Canadian Industry Case Studies CGC2D

Transcription

1 Case Study 1: Canola Oil A made in Canada success story: Canada s canola Canadian Industry Case Studies CGC2D An industry that doesn t get a lot of press time is staking out a claim in the world market. Canada s estimated canola crop for 2013 is the highest ever, at nearly 16 million metric tonnes, according to study on production of principal crop yields released by Statistics Canada in September. That s on the back of exports that have tripled from 2001 to 2011, generating billions for the Canadian economy. It s the continuation of a long trend of near-continuous growth for the canola industry. Canada has important trading partners in Japan, China, Mexico and the United States. Each trading partner has different needs. Japan and Mexico have a hunger for the canola seeds, since these imports support their seed-crushing and oil production industries at home. There is demand in China for canola meal, the high-protein by product of the crushing process that is used to feed livestock. And the U.S. imports both the oil and the meal for human and animal consumption. Yet despite an existing industry that s worth billions, the Canola Council of Canada is working to rectify what it sees as a modest share of the global market, about 20 per cent. It s been working with the Canadian government to follow through on what it call the Canola Market Access Plan, meant to break through existing impediments to grabbing a greater global market share. Canola, an abbreviation of Canadian oil, is presented as one of Canada s agricultural success stories. The history of the important oilseed plant goes back to the first recorded crop yield 60 years ago. In World War II it was grown as an emergency measure when European supplies were cut off. Canola, an abbreviation of Canadian oil, is presented as one of Canada s agricultural success stories. Canola is mainly grown in three Prairies provinces Manitoba, Saskatchewan, and Alberta. It s a selectively bred strain of rapeseed, a plant whose oil-rich seeds were used in industry as lubricants and flammables. But the old rapeseed strain was undesirable for producing edible oil because of relatively high levels of euric and eicosenoic acids in rapeseed oil.

2 In the 1970s a team of researchers from Agriculture and Agri-Food Canada and the University of Manitoba used traditional plant breeding techniques to create a new plant, which they dubbed canola to differentiate it from the rapeseed strain. A series of cross-breeding experiments in the 1960s and the 1970s resulted in a rapeseed plant without the undesirable acids and with a relatively low concentration of saturated fats. And so [they] developed over time, a very high-quality, high-yielding oil that has a considerable number of health qualities in terms of contributing to low cholesterol, said Jan Dyer, Director of Government Relations at the Canadian Canola Growers Association. Case Study 2: Dairy Farmers Dairy farmers too quick to attack Canada-E.U. trade deal OTTAWA-Caresse Ley Canadian dairy farmers have jumped the gun on railroading the new Canada-European Union trade agreement. An analysis of import and export data for the dairy industry as a whole and the smaller cheese industry shows that, at worst, dairy farmers would lose control of about four per cent of the Canadian cheese market. As it stands, Canada produces about 400,000 metric tonnes of cheese per year on average, according to data from the Canadian Dairy Information Centre (CDIC), run by the Government of Canada. About 120,000 metric tonnes is produced in the speciality cheese market. This accounts for a little over a quarter of Canada s cheese market, and it is in this sector where dairy farmers have feared the most competition. Under the new Comprehensive Economic and Trade Agreement (CETA), the E.U. would be allowed to import into Canada an additional 16,000 metric tonnes of cheese per year. If Canadian dairy farmers lost business, tonne for tonne, this would only represent about four per cent of the total cheese market being closed off to them. Below: Metric tonnes of cheese imported to Canada by country in Source: Industry Canada

3 If the dairy farmers predictions come true and the E.U. farmers use their new market share to penetrate the speciality cheese market only, this would represent about a 13 per cent loss of market share for those products. These are the worst case scenarios possible, said Aamir Asgarali, a sector specialist for Agriculture and Agri-Food Canada, who focuses on developments in the dairy industry. In other words, the domestic market would remain signifycant. The Canadian dairy market was worth about $13.5 billion in Cheese exports accounted for about $207 million of that, according to Industry Canada. The problem in Canada is that most farmers are, effectively, small business owners; 13 per cent of market share is not a small number to them. But four per cent needn t frighten them just yet. Farmers are assuming that for every tonne of cheese that is imported, a tonne of Canadian-made cheese will be displaced. This does not account for (annual) market growth, said Asgarali. What s unique is that this isn t a classic case of local entrepreneur versus big business; Beaulieu explained that the farm sizes are relatively the same in Canada and the E.U.. Yet, the E.U. farmers stand to gain more from CETA. Countries including Italy, France, Switzerland and several others already count themselves as part of Canada s top 10 trading partners Canada imported about 13,600 metric tonnes of cheese last year from the E.U., according to the CDIC. This accounts for about half of Canada s total cheese imports in E.U. dairy farmers have a clearly-established grip on part of the cheese market here in Canada, or at least a substantial part of what is imported, which should allow them to transition more easily into exporting more cheese to Canada. Canadian dairy farmers have no such presence in the E.U.

4 We don t have an established place in that market, said Asgarali. But that s not because we can t. It s just because no effort has been put into developing a market there. It s an uphill battle, said Therese Beaulieu of Dairy Farmers of Canada on establishing a demand for Canadian cheese in Europe. Currently, the United States is the biggest receiver of Canadian cheese exports, followed by Saudi Arabia and several countries in Asia. That s where the growth is, said Beaulieu of Asia. She explained that those countries do not have the land resources to develop their own farms, so there is demand for Canadian cheese and dairy products to fill that gap. Penetrating the E.U. market will prove difficult, said Beaulieu, a sentiment that was echoed by Asgarali. Both said the cost of cheese production in Canada is much higher, which will make it difficult to compete with the Europeans in their own backyard. So while Canadian farmers may not lose as much on Canadian soil as was initially anticipated, it is unlikely they will benefit from the deal internationally, at least in the short term. Case Study 3: Wine Market Uncorking a wine market in Asia Asia will continue to be the driving force for Canadian wine exports despite the upcoming Canada-EU free trade deal opening up European markets for Canadian wine producers, according to industry experts. While the United States remains the largest market for Canadian wine exports, China is now in second place and imports almost as much. The Chinese more than tripled their imports of Canadian wine between 2009 and 2012, and the demand continues to grow. Just because of this agreement, there s not a great benefit to export to Europe. If you go to France, you ll see 95 per cent of the wine in France is French wine, said Duncan Gibson, director of finance at the Wine Council of Ontario. [Asia] is where a lot of our people concentrate those exports will increase. China imported about $16.7 million worth of wine from Canada in 2012, and $9.5 million of that came from Ontario. The Chinese have also started buying vineyards in Canada. The Ottawa Business Journal reported in March that a wealthy Chinese investor has dropped $20 million on a mansion and vineyard in the Thousand Islands area.

5 After China, South Korea was the third largest market for Canadian wines. Hong Kong, Japan, Singapore and Taiwan all made an appearance in the top 10. You can compare the 2012 Canadian wine export market with the market in 1990 with the maps below. The darker shade a country is, the more Canadian wine it buys. While the United States has remained a large importer of our wine, there is a clear shift from Europe to Asian markets, especially China. Wine Exports in 1990 Wine Exports in 2012

6 The total export market, for Canadian wine, however, remains small. As Gibson explains, it s a matter of quality over quantity. The world is full of inexpensive wine that other countries can make less costly than we do because they re warm climates, their grapes grow a lot, there s a higher yield. They can make a lot of cheap wine, Gibson said. So it s hard for us to compete on price when we export. We compete on quality and a style of wine. We sell smaller quantities of better product. We will never a player in the cheap, bulk wine market, just because we can t produce it that way, he said. Premium product, especially wine that s been certified as being authentically Canadian, is building a following outside Canada, according Laurie Macdonald, executive president of the Vintners Quality Alliance in Ontario Particularly, icewine has been quite successful in Asia, Macdonald said, that certifies wines made with 100 per cent local grapes. In Ontario, VQA is the wine of origin here, as opposed to wine that contains imported products. So I think worldwide, consumers are more interested in wines that are, you know, authentic wines of origin. They re not just commodities bundled from all over the place, they come from a specific place based on the origin of the grape. The EU free trade deal does help the Canadian wine industry in one aspect, though, as Gibson explains. Before the agreement, there were duties and taxes on certain equipment that was brought in from Europe, he said. Grape presses, other machinery like tanks, oak barrels so that when Ontario wine producers import that equipment from Europe, it will now be less expensive because there won t be duties and taxes. So that will be a positive for domestic producers. Case Study 4: Oil Keystone pipeline brings Oklahoma oil, limited jobs Alberta oil exports to Oklahoma have shot up billions of dollars since the Keystone pipeline was completed in 2011, but the economic benefits for the southwest state remain limited, experts say. An analysis of Industry Canada trade data shows oil exports from Alberta to Oklahoma reached $3.4 billion in 2012, up from only $33 million in The spike happened in 2011, the same year the second phase of the Keystone pipeline running from Nebraska to Cushing, Okla. was completed. Attention is now focused on the approval of the pipeline s extension to Texas.

7 With so much oil flowing through to the state of Oklahoma, the economic benefits for the state have been touted by some studies and politicians. But two economics professors say that the financial benefits are mostly short-term construction jobs. It s impossible to say an increase in oil imports will cause a specific net benefit to Oklahoma s economy, said Andrew Leach, an environmental economist and professor at the Alberta School of Business. He said jobs aren t long-term, and the one s that are long-term are relatively few and far between. Leach said it s important to ask if Oklahoma is obtaining oil through the Alberta pipeline at a cheaper rate than if it had pursued other options. If you look at these things in a vacuum it s this pipeline or nothing, Leach said. If TransCanada didn t apply someone else would have. While the pipeline might ease the flow of oil for Alberta s oil producers, Leach said the warehousestyle transportation does not mean discount prices for importers like Oklahoma. Just because oil is being refined in the Cushing area, it doesn t mean those refineries would have sat empty without the pipeline. Nobody runs a refinery because of a pipeline it s built because of production capacity, he said. Oklahoma is currently Alberta s sixth-biggest American state for oil exports, accounting for six per cent of exports to the country. Exports to Texas sit at under $1 billion, but that s expected to change if the Keystone pipeline is completed.

8 Alberta s oil sands will bring in anywhere between $55 and $132 million per year to Oklahoma s economy, according to a study by the independent Canadian Energy Research Institute. That same report also said Alberta s oil would create or preserve anywhere from 640 to 1,520 jobs per year. But reports like these might not always be as accurate as they claim to be, said Matthew Rousu, an economics professor at Susquehanna University in Pennsylvania. Rousu s research includes reviewing the accuracy of economic impact studies. Rousu said Oklahoma may benefit from temporary construction jobs or ongoing maintenance work, but the bigger benefit almost seems like it would go to Alberta and whoever is extracting in the province. Rousu said economic impact studies are often used to mislead the public for political or corporate gain. It s also difficult to accurately predict future economic benefits. You can t look at it and say, this refinery is now processing oil, therefore all jobs are coming from the pipeline, Leach said. Preserving and creating jobs are two different things. There might be a demand for oil-related jobs in the area that would be filled irrespective of Keystone s expansion, he said. The pipeline is certainly not a multi-digit or multi-percent impact on Oklahoma s GDP, Leach said.