Poultry Marketplace

Profile of The Canadian Turkey Industry

Chapter 1: Introduction

• INDEX
  
  
• CHAPTER 1: Introduction
  • 1.1 Supply Management
    
  • 1.2 Legislative Framework
    
    • 1.2.1  The Evolution of the Farm Products Marketing Agencies Act (FPMAA)
      
    • 1.2.2  Farm Products Council of Canada (FPCC)
      
    • 1.2.3  Turkey Farmers of Canada (TFC)
      
    • 1.2.4  Export and Import Permits Act
      
  • 1.3 International Trade Agreements
    
    • 1.3.1 Canada-United States Free Trade Agreement (FTA) and North American Free Trade Agreement (NAFTA)
      
    • 1.3.2 The General Agreement on Tariffs and Trade (GATT), the Uruguay Round and the World Trade Organization (WTO)
      
      
• CHAPTER 2: World Turkey Production and Trade
  
  
• CHAPTER 3: Canadian Turkey Production and Supply Structure
  
  
• CHAPTER 4: Turkey Production in Canada
  
  
• CHAPTER 5: Processing and Further Processing
  
  
• CHAPTER 6: Canadian Turkey Market
  
  
• ANNEX A: The Import Control List
  
  
• Tables and Figures
  
  
• Bibliography

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1.1  Supply Management

Over the years, the Canadian turkey industry evolved through changing political landscapes and economic conditions.  In order to understand the evolution of the Canadian turkey industry it is important to place it into its historical context.  Since 1974, the Canadian turkey industry has operated under a supply management system.  This supply management system had its origin in the establishment of the Turkey Farmers of Canada (TFC) which was created in 1974 under the Farm Products Agencies Act. The CTMA is the national agency that monitors and assures that Canadian turkey producers supply a sufficient quantity of product to ensure that the domestic market meets Canadian consumer demand. 

Some could argue that the first principles of supply management are rooted in the British North America Act (BNA) of 1867. The BNA set out provincial and federal jurisdictions giving provincial governments the authority over production and marketing of goods and services within their own boundaries, and the federal government jurisdiction over inter-provincial and international trade.  Others claim that the roots of the system are an extension of the various provincial marketing boards that have been part of Canadian farming since 1927, when the first marketing board was introduced in British Columbia for tree fruits. For provinces, strengthening the bargaining power of farmers became a priority after the Great Depression beginning with British Columbia in 1936, where all provincial governments passed legislation enabling marketing boards on a local and provincial basis. 

Another view on the origins of supply management deems the establishment of the Agricultural Products Marketing Act (AMPA) in 1949 as the starting point of supply management in Canada.  The AMPA provided the federal Minister of Agriculture with the ability to delegate federal powers to regulate inter-provincial and export trade to provincial agricultural marketing boards, provided they have the same powers provincially to regulate intra-provincial trade.  However, the board’s jurisdictions were limited at the provincial border.  Without inter-provincial and international controls, farm products crossed from province to province, undermining a provincial board’s effort to control supply.  This became apparent in the 1960s, when various provinces started restricting each others products in order to protect their own producers from a market that would frequently enter into a position of overproduction, which in turn, would trigger a sharp decline in producer prices. The climate of provincial confrontation culminated in the so called ‘Chicken and Egg War’ of 1971, in which various provinces, especially Ontario and Québec, used their legislation to retaliate against each other’s products.  The National Farm Products Marketing Agencies Act arose from this situation and provided an essential structure at the federal level to harmonize existing provincial plans. 

Supply management is a marketing system that regulates domestic production and imports to ensure that the supply of a product matches its demand and that the prices paid to agricultural producers are steady over time and provide the producers with fair returns.  Processors and consumers are guaranteed a consistent and sufficient supply of top-quality products at reasonable prices.  Provincial marketing boards balance the supply and demand of each supply-managed commodity in each province.  The supply of a commodity is regulated using a quota system.  Thus regulated turkey producers must hold quota in order to ship their product to the market.  When the system was put in place, quota was given to producers who were in the business at that time.  

In addition to provincial marketing boards, the national organization (TFC) is charged with administering the supply management system and to provide price and supply stability by gearing production towards market needs.

In order for a supply management system to be sustainable three pillars are required: import control, production discipline and stable producer pricing. To maintain the stability of supply in Canada, the supply management model limits imported products to ensure Canadian market requirements are primarily met by Canadian production. The volume of the commodities imported into Canada is limited by tariff rate quotas (TRQ)¹, under which high tariffs are applied on imports above a specific level of access to the national market.  Secondly, a control of supply is required and producers chose to work within a quota system, where each producer supplies a given share of the Canadian market. Every year, quotas are readjusted to take into consideration population growth and consumption trends in order to ensure that the turkey products are produced in sufficient quantities and do not lead to surpluses. Finally, the system contains mechanisms that provide producers with a stable price for the product. Provincial commodity boards negotiate their selling price with processors based on a cost of production formula.

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1.2  Legislative Framework

The following sections will discuss the federal legislative framework with regards to the evolution of supply management in Canada. This section will also examine the key institutions that were developed as a result of the federal framework that work together to allow supply side management to remain effective to this day.

1.2.1    The Evolution of the Farm Products Marketing Agencies Act (FPMAA)

The Farm Products Marketing Agencies Act (FPMAA) was enacted in 1972 to establish the National Farm Products Marketing Council and to authorize the creation of national farm products marketing agencies. In 1993, Parliament gave the Council an additional role of supervising any national promotion and research agencies established under the Act. As well, the name of the Act changed from the Farm Products Marketing Agencies Act (FPMAA) to the contemporary Farm Products Agencies Act (FPAA) while also transforming the National Farm Products Marketing Council into the present-day Farm Products Council of Canada (FPCC).
The marketing agencies mandated in the Act are assigned authority to implement and administer national marketing plans, allocate quota and market share and generate revenue through levies. The FPCC was charged with overseeing these agencies and administering the FPAA.

1.2.2    Farm Products Council of Canada (FPCC)

The FPCC supervises the operations of national marketing agencies to ensure each one accomplishes what its mandate: promote a strong, efficient, and competitive production and marketing industry, and operate in the interests of producers and consumers. The FPCC also advises the Minister of Agriculture and Agri-Food on all aspects of the marketing agencies including their creation and operation, and it promotes an efficient and competitive agriculture industry.

The marketing agencies manage the supply of Canadian chicken, turkey, eggs, and broiler-hatching eggs. They implement and administer marketing plans, allocate production quotas, and generate their revenues through levies.

The FPCC will also supervise any other national marketing agency or promotion and research agency established under the Farm Products Agencies Act (FPAA).

1.2.3    Turkey Farmers of Canada (TFC)

           
The Turkey Farmers of Canada (TFC) is the national agency that represents turkey farmers and has the authority to regulate turkey production in Canada under a system of supply management. TheCTMA was formed in 1974 under the Farm Products Marketing Agencies Act (1972). Under this system, production is managed using production quota to ensure that the production meets the demands of the Canadian market.

CTMA’s board of directors includes producer representatives from each of the eight signatory provincial commodity boards² , two representatives from the Canadian Poultry and Egg Processors Council (CPEPC), and one from the Further Poultry Processors Association of Canada (FPPAC).

The board of directors determine the required level of production to meet the needs of the market. It is the responsibility of CTMA to then determine the national allocation and distribute the production to the provinces. Provincial boards in turn allocate production quota to registered producers. Each year, the provincial boards sign a "Promotion Agreement" under which they agree to pay the Agency liquidated damages for any overproduction and to accept a reduction in their quota allotment for the following year, equal to the amount of overproduction.

The CTMA is funded by levies, which are paid by the turkey producers and are assessed on each kilogram of live weight turkey marketed. The levies are collected at the point of processing.

1.2.4   Export and Import Permits Act

In Canada, the Export and Import Controls Bureau of the Department of Foreign Affairs and International Trade is responsible for administering the Export and Import Permits Act (EIPA) that provides to the Governor in Council the powers to regulate the importation and exportation of designated products. This is an important piece of legislation for commodities under supply management as it provides import control, one of the main three pillars of supply management.  The EIPA provides that the Governor-in-Council may establish lists known as: the Import Control List (ICL), the Export Control List (ECL), and the Area Control List (ACL). With regards to agricultural products under supply management such as poultry and eggs products the ICL portions of the act and regulations are the most pertinent. In order to import products under the ICL, permits are required for the importation of goods.  The ICL is presented in Annex A.

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1.3  International Trade Agreements

The International trading environment changed drastically in the 1980’s and 1990’s.  The implementation of the Canada-US Free Trade Agreement (FTA), the North America Free Trade Agreement (NAFTA) and the outcome of the Uruguay Round negotiations that led to the creation of the World Trade Organization (WTO) not only influence the world economy but it also generated changes to the Canadian supply management policy.  This section provides a quick overview of these important international agreements and some implication on supply management. 

1.3.1. Canada-United States Free Trade Agreement (FTA) and North American Free Trade Agreement (NAFTA)

The Canadian/United States Free Trade Agreement (FTA) was signed in 1988 and implemented in 1989.  Under the FTA all tariffs were to be phased out over a 10-year-period, from 1988 to 1998.  The objective was to create a Canadian/U.S. free trade area so trade between the two countries would be uninhibited by border measures with the exception of certain commodities such as Canadian dairy and poultry products that had previously been protected by Article XI of the General Agreement on Tariffs (GATT). 

The FTA agreement was expanded to include Mexico in 1994 which led to creation of the North American Free Trade Agreement (NAFTA).  The NAFTA called for immediately eliminating duties on half of all U.S. goods exported to Mexico and gradually phasing out other tariffs over a period of 14 years.  NAFTA did not affect the phasing-out of tariffs agreed in the FTA which was completed January 1, 1998³ . NAFTA removed restrictions on many categories of products, protected intellectual property rights and favored investment.  Supplemental agreements were added later to NAFTA to include provisions regarding workers and the environment. 

Regarding agriculture, it has been a controversial topic within NAFTA, as it has been with previous agreements.  Agriculture is the only section of the agreement that was not negotiated trilaterally.  Three separate agreements were signed for agriculture in which Canada negotiated bilateral agreements with the U.S. and Mexico to preserve border controls for its supply managed commodities.  In the U.S., tariffs remain in place for certain products such as sugar, dairy, peanuts and cotton.  On January 1 2003, the final tariff reduction between Canada and Mexico was completed.
 
For turkey, the Canadian market access level provided to Canadian importers is the higher limit between the levels negotiated under NAFTA or the WTO Uruguay Round Agreement.

1.3.2. The General Agreement on Tariffs and Trade (GATT), the Uruguay Round and the World Trade Organization (WTO)

The history of the General Agreement on Tariffs and Trade (GATT) begins in 1948 as part of a larger plan for economic recovery after World War II.  The countries highly involved in world trade signed an agreement known as the GATT that was developed through a series of eight trade negotiations or rounds (Geneva 1947 to the Uruguay Round in 1986-1994).  The GATT's main purpose was to reduce barriers to international trade. This was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through the various agreements or trade rounds.  Early GATT rounds provided special treatment for agriculture that virtually absolved agriculture from most disciplines applied to industrial trade.  It is only during the Uruguay Round that agriculture as been fully integrated into the international trading system.

The Uruguay Round of negotiations under the GATT commenced in September 1986 and was finalized in December 1993. The intent of the trade round was to expand the competence of the GATT to new areas such as services, capital, intellectual property, and agriculture. The affirmation of the Urgugay Round in December led to the “Marrakesh Declaration" of April 15, 1994 which confirmed that the results of the Uruguay Round would "strengthen the world economy and lead to more trade, investment, employment, and income growth throughout the world"⁴ . On January 1, 1995 the GATT made its official transformation into a formal international body known as the World Trade Organization (WTO). 

Under the terms of the Uruguay Round, quotas on agricultural imports had to be converted intoTRQ’s (tariff equivalents) by 1 July 1995 and tariffs reduced over a six-year period commencing in 1995 by a minimum rate of 15% per product. Overall, tariffs on agricultural goods, including tariff equivalents, had to be decreased by 36% over the six years. To fulfill its obligations under the GATT/WTO agreement, the Canadian government replaced its system of import quotas for poultry, eggs and dairy products with tariff rate quotas (TRQ’s).

Also it was agreed by WTO members that the minimum access within a TRQ would increase from 3 percent of domestic consumption to 5 percent over the implementation period.  Currently, under the WTO agreement, Canada has allowed for an access level of 5.6 million kilograms of turkey (eviscerated weight).  Under NAFTA, figures for market access of 3.5% of previous year’s turkey production (approximately 5,418,980 kg) amount to less than WTO commitments, therefore WTO TRQ levels take precedent.

Other areas where there were significant results in the Uruguay Round negotiations in agriculture were: domestic support, export subsidies, sanitary and phyto-sanitary measures, biotechnology and improvement in WTO dispute settlement process.
In 2000, new trade talks started at the WTO.  These talks have now been incorporated into a broader work program, the Doha Development Agenda (DDA) launched at the fourth Ministerial Conference in Doha, Qatar, in November 2001.  Discussions toward a new WTO agreement are still ongoing.

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