Voluntary Report - public distribution

**Date:** 3/17/2005

**GAIN Report Number:** CA5020

CA5020

**Canada**

**Poultry and Products**

**Update on Brazilian Chicken in the Canadian Market**

**2005**

**Approved by:**

![](media/image1.wmf)Hugh J. Maginnis

U.S. Embassy

**Prepared by:**

George C. Myles

**Report Highlights:**

Canada has allowed imports of Brazilian chicken since it approved the
poultry meat inspection system of Brazil in July 2002. In 2003, Canada
imported a small amount of Brazilian chicken but in 2004, tight supplies
of chicken in Canada resulted in the importation of almost 20,000 metric
tons of cheap Brazilian chicken representing 22% of total Canadian
chicken imports. Traditionally, Canada has imported virtually all its
chicken imports from the United States. This report looks at the
prospects for Canadian imports of Brazilian chicken in 2005 and the
surrounding issues.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Ottawa \[CA1\]

\[CA\]

Canada has allowed imports of Brazilian chicken since it approved the
poultry meat inspection system of Brazil in July 2002 (see CA2088). Up
until that time, Canada sourced virtually all its chicken imports from
the United States. Since Canadian imports of chicken are regulated under
a Tariff Rate Quota (TRQ), it was feared that U.S. chicken exporters
would face formidable competition from cheap Brazilian chicken in the
restricted access Canadian market. Did this happen? Has Brazilian
chicken captured significant import market share in Canada?

Under its implementation of the WTO Agreement on Agriculture in 1995,
Canada eliminated its quantitative import restrictions on poultry and
eggs and imposed TRQs on these products. However, the WTO access formula
would have resulted in access levels that, in certain instances, were
below the levels stipulated in the NAFTA. As a result, Canada announced
that it would apply the higher of either the WTO access level or the
NAFTA formula level for poultry and poultry products. Currently, the
Canadian WTO access level for chicken is 39,844 metric tons. The NAFTA
formula level (based on 7.5% of the previous years' chicken production
in Canada), and the TRQ level in effect for 2005 is 69,700 metric tons
(subject to revision on the publication of the level of chicken
production in 2004). Canada does not apply the TRQ to meat from spent
fowl. Currently, almost all Canadian imports of spent fowl originate in
the United States.

![](media/image2.wmf)

## Brazil Captures Sizeable Import Market Share

The preceding table illustrates the Canadian import market for fresh or
frozen chicken for the years 2002-2004. In the first full year of
Brazilian access to the Canadian chicken market, imports from Brazil
accounted for 4.7% of total Canadian chicken imports and the U.S.
accounted for the remainder, 95.3%. By 2004, Brazilian product accounted
for 22% of total Canadian chicken imports worth \$33.5 million.
According to International Trade Canada (ITCan), the department
responsible for administering Canada's poultry TRQ, Canadian demand for
Brazilian chicken was for frozen wings and frozen boneless breasts for
the foodservice industry. The development marked the first time that
U.S. chicken exporters have had serious competition for the Canadian
chicken import market.

## Avian Influenza in British Columbia and Record U.S. Exports

Canadian imports of U.S. chicken in 2004 reached their highest level on
record at 67,137 metric tons worth \$160 million. In fact, with the
exception of 2003, the quantity of U.S. exports of chicken to Canada has
registered a year-over-year increase every year for at least the last
decade. Under a special import provision, ITCan can issue supplementary
import permits (for amounts in addition to the TRQ) if the department
determines there is a shortage in Canada for a particular cut or type of
chicken. During 2004, the British Columbia poultry industry suffered an
outbreak of avian influenza resulting in the depopulation of 75-80% of
its provincial poultry flock. As a result, issuances of supplementary
imports allowed B.C. poultry processors and purveyors to import record
levels of U.S. chicken to cover the supply shortfall.

## Price Comparison of Brazilian Versus U.S. Chicken

Official Canadian trade data show that almost all imports of Brazilian
chicken into Canada during 2004 were destined for the heavily populated
provinces of Quebec and Ontario. There appears to be no direct link with
increased imports of Brazilian chicken to the demand for product in
British Colombia brought on by shortages linked to the avian influenza
crisis. Most of that shortfall was filled by U.S. product and
other-region Canadian domestic product.

The following table shows the derived average price in U.S. dollars per
kilogram of U.S. and Brazilian chicken imported into Canada. The average
price is derived by dividing the total import value by the quantity
imported. For 2004, Brazilian chicken at \$1.77 per kilogram (average
all cuts) was \$0.61/kg (25%) cheaper than U.S. chicken at \$2.38 per
kilogram.

Under NAFTA, U.S. chicken (within the Canadian TRQ) enters at a free
rate. Brazilian chicken is subject to a duty of 5%, but not less than
4.74 cents per kilogram or more than 9.48 cents per kilogram.

![](media/image3.wmf)

## Outlook for 2005

Will Brazil continue to increase chicken exports to Canada?

During 2004, the avian influenza outbreak in British Columbia disrupted
the Canadian poultry market. Chicken shortages in B.C. were filled
partially by increased imports of U.S. chicken and chicken production
from other Canadian provinces. Since chicken supplies in the United
States were also relatively tight that year, shortfalls in the important
Ontario and Quebec foodservice markets for wings and boneless breasts
created demand for cheap Brazilian chicken.

At this early juncture in 2005, anecdotal evidence suggests weaker
demand for Brazilian chicken in the Canadian market through the first
half of the year. In several provinces, recent smoking bans in bars,
pubs, taverns, legions and nightclubs have had a negative impact on food
and liquor sales during the 2004/2005 winter period. In addition, the
absence of a National Hockey League season due to a labor dispute has
severely impacted regular attendance at Canadian sports bars and other
venues that traditionally serve finger foods such as chicken wings.

The chart below illustrates that Canadian monthly imports of frozen
Brazilian chicken peaked during July 2004 and with the exception of
November 2004 have declined every month since that time.

![](media/image4.wmf)

**Can Brazilian Product in Canada Make Its Way Into the United States?**

Current U.S. animal health regulations prohibit the import of Brazilian
chicken into the United States. To ensure that Brazilian product
imported into Canada does not enter the United States, the Canadian Food
Inspection Agency and the Animal and Plant Health Inspection Service
deem that Canadian registered slaughtering or processing establishments
that receive, handle or store Brazilian poultry meat are ineligible to
export raw poultry meat products to the USA. The list of Canadian
establishments that are not eligible to export raw poultry meat to the
USA is updated regularly. Poultry meat originating from those
establishments must not be present in slaughtering or processing
establishments that wish to keep their full export privileges to export
poultry meat to the United States.

Canadian slaughtering or processing establishments that have prohibited
poultry meat products on their premises, may obtain (restricted)
approval to export cooked poultry meat to the U.S. provided the product
is derived from poultry of Canadian or U.S. origin and is cooked to an
internal temperature of at least 72C. Poultry meat originating from
Brazil or other prohibited countries is not eligible for export to the
U.S. even if it is cooked**.** In the latter case, poultry meat from
restricted establishments requires a special transfer certificate
confirming compliance with applicable requirements and according to the
CFIA, as of March 14, 2005, there were no Canadian establishments on the
restricted approval list.

VISIT OUR WEBSITE: The FAS/Ottawa website is now accessible through the
U.S. Embassy homepage. To view the website, log onto
[http://www.usembassycanada.gov](http://www.usembassycanada.gov/); click
on Embassy Ottawa offices, then Foreign Agricultural Service. The
FAS/Ottawa office can be reached via e-mail at: <agottawa@usda.gov>