive. The tariff removal in Vietnam of 34 per cent is for a smaller market, but still good. Malaysia seems to be an up-and-coming market so the eight per cent removal would have value as the market grows.”

MacIsaac says Australia and New Zealand would have minimum importance, even though the current tariff of five per cent in each country would be eliminated. “We virtually ship very little to these countries because of prohibitive freight costs,” he notes.

In terms of import of potato and potato products once the TPP is in place, MacIsaac isn’t terribly concerned. “We already import significant quantities of potatoes from the U.S. into Canada, largely fresh potatoes into Western Canada and chip potatoes into Central Canada,” he notes. “The market has evolved over time to include these imports and I don’t see that changing.”

Lastly, MacIsaac considers the TPP chapter on measures to prevent the spread of plant diseases to be a plus. He believes “in theory” that it should make Canada more competitive as we already have good systems in place.

For his part, Terry Curley, president of Monaghan Farms in Kensington, P.E.I., which exports mostly all its harvest, would like to see the TPP succeed. However, Curley would also like to see Canada do more to seek bilateral agreements with individual countries, especially those in Central America, Southeast Asia and the Caribbean. In October 2016, for example, Agriculture and Agri-Food Canada (AAFC) secured a market access agreement with Thailand for Alberta seed potatoes, with P.E.I. and New Brunswick having already had export agreements with Thailand since 2009. “The United States has been [seeking bilateral agreements] for a number of years,” Curley says, “and they have a trading advantage over us, currently.”

 

Current Tariff Changes Under the Proposed TPP Agreement

Frozen French Fries

  • Japan: Tariff of 8.5 per cent eliminated within three years, and tariffs of up to 20 per cent on all other prepared potato products eliminated within 10 years.
  • Vietnam: Tariffs of up to 24 per cent eliminated within three years, and tariffs of up to 34 per cent on other prepared potato products eliminated within four years.
  • Malaysia: Tariffs of up to eight per cent on certain processed potatoes eliminated upon entry into force (EIF).
  • Australia and New Zealand: Tariffs of up to five per cent on prepared potatoes, including french fries, eliminated upon EIF.
  • Mexico: Tariffs of 20 per cent on prepared potatoes, including french fries, eliminated within 15 years.

Fresh Potatoes

  • Chile: Tariffs of six per cent eliminated upon EIF.
  • Japan: Tariffs of 4.3 per cent eliminated upon EIF.
  • Mexico: Tariffs of 245 per cent eliminated within 15 years.
  • Peru: Tariffs of nine per cent eliminated upon EIF.
  • Vietnam: Tariffs of 20 per cent eliminated within four years.
  • Australia, Brunei, Malaysia, New Zealand, Singapore: Already duty-free.

Seed Potatoes

  • Chile: Tariffs of six per cent eliminated upon EIF.
  • Japan: Tariffs of three per cent eliminated upon EIF.
  • Australia, Brunei, Malaysia, New Zealand, Singapore, Peru, Vietnam, Mexico: Already duty-free.

(Source: Global Affairs Canada)

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