Voluntary Report - public distribution

**Date:** 12/4/2003

**GAIN Report Number:** CA3081

CA3081

**Canada**

**Agricultural Situation**

**This Week in Canadian Agriculture, Issue 44**

**2003**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

George Myles, Matthew Cahoon

**Report Highlights:**

Vanclief Urges Trading Partners To Reopen Markets To Canadian Beef \*
Vanclief To Lead Trade Mission To India \* CWB Chair Willing To Meet
U.S. Producers \* Wheat Rejected By Ukraine Not From The Prairies

\* GM Grains Hinder Exports, Says Canadian Seed Trade Association \*
Softwood Lumber Talks Gain Ground \* Firms Fear Softwood Deal Will
Revive Quotas \* Canada May Share Softwood Cash \* Coalition Aims To
Save Canadian Boreal Forest \* Dairy Tariff Cuts Would Jeopardize Supply
Management Says DFO

\* Supreme Court Of Canada Asked To Hear Margarine Color Case

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.

VANCLIEF URGES TRADING PARTNERS TO REOPEN MARKETS TO CANADIAN BEEF:
While attending the FAO meeting in Rome, Agricultural Minister Lyle
Vanclief held bilateral meetings to press global agricultural leaders to
reopen their markets to Canadian beef products. In a press release,
Vanclief said he updated several ministers on the status of Bovine
Spongiform Encephalopathy (BSE) in Canada and urged ministers to support
a trilateral initiative by Canada, the U.S. and Mexico to establish a
science-based trade response to any and all future BSE issues wherever
they occur. \"A more practical, science-based assessment would
substantially reduce the economic pain felt by a country if and when BSE
is discovered,\" said Mr. Vanclief. \"A new system would assure
countries reporting BSE cases that they would be treated fairly. This
would ensure that cases are reported and that nations would continue to
work toward prevention and eradication measures.\" He reportedly talked
about the BSE issue during his meeting with Japanese Agriculture,
Forestry and Fisheries Minister Yoshiyuki Kamei. \"Minister Kamei and I
talked at great length about the U.S. rule for live cattle,\" said Mr.
Vanclief. \"We also asked Japan to consider becoming part of our group
petitioning the OIE for the development of new international standards
for the handling of BSE.\"

VANCLIEF TO LEAD TRADE MISSION TO INDIA: Mr. Vanclief will travel to
India later this month for six days of meetings with agriculture and
agri-food sector stakeholders and government representatives. \"This
mission will serve to initiate a bilateral relationship on agriculture
and agri-food issues and to encourage high-level discussions on a number
of market access issues that currently limit Canadian exports to
India,\" said Mr. Vanclief. The mission to India is the first ever by a
Canadian minister of agriculture and will provide an opportunity to
further explore the potential of the Indian market. AAFC has identified
India as an important emerging market for Canadian agriculture and
agri-food products, with significant potential for Canada in areas such
as livestock genetics, pork, canola oil and alcoholic beverages. In
recent years, India has become one of the top markets for the Canadian
pulse industry. *Comment:* Pulses, at \$78 million, accounted for almost
all of Canada's \$83 million in total agricultural exports to India last
year. Canada imported \$65 million in food products from India during
2002, mostly tea, rice, spices and cashews.

CWB CHAIR WILLING TO MEET U.S. PRODUCERS: According to a December 12
article from *FarmAssist.ca*, the chairman of the Canadian Wheat Board
(CWB) says he is willing to sit down with producers south of the border
for a "farmer-to-farmer" discussion of their differences. In view of the
numerous trade disagreements that have cropped up between Canadian and
American producers over the past decade or so -- including the ongoing
battle over U.S. tariffs on Canadian Red Spring wheat -- Ken Ritter said
it was time for a meeting of the minds. "Our observation was that
instead of speaking to each other through expensive lawyers, it would
probably make sense to just sit down with the American farmers and farm
groups in the regions that claim to be affected by Canadian grain
exports, and at least come at the issues from a common set of facts."
Ritter said he believes there are some major misconceptions south of the
border about how the CWB operates, including a belief among U.S.
producers that it simply administers government subsidies and targets
American markets. To be fair, Canadian farmers probably have some
misconceptions about their U.S. counterparts as well, he admitted.
However, Ritter said he was no optimistic the current tariff dispute,
which involves the CWB and the North Dakota Wheat Commission, could be
settled outside of the formal appeal process. "Once cases like this are
in the mill like this, it's hard to detour them," Ritter said. "I guess
I'm not holding out a whole bunch of hope. . . but what we are doing is
looking to the future, to a mutual understanding."

WHEAT REJECTED BY UKRAINE NOT FROM THE PRAIRIES: According to a story
from the November 25 *Western Producer,* it probably wasn\'t prairie
wheat that the Ukrainian state grain agency recently rejected. \"Our
sources are telling us that it was not wheat from Western Canada,\" said
Canadian Wheat Board (CWB) spokesperson Rheal Cenerini. Reuters News
Agency recently reported that a shipment of Canadian wheat was rejected
by Ukraine because of quality problems. Ontario Wheat Producers
Marketing Board general manager Larry Shapton said rumors are that the
wheat came from Ontario, but he doesn\'t believe it was Ontario wheat
board product. The Ontario wheat board no longer has a marketing
monopoly, so the wheat could have been sold and shipped outside the
board system by a private company. Ontario wheat board export wheat is
now sold through a grain broker who takes possession of the wheat at
Great Lakes terminals, so even if it was wheat sold through the Ontario
board, information about the problem might take some time to arise.
Cenerini said the CWB has been selling wheat to Ukraine through an
accredited exporter who says there have been no problems with prairie
grain. \"Any wheat that was moved into that market from Western Canada
was well received by the Ukrainian authorities,\" said Cenerini.

GM GRAINS HINDER EXPORTS, SAYS CANADIAN SEED TRADE ASSOCIATION: The
November 30 Lloydminster *Meridian Booster* writes that grain and
oilseed exporters across Canada were cited as saying they are facing a
wall of trade barriers worldwide because governments - including
Canada\'s - are not moving fast enough to regulate against the presence
of trace amounts of genetically modified organisms in food. Bill Leask,
executive vice-president of the Canadian Seed Trade Association (CSTA),
was cited as saying that the problem is that consumers believe their
food is not genetically modified, but that without restrictions for
separating and labeling GM and non-GM foods, it is impossible to know,
adding, \"For human ingestion of oil and meal, before the products can
be shipped to other countries, they have to be approved. There is an
extensive amount of testing that needs to be done, and the problem is
that exported grain and oilseed that has not been approved is not being
shipped to other markets.\" The story explains that the countries
without protocol in place have zero tolerance for trace amounts of
unapproved substances. Many trading partners that signed the Cartagena
Protocol on Biosafety at the Convention on Biological Diversity have yet
to ratify it. For countries like Canada - whose acreage is between
60-70% genetically modified, it means markets that could be available
aren\'t -- for example, the European Union, with its moratorium on
importing foreign GM grains and oilseeds.

SOFTWOOD LUMBER TALKS GAIN GROUND: The December 2 *Globe and Mail*
reported that Canadian and U.S. negotiators made progress in carving out
the shape of a possible deal to end the cross-border softwood lumber
war, but the fate of US\$1.7-billion in duties collected remains a major
stumbling block to a settlement. In addition, Canada is still seeking an
exemption for two groups that have long argued they don\'t benefit from
the alleged subsidies Washington believes the provinces give to timber
mills: Maritime softwood producers, who sell trees from private land,
and remanufacturers, who operate at arm\'s length from millers and buy
wood for further processing. Washington and Ottawa Monday agreed that
Canadian softwood shipments would be allowed to enter the U.S. duty free
until they comprise a 31.5% share of the U.S. lumber market, a Canadian
industry source said. Above that market share, Canadian softwood
producers would pay a levy of \$200 per 1,000 board feet. This deal
would last five years, but the provinces would be allowed to apply for
relief if they overhaul forestry rules to make timber pricing and other
policies more market oriented. Canadian and U.S. negotiators still had
not settled on a mutually agreeable proposal for dividing the duties
Washington has already collected. Ottawa has been asking for 75% of the
duties to be returned to Canada and 25% to remain with the U.S. The
Coalition for Fair Lumber Imports has been pushing for a 50-50 split. "A
50% deposition \[of monies paid so far to the U.S. government\] is a
non-starter for the companies that I represent.\'\' said Marc Boutin, a
director of international trade with the Quebec Forest Industry Council.

According to the terms of the deal being discussed, two years after
it\'s signed, those provinces that have reformed their forestry regimes
to the satisfaction of the U.S. Commerce Department would get a 7%
increase in their share of Canada\'s quota in the U.S. softwood market.
After three years, British Columbia, Quebec and one other province could
graduate to free trade in softwood lumber as a group, if all had
reformed their regimes to suit Washington. If a deal is struck in
Washington talks, each government still must approve it after
consultations with their respective industries.

FIRMS FEAR SOFTWOOD DEAL WILL REVIVE QUOTAS: The December 2 *Vancouver
Sun* reports that lumber talks now underway in Washington are running
into opposition from some Canadian companies who fear a return to a cap
on lumber exports similar to the previous softwood lumber agreement.
\"We didn\'t fare well the last time there was a quota system, and the
fact that they are talking in Washington leaves us really concerned,\"
said Russ Cameron, of the Independent Lumber Remanufacturers
Association. Canadian lumber was subject to quotas during the 1996-2001
agreement. When that agreement expired, Canada said it did not want to
see a return to quotas. However, two years of 27% duties have softened
much of the opposition to an agreement that caps lumber exports.
Anticipation of a quota deal was part of the motivation behind the
Canfor Corp. bid for rival Slocan Forest Products. Cameron said winners
under a quota system would likely be major forest companies who were
able to continue selling lumber into the U.S. over the past two years by
cranking up production to lower their unit costs. The losers, Cameron
fears, will be independent lumber remanufacturers, who have higher costs
and had to pay more money in duty to the U.S. As a result,
remanufacturers have cut back production severely since 2001. The B.C.
Lumber Trade Council, the country\'s largest lumber lobbying
organization, had no comment. B.C. Forests Minister Mike de Jong also
had no comment. Carl Grenier, of the Free Trade Lumber Council, which
represents smaller, independent manufacturers in B.C., said a
quota-based deal will not settle the lumber issue, only trap Canadian
companies in a quota system that may offer them an ill-defined way out.

CANADA MAY SHARE SOFTWOOD CASH: The December 4 *Globe and Mail* reported
that the Canadian and U.S. governments are considering splitting nearly
evenly the US\$1.7-billion in softwood duties already collected by
Washington, with Ottawa getting 52% back and the U.S. keeping 48% of the
cash, a forest industry source said yesterday. The article states that
allowing the U.S. to keep half the duties it has collected would be an
unprecedented move on Canada\'s part. In other settlements reached
during the past 20 years in the protracted dispute, Washington has
usually returned most of the duties it has collected.

COALITION AIMS TO SAVE CANADIAN BOREAL FOREST: Canada\'s legendary
boreal forest, the largest intact forest left on the planet, will come a
giant step closer to being protected when an influential coalition of
industry, native communities and environmental groups unveils a
startling commitment to conserve the whole thing --- amounting to more
than half the total area of Canada, according to the December 1 *Globe
and Mail*. At roughly 600 million hectares, it is the largest
conservation agreement yet made in the world, said Monte Hummel,
president of World Wildlife Fund Canada, one of the deal\'s principal
brokers. The boreal, or northern, forest is an evergreen mantle running
in a thick band from East Coast of Canada to the West Coast, and made up
of pine, spruce, aspen, poplar and larch trees, making up 53% of Canada.
At least half the forest would be exempt from industrial development of
any kind --- the other half would be open to development only if tightly
controlled to be gentle on the environment. Although the agreement, the
Boreal Forest Conservation Framework, lacks the force of law, it stands
to change the fate of the boreal forest because leading industries that
would be likely to push for development of the forest are committed to
this deal. However, several of the largest companies working in the
boreal forest are not represented on the coalition. For example,
Weyerhaeuser Corp., the largest lumber producer in the world, with major
operations in Canada, was not involved. The 11 groups that endorse the
framework are, Alberta-Pacific Forest Industries, the Canadian Parks and
Wilderness Society, the Deh Cho First Nations, Domtar Inc., Ducks
Unlimited Canada, Forest Ethics, the Innu Nation, Poplar River First
Nation, Suncor Energy Inc, Tembec Inc. and the World Wildlife Fund
Canada.

DAIRY TARIFF CUTS WOULD JEOPARDIZE SUPPLY MANAGEMENT SAYS DFO: In a CBC
editiorial picked up by the December 2 edition of *Good Morning
Ontario*, ag journalist Jim Romahn asks if Canada\'s dairy producers are
risking future bankruptcy by currently overpaying for milk quota. Romahn
observes that the price on the Ontario quota exchange has gone from a
recent low of about C\$25,000 to a current price of C\$28,000 per
kilogram. To date, dairy producers have been able to profit from selling
their milk quota, but Romahn says that\'s almost certain to change
because milk prices could come down, squeezing profit margins and the
ability to pay for more quota. Romahn hypothesizes that dairy prices
would come down due as a result of pressures in world trade negotiations
to reduce the size duties applied to tariff rate quotas. WTO Agriculture
Committee Chairman Stuart Harbinson, during the last round of
agriculture negotiations, proposed that all agricultural tariffs be
reduced, with a cap of no more than 95%. Romahn notes that Canadian
cheese tariffs are currently

245%. The article reports that the milk marketing board in Ontario,
Dairy Farmers of Ontario, says that because the value of the Canadian
dollar has risen, and because there\'s so much cheap cheese available on
the world market, any tariff reduction of more than 15% will become a
threat to supply management.

SUPREME COURT OF CANADA ASKED TO HEAR MARGARINE COLOR CASE: The December
2 edition of the *Globe and Mail* reported that Unilever Canada Ltd. has
asked the Supreme Court of Canada to hear its arguments that Quebec\'s
margarine color law is \"invalid and should be repealed.\" Margarine
sold in Quebec must be white, a rule that helps to protect the
province\'s dairy industry. In 1999, the Quebec Superior Court dismissed
the Quebec government\'s argument that the regulation was necessary to
protect against consumer confusion, but didn\'t declare the color rule
invalid. In October of this year, the Quebec Court of Appeal upheld the
decision.

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

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complete listing of FAS' worldwide agricultural reporting.

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