""

Required Report - public distribution

**Date:** 8/28/2003

**GAIN Report Number:** CA3052

CA3052

**Canada**

**Poultry and Products**

**Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Gary Groves

U.S. Embassy

**Prepared by:**

George Myles

**Report Highlights:**

Present prospects point to lower Canadian production of chicken and
turkey in 2003 from year ago levels. The effects of Sudden Acute
Respiratory Syndrome (SARS), which dampened economic activity in the
first half of the year, and the events surrounding the discovery of
Bovine Spongiform Encephalopathy (BSE), which increased domestic beef
supplies, contributed to the national poultry meat agencies setting
conservative production allocation levels, a development which is
forecast to linger into 2004. In poultry meat trade, the value of U.S.
poultry meat exports to Canada, in the first six months of 2003, is
almost 10% above last year\'s pace.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Unscheduled Report

Ottawa \[CA1\]

\[CA\]

**Table of Contents**

[Executive Summary 3](#executive-summary)

[Section I. Broiler Chicken 4](#section-i.-broiler-chicken)

[Production Outlook 4](#production-outlook)

[Tariff Rate Quotas/Imports 5](#tariff-rate-quotasimports)

[Exports 5](#exports)

[Marketing 5](#marketing)

[Chicken Utilization 5](#chicken-utilization)

[U.S. Poultry Meat Export Growth 5](#u.s.-poultry-meat-export-growth)

[Section II. Policy 6](#section-ii.-policy)

[Chicken Industry Structure 6](#chicken-industry-structure)

[Policy Developments 6](#policy-developments)

[WTO Position of the Poultry Sector
6](#wto-position-of-the-poultry-sector)

[Section III. Turkey 7](#section-iii.-turkey)

[Production Outlook 7](#production-outlook-1)

[Imports 7](#imports)

[Exports: 8](#exports-1)

# Executive Summary

\* The unbroken run of increased Canadian chicken production in recent
years appears to be over. Chicken production in the first six-months of
2003 was 2.3% less than during the same period a year ago.

\* Canada is the second most important export market for U.S. poultry
meat. In 2002, U.S. poultry meat exports to Canada reached a record
\$267 million, accounting for almost 16% of total U.S. poultry meat
exports to the world (Russia, 22%). In the first six months of 2003, the
value of U.S. poultry meat exports to Canada is almost 10% above last
year's pace.

\* For 2003, global access to Canada's chicken tariff rate quota (TRQ)
is 69,762 metric tons, but U.S. exports will exceed that level as a
growing proportion of total Canadian chicken imports is occurring
outside Canada's TRQ under two special import categories, the "import to
re-export" program and the "import to compete" program, which are made
available to Canadian poultry processors and food manufacturers by the
government of Canada.

\* Turkey output in Canada during 2003 is forecast to fall for the third
consecutive year. The Canadian Turkey Marketing Agency is under pressure
to trim production allocations due to increasing turkey meat imports and
relatively high levels of turkey in frozen storage.

# Section I. Broiler Chicken

## Production Outlook

The steady year-to-year increases in Canadian chicken production
registered throughout the most of the 1990s and in recent years are
unlikely to be repeated during 2003 and into 2004. As a result, the
almost unbroken run in the growth in Canadian chicken production over
the past ten years may be disrupted. Two contributing factors are 1)
reduced economic activity and a sharp decline in tourism early in 2003
related to the outbreak of the human disease, Sudden Acute Respiratory
Syndrome (SARS), and 2) the discovery of a single case of Bovine
Spongiform Encephalopathy (BSE) in May 2003, which resulted in increased
domestic supplies of beef, retail and fast-food beef promotions, and
somewhat lower retail beef prices. At its present pace through June
2003, Canadian chicken output is poised to decline in 2003. According to
the Chicken Farmers of Canada, production in the first six-months of
2003 was 2.3% less than during the same period a year ago. Output may
advance slightly in 2004, but probably remain under or close to the
record level produced in 2002.

![](media/image2.wmf)

## Tariff Rate Quotas/Imports

Virtually all Canadian imports of chicken are from the United States.
Canada recognized the poultry meat inspection system of Brazil on August
2002 (see CA2088), but very little Brazilian product has been imported.
U.S. access to Canada\'s chicken market is determined by a NAFTA formula
of 7.5% of the previous year\'s Canadian production of chicken as
published by Statistics Canada. For 2003, Canada's chicken tariff rate
quota (TRQ) is 69,762 metric tons. Imports of U.S. broiler chicken cuts,
fresh or frozen above the TRQ, are assessed an over access duty of
ranging from 238% to 249%. However, the NAFTA agreement recognizes a
supplementary import system which allows additional imports (at zero
duty) when Canadian supplies fail to meet market demand. In addition,
Canada's DFAIT allows special imports of chicken (at the duty free rate)
for Canadian processors who are manufacturing chicken products for
re-export and to processors who manufacture processed chicken items and
items containing chicken that are not subject to a TRQ (i.e., similar
products of U.S. manufacture which enter Canada duty free). The latter
being known as the FTA or non-Import Control List allocation holders.
For more information see the Policy Section.

## Exports

Canadian chicken exports to Cuba, formerly the third most important
export market for Canadian chicken, declined sharply following the
opening of the Cuban market to U.S. chicken in 2002. Canadian exports of
chicken to Cuba in 2002 fell to 7,200 metric tons from almost 17,000
metric tons during 2001 . Exports to Cuba in the first half of 2003 show
further significant decline. Canada's top markets for chicken in The
January-June period of 2003 are the United States, South Africa, and
Russia. Total chicken exports in the first half of 2003 fell 6.5% below
last year's pace over the same period.

## Marketing

Canadian importers of chicken must be in possession of an import permit
issued by the Department of Foreign Affairs and International Trade.
Further information on TRQ product coverage and a listing of the import
allocation holders is available on the DFAIT website at:

http://www.dfait-maeci.gc.ca/trade/eicb/agric/chicken-en.asp

## Chicken Utilization

The Further Poultry Processors Association of Canada, the organization
representing manufacturers of value-added poultry products, estimates
Canadian chicken utilization shares by sector for 2001 as: retail, 65%;
fast food, 22%; other restaurants and taverns, 8%, and hotels and
institutions, 5%.

## U.S. Poultry Meat Export Growth 

After Russia, Canada is the second most important export market for U.S.
poultry meat. In 2002, U.S. poultry meat exports to Canada reached a
record \$267 million, accounting for almost 16% of total U.S. poultry
meat exports to the world (Russia, 22%). In the first six months of
2003, the value of U.S. poultry meat exports to Canada are 9.6% above
last year's pace.

# Section II. Policy

## Chicken Industry Structure

Last year's report, CA2112 contained a summary of the structure of
Canada's chicken industry including a discussion of the production
allocation periods and the Chicken Farmers of Canada's (CFC) export
policy. That summary remains current.

## Policy Developments

A growing proportion of total Canadian chicken imports is occurring
outside Canada's TRQ under two special supplementary import categories,
the "import to re-export" program and the "import to compete" program.
Under the "import to re-export" program, processors may import
additional chicken for further processing provided the products are
exported within six months. The "import to compete" program allows
Canadian processors and food manufacturers to import chicken for the
production of processed chicken products that are not on Canada's Import
Control List, such as chicken dinners. Due to the increasing presence of
new and innovative chicken products in the marketplace, which are not on
the Import Control List, Canadian food manufacturers are importing
additional chicken under this special provision to remain competitive
\[i.e., their products would not be competitive if they purchased their
raw product at the regulated (higher) Canadian price\]. This has raised
the ire of the CFC, which views the development as a threat to its
supply management program. The agency continues to lobby the GOC for
wider coverage of chicken products on the Import Control List. However,
the rules for exemption were essentially laid down in the FTA/NAFTA in
an era prior to the dramatic growth of the market for further processed
chicken and products containing chicken. The resulting dilemma for
Canada's national chicken agency demonstrates how the strict structure
of the regulated market is less responsive to new product demand and
product innovation.

## WTO Position of the Poultry Sector 

The Supply Management Five (SM5) is a group of producers consisting of
the Dairy Farmers of Canada, the Broiler Hatching Egg Marketing Agency,
the Canadian Egg Marketing Agency, the Canadian Turkey Marketing Agency,
and Chicken Farmers of Canada. This group of producers share common
interests and has developed a unified position on agriculture within the
context of the upcoming round of the World Trade Organization\'s
negotiations on international trade and current agricultural
negotiations. They continue to lobby the GOC to work toward preserving
their domestic supply-managed marketing structures for turkey, chicken,
egg and dairy products and to preserve the power to regulate the volume
of domestic product marketed, to operate a central desk selling agency
and to pool returns.

# Section III. Turkey

## Production Outlook

The production of turkey meat in Canada during 2003 is forecast to fall
for the third consecutive year. It is estimated that the Canadian Turkey
Marketing Agency (CTMA) will be under pressure to trim production
allocations due to a combination of increased imports and relatively
high frozen storage stocks. Present indicators suggest there was a small
increase in turkey disappearance in early 2003, but the anticipated
increase in supply of competing meats over the next 18 months suggests
that the national agency will be obliged to proceed cautiously in
setting the 2004 national production allocation. As a result, no major
shift in turkey production is forecast.

![](media/image3.wmf)

## Imports

Similar to chicken, U.S. access to Canada\'s turkey market is determined
by a NAFTA formula (3.5% of the targeted turkey production announced by
the Canadian Turkey Marketing Agency). For 2003, the turkey TRQ is 5,588
metric tons. For turkey meat, the over access tariff rates for 2002
range between 154.5% and 165% but supplementary imports at zero duty are
allowed under certain supply circumstances. Similar to the chicken
industry, there are provisions to operate the special supplementary
import categories, the "import to re-export" program and the "import to
compete" program. Canadian importers of turkey must be in possession of
an import permit issued by the Department of Foreign Affairs and
International Trade. Further information on TRQ product coverage and a
listing of the import allocation holders is available on the DFAIT
website at:

[http://www.dfait‑maeci.gc.ca/\~eicb/turkey/turkey‑e.htm]()

## Exports:

In 2002, Canada exported turkey meat to 47 countries. Exports to Russia
and South Africa accounted for more than half of total Canadian turkey
exports. In the first six months of 2003, total turkey exports slipped
substantially from the record pace during 2002 when they reached 26,000
metric tons.

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