Transcript Slide 1

Purpose
• Outline the benefits of North American integration in agrifood sector
• Describe new type of impediments to integration
• Discuss ways policymakers could cooperate to minimize
these new impediments
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Over past decades, North American governments
have removed barriers to greater integration…
•
Reduced border costs
through regional trade
agreements
–
reduced/eliminated tariffs,
reformed support
–
facilitated dispute
resolution
Growth rate
(% )
Export Growth to NAFTA vs. ROW
1994–2002
100
NAFTA
94
ROW
80
84
89
69
60
40
•
Policies have contributed
to increased regional agrifood trade
–
20
-1
0
Trade within North
America growing much
faster than trade with rest
of world
-20
Canada
Source: USDA, ERS.
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3
U.S.
Mexico
…enabling industry to increase investments, build
efficient continental supply chains
•
Industry has restructured
to take advantage of North
American opportunities
–
•
U.S. Foreign Direct Investment
in Processed Food Industries
Billions US$
6
Foreign direct investment
in North American agrifood tripled over last
decade
5
4
Canada
Many agri-food
businesses depend on
open borders for access
to inputs and to markets
–
3
2
1
e.g. meat packing
facilities in Northern U.S.
depend on supplies of
Canadian slaughter cattle
0
1973 1976 1979 1982 1985 1988 1991 1994 1997
Source: Bureau of Economic Analysis, USDA, ERS.
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Mexico
4
Integration is broad but asymmetrical
•
•
All three NAFTA countries
have changed and
benefited from
integration
100
1991-1993
90
Percent of total exports
•
North American Share of Agriculture
and Agri-Food Exports
But the benefits and
changes are deeper in
Mexico and Canada,
given relative size of
industries
88
80
85
70
66
60
50
40
46
30
29
20
20
10
0
Risks are also greater in
Canada and Mexico
Canada
Source: USDA, ERS.
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2000-2002
5
U.S.
Mexico
We face new impediments to integration
•
In past, integration has
overcome traditional frictions
– Trade distorting domestic
support
– Tariffs
But now integration faces a
new type of challenge – risk of
complete loss of market
access
– BSE
– Border administration
– Bioterrorism?
– AD / CVD
– Another disease?
– Exchange rate volatility
• New frictions emerge from
time to time – e.g. COOL
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•
6
As integration deepens, the cost associated with
new impediments increases
• Border closures do not simply divert trade,
they disrupt supply chains
• Once industry has re-structured on basis of
integrated market, border disruptions
become very difficult to manage
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BSE has clearly highlighted new challenges
to integration
• Industry disruption policy-induced, not consumer-driven
– North American beef consumption held steady or increased
• Policy response inside North American affects how other
countries respond
• Unilateral action cannot solve problems in a heavily integrated
market
– Interaction of domestic policy with international negotiations
– Harmonized NA approach on SRM, BSE testing
– Common position on OIE changes
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BSE shock is motivating industry to limit exposure
to future access risk
•
Alberta vs. U.S. Weekly Steer Price
Discovery of BSE
in Canada
Discovery of BSE
in the U.S.
155
Canadian
145
industry looking 135
125
at increasing
115
domestic beef 105
95
packing
85
75
capacity
U.S. 5 Market 65-80% Choice Steer
$/cwt
•
Dis-integration
of cattle market
a deep shock
Alberta Steer
65
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Feedlots and
packers in
northern U.S.
continue to
diversify
sources of cattle
55
45
35
25
4-Apr
25-Apr
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•
Week Ending
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Future of integration hinges on industry
perception of “closure risk”
• Further integration
requires industry
confidence in gov’t
management of border
risks
• If not, industry may
self-insure against
risks
– Supply chain disintegration
– Trade in final products
rather than
intermediate goods
Source: Kerr, 2003
Status quo policy may risk unintentionally
eroding integration and losing its benefits
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Challenge for policymakers is to work together to
minimize perception of this risk…
• Domestic policy ineffective unless reality of North American
integration taken into account
• World increasingly views NA as one market
– Agri-food markets already so well-integrated that it is difficult to
contain hazards within national boundaries
• Need to cooperate, recognize to create food safety
“perimeter” around North America
– Reduce risk of food safety event in any of three countries
…and maintain access to world markets
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Options for enhanced cooperation
• Agreement on “behind-the-border” measures to prevent food
safety events
•
Co-ordinated standard setting, harmonization, mutual recognition
• Development of agreed procedures for timely response to
food safety events should they occur
– Establish timelines for bilateral/trilateral consultation, exchange
of information, and announcement of joint measures
– Minimize duration and scope of border closures and establish
clear criteria for border re-opening
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Options for enhanced cooperation
• Build on existing mechanisms for
trilateral/bilateral collaboration
– NAFTA committees and working groups, bilateral/trilateral
agricultural accords, BSE committee, etc.
• Champion NA approach as template for future
multilateral agreements
– Multilateral negotiations on food policy (WTO, Codex, OIE)
progressing slowly and with difficulty
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Issues for discussion
• How best can governments work together to reduce the
perceived risk of complete border closures in future?
• Where are the remaining opportunities to strengthen
coordination of food safety and border policies?
• What changes are possible to facilitate greater co-ordination
of regulatory processes?
• Are existing forms of institutional cooperation adequate or
do we need new ones?
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