Voluntary Report - public distribution

**Date:** 12/17/2003

**GAIN Report Number:** CA3086

CA3086

**Canada**

**Agricultural Situation**

**This Week in Canadian Agriculture, Issue 46**

**2003**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

George Myles and Matthew Cahoon

**Report Highlights:**

CWB Announces Non-Durum Wheat Pool Account Deficit \* Canada Invites
Comments on Proposal for Year-Round Imports of U.S. Feeder Cattle \*
Softwood Lumber Production Up for 2003 \* China and Canada Aim To Double
Trade by 2010 \* Support Prices for Butter and Skim Milk Powder to
Increase \* Dairy Price Hike Signals Urgent Need for Action Says
Foodservice Group \* Dairy Processors Association of Canada Formed \*
Georgian Bay Milk Co. Appeal to be Heard by Ontario Tribunal \* Canadian
Transportation Agency Rules Demurrage Not Subject to Revenue Cap \* New
Trade Minister Speaks Out on U.S. Softwood Injury Determination...and
more.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Ottawa \[CA1\]

\[CA\]

This Week in Canadian Agriculture is a weekly review of Canadian
agricultural industry developments of interest to the U.S. agricultural
community. The issues summarized in this report cover a wide range of
subject matter obtained from Canadian press reports, government press
releases, and host country agricultural officials and representatives.

*Disclaimer*: Any press report summaries in this report are included to
bring U.S. readership closer to the pulse of Canadian developments in
agriculture. In no way do the views and opinions of these sources
reflect USDA's, the U.S. Embassy's, or any other U.S. Government
agency's point of view or official policy.

CWB ANNOUNCES NON-DURUM WHEAT POOL ACCOUNT DEFICIT: The Canadian Wheat
Board (CWB) on December 15 announced the final payments that farmers
will receive for durum, feed and designated barley marketed by the CWB
in the 2002/03 crop year, which began August 1, 2002 and ended July 31,
2003. There will be no final payment for wheat because total earnings in
the wheat pool account are C\$9.86 per metric ton less than what was
actually distributed to farmers through initial and adjustment payments.
Based on a pool size of slightly less than 8.7 million tonnes, the CWB
has calculated the shortfall at C\$85.4 million. Payments that farmers
have received to date will not be affected. Deficits are covered by the
Government of Canada (GOC) by virtue of its guarantee of initial
payments. The CWB has submitted its financial statements to the GOC. The
GOC will conduct its own independent review of the amount and will
consult with the CWB in this regard. According to the CWB, the shortfall
in the wheat pool was the result of a number of extra-ordinary factors
that affected pool returns in 2002-03, including the late harvest and
drought-reduced crop, the market share that was gained by countries like
Russia, Ukraine and Kazakhstan and the surge in the Canadian dollar.
However, Wheat Board critics, including many wheat farmers, claim the
shortfall was due to mismanagement. Many are demanding greater
accountability from the CWB as well as from the Canadian government.

CANADA INVITES COMMENTS ON PROPOSAL FOR YEAR-ROUND IMPORTS OF U.S.
FEEDER CATTLE: The Canadian Food Inspection Agency (CFIA) has released a
discussion paper on the year-round importation of U.S. feeder cattle.
Currently, the entry of U.S. feeder cattle to Canada is restricted to
the October 1-March 31 period due to CFIA requirements regarding
bluetongue and anaplasmosis. Interested parties have until February 15,
2004 to submit comments to CFIA. Since early 2000, the Canadian
Cattlemen\'s Association (CCA) has advocated an extension of the
conditions for winter importation. The CFIA discussion paper lists
options, one of which would set certain conditions on summer importation
such as unique ear-tag identification and a "direct to slaughter"
requirement for U.S. feeders exiting Canadian feedlots. On the animal
health side, the CCA has long believed that a policy incorporating such
procedures imparts minimal risk to Canada's beef herd and to wildlife.
On the political side, the CCA has consistently pressured the GOC to
move quickly on the issue of year-round access, particularly since the
U.S. is currently studying a regulatory proposal to establish Canada as
a minimum risk region for BSE, which would allow U.S. imports of
Canadian cattle under 30 months of age for immediate slaughter and of
certain other ruminants. The full text of the CFIA's discussion paper is
available on the CFIA website at:
http://www.inspection.gc.ca/english/anima/heasan/import/bovine.shtml

SOFTWOOD LUMBER PRODUCTION UP FOR 2003: According to available
production data from Statistics Canada for 2003, post estimates that
softwood lumber production will total 78.7 million m³, up more than 9%
from 2002 levels due to Canadian mills increasing production to lower
unit costs. For 2004, Post forecasts a slight decrease in production to
78.0 million m³ due to consolidation in the Canadian milling industry.
Exports of wood and wood products for the first nine months of 2003 are
down 2% relative to the same period in 2002, at US\$9.1 billion.
However, annualizing for 2003 would result in total domestic exports of
US\$12.1 billion, slightly higher than total domestic exports for 2002.
The U.S. remains the largest export market for Canadian wood and wood
products. For more information, see Post's Solid Wood Products Annual
Report (GAIN CA3083).

CHINA AND CANADA AIM TO DOUBLE TRADE BY 2010: According to the December
11 *Agence France Presse*, Chinese Premier Wen Jiabao said he former
Canadian Prime Minister Jean Chrétien had set a goal of doubling their
countries\' bilateral trade by 2010.

Wen told a lunch of Canadian and Chinese business leaders that bilateral
trade currently stood at about US\$8 billion. But he said this should
increase because Canada \"is richly endowed with natural resources and
high technology\" and China \"has a large pool of labor\" and a growing
consumer market. Earlier, the prime ministers witnessed the signature of
agreements including an order by the China National Chemicals and Export
Cooperation (Sinochem) to buy 1.65 million tonnes of potash next year
and the sale by the Canadian Wheat Board of 500,000 tonnes of wheat,
worth C\$100 million (\$75 million). Other agricultural sector
agreements signed included increasing phyto-sanitary cooperation,
establishing a working group on microbiological and chemical residue in
animals used for human food, and dairy farm cooperation to help China
improve its milk quality. Wen, in his speech to business leaders, noted
that China was now Canada\'s third largest trading partner and Canada
ranked 10th among China\'s trading partners. Outside Thursday\'s
agreement, Wen said China was already importing more than one million
tonnes of Canadian potash every year. According to the CWB, since 1961,
when the China National Cereals, Oil and Foodstuffs Import and Export
Corporation (COFCO) and the CWB began trading, over 120 million tonnes
of western Canadian wheat and barley have been sold to China.

SUPPORT PRICES FOR BUTTER AND SKIM MILK POWDER TO INCREASE: In a
December 15 news release from the Canadian Dairy Commission (CDC), the
CDC announced that, effective February 1, 2004, the support prices for
skim milk powder will increase from \$5.1966 to \$5.3928 per kilogram,
and for butter, from \$6.1061 to \$6.2968 per kilogram. The higher
support prices are expected to provide dairy producers with an increase
in revenues of \$2.20 per hectolitre for industrial milk, or 3.5%. In
January 2002, the CDC committed to cover the cost of production of 50%
of Canadian producers by 2006. \"Today's decision takes us closer to
fulfilling our commitment\" explained CDC Chairman, John Core. The
assumed processor margin will also increase by 3.5%, or \$0.31 per
hectolitre. A study commissioned by the CDC justifies this increase. The
assumed processor margin represents the estimated costs of processing
one hectolitre of milk into butter and skim milk powder. Support prices
are the prices at which the CDC buys and sells butter and skim milk
powder to balance seasonal supply and demand changes on the domestic
market. Support prices are also used as references by provincial
marketing boards to price milk sold to processors who manufacture dairy
products such as butter, skim milk powder, cheese, yogurt and ice cream.
The market impact of the increase will be influenced by many factors
such as the implementation of the increase in the provinces, as well as
manufacturing, transportation, distribution and packaging costs
throughout the supply chain.

C\$79 MILLION DAIRY PRICE HIKE SIGNALS URGENT NEED FOR ACTION SAYS
FOODSERVICE GROUP: According to the Canadian Restaurant and Foodservices
Association (CRFA), Canada\'s supply managed dairy industry is milking
restaurant owners and their customers for another C\$79 million a year
with the announcement of an increase of almost 4% in the price of
industrial milk, used to make cheese, yogurt, ice cream and other dairy
products. Once again, the Canadian Dairy Commission (CDC) has increased
prices without credible justification. In a press release, the CRFA said
that the CDC is operating in violation of the CDC Act which requires a
consultative committee of consumer and industry stakeholders to provide
input on matters related to production and marketing of dairy products,
but the committee has not existed since 1994. \"The CDC\'s decision
proves that they cannot be trusted to be objective. The decision today
is neither reasonable nor credible, and Canadian consumers deserve
better,\" says Stephanie Jones, Vice President of Food Supply for the
17,000-member Canadian Restaurant and Foodservices Association. The CRFA
will be asking newly appointed Minister of Agriculture and Agri-Food Bob
Speller to immediately act on recommendations of the Auditor General and
appoint a consultative committee. \"Today\'s price hike adds to mounting
evidence that the domestic price of Canadian dairy products is
artificially inflated and completely unjustified," says Jones.

DAIRY PROCESSORS ASSOCIATION OF CANADA FORMED: The December 15 edition
of *Agriweek* reported that a new trade organization of Canadian dairy
processing companies, the Dairy Processors Association of Canada, has
been formed by large dairy food firms. The industry has 292 plants in
Canada and employs 26,000, but 71% of all the milk in Canada is handled
by three companies.

GEORGIAN BAY MILK CO. APPEAL TO BE HEARD BY ONTARIO TRIBUNAL: The case
of 24 Ontario dairymen who are producing milk without marketing board
quotas for sale directly to a processor in Michigan is still alive,
despite efforts of the Provincial marketing board to stop them,
according to the December 15 *Agriweek*. An appeal by Georgian Bay Milk
Co. will be heard by the provincial Farm Products Marketing Tribunal,
which adjudicates disputes involving marketing boards. The company wants
its case referred to the federal trade department to determine if its
operation is consistent with a World Trade Organization decision in 2001
holding that Canadian milk exports which involve marketing boards in any
way are in effect subsidized.

CANADIAN TRANSPORTATION AGENCY RULES DEMURRAGE NOT SUBJECT TO REVENUE
CAP: According to the December 15 edition of Agriweek, the Canadian
Transportation Agency (CTA) reversed an earlier decision and ruled that
no part of demurrage revenue earned by Canadian Pacific Railway in the
grain haul is subject to the grain revenue cap. Demurrage revenue is
earned when the railways assess extra charges when loading and unloading
conditions are not met by shippers. In resisting the application,
shippers argued that the railways often apply demurrage charges when
delays are not caused by shippers. The Canadian Wheat Board was enraged
at the decision. The amount at issue is about \$63,000 for the last two
crop years.

NEW TRADE MINISTER SPEAKS OUT ON U.S. SOFTWOOD INJURY DETERMINATION: In
a December 16 press release from the Canadian Department of Foreign
Affairs and International Trade (DFAIT), Canada's new International
Trade Minister Jim Peterson, said \"We regret that the ITC has come back
with a determination that maintains its threat of injury finding. Canada
does not agree with this determination.\" He was commenting on the U.S.
International Trade Commission's recent determination that asserted
Canadian softwood lumber exports threatened to injure the U.S. softwood
lumber industry. Peterson said that Canada will be reviewing the new
determination and consulting with the provinces and industry prior to
deciding on the next course of action. Canada believes that a proper
determination will find that Canadian softwood lumber exports did not
threaten to cause injury to U.S. producers and therefore that there is
no basis for the duties currently imposed on Canadian exports.

FIRES AND BEETLES LEAD TO INCREASED HARVEST in B.C.: The B.C. Ministry
of Forests has announced that the annual harvest in the Kamloops timber
supply area will be increased to deal with the recent devastation
resulting from wildfires and the mountain pine beetle infestation. The
temporary increase of about 1.67 million m³ a year for three years is
effective January 1, 2004 and includes: (1) Up to 670,000 m³ a year to
harvest timber damaged by the McLure, McGillivray, Venables Valley,
Vermillion Creek and Strawberry Hill wildfires; and (2) Up to 1 million
m³ a year aimed at control of the mountain pine beetle infestation and
to harvest trees killed by the beetles. For the last several years, B.C.
has increased the cut level to allow more aggressive management of the
mountain pine beetle epidemic in new infested areas and along the
leading-edge. The recent increase also allows fire-damaged timber to be
harvested while it still has its full economic value and, in turn, speed
up the reforestation of these areas." The Kamloops timber supply area,
covering about 2.7 million hectares in B.C.'s southern Interior,
currently has an allowable annual cut of about 2.68 million m³, which
took effect January 1, 2003. Within this area, summer wildfires in 2003
burned more than 56,200 hectares. Recent surveys show the mountain pine
beetle epidemic has affected almost 35,000 hectares of its forested land
and continues to almost double every year.

**Find FAS on the World Wide Web:**

Visit our headquarters' home page at http://www.fas.usda.gov for a
complete listing of FAS' worldwide agricultural reporting.

**Recent Reports from FAS/Ottawa:**

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