USMCA would reduce market uncertainty

USMCA would reduce market uncertainty
Dec 31, 2019

Parliamentary interruptions have delayed participating governments’ ratification of the new trade deal, but it is expected to eliminate tariffs on ag products 

By Jackie Clark
Staff Writer

As we enter a new year, Canadian farmers are still waiting for an updated North American trade agreement to bring more stability to ag markets, including pork. The three participating governments signed the United States, Mexico, Canada Agreement (USMCA – sometimes referred to as CUSMA) in Nov. 2018, but the deal is yet to be officially ratified.

The U.S. and Mexican markets are “very important” to Canadian pork producers, said Abhinesh Gopal, head of commodity research at risk management.

The United States has the biggest pork export market in terms of metric tonnes, and the second biggest in terms of dollar value (behind Japan) in 2019 (data up to 18 Oct.), according to a 14 Dec. Agriculture and Agri-Food Canada report. Mexico ranks fourth in both categories, the report states.

Because of the significance of the trade relationships between the three countries, analysts expect USMCA will be enacted.

“It seems like it’s going to get finally ratified by all three countries,” Gopal said.

“As far as the U.S. side is concerned, ratification seems to be virtually assured, only delayed by the fact that the impeachment trial is on,” he explained.

Government interruptions also caused a delay in Canada.

“As far as the Canadian side was concerned, it was all good to go until the election happened,” he said. “All pending legislation is scrapped upon disillusion of the parliament, meaning that the USMCA implementation bill will need to be reintroduced,” he added.

The transition from NAFTA to USMCA brings some changes in terms of intellectual property and supply-side managed commodities. The changes have “more to do with labour in ag, and also with regard to the dairy industry, not so much pork,” Gopal said.

The main effect the agreement would have on the pork sector is the elimination of tariffs.  

“I think the idea is to continue with zero tariffs on ag products,” Gopal said. After the U.S. imposed tariffs on Canadian steel and aluminum, “there were retaliatory tariffs by Canada on the ag sector, so unless they changed that, what we do (under USMCA) is we go back to zero tariffs for ag products,” across the borders between all three countries, Gopal explained.

Although Canada did not target U.S. pork in 2019, “there was a 20 per cent tariff imposition by Mexico on U.S. pork,” he said. “There was a number thrown out by analysts that … those tariffs (equated to) a hit on U.S. pork producers of about US$12 per animal,” he added.

With the future ratification of USMCA, “basically, you have the pork industry getting back on track across the three countries,” Gopal said.

The trade deal “takes out that doubt in the minds of producers as far as ag exports and ag trade is concerned,” he said.

As a result, the agreement should introduce some stability in the pork market.

“Pork prices have been depressed, mostly because of uncertainty,” Gopal explained. “Once you get these deals into place, you can get that uncertainty out of the market, and then you can expect prices to start rising.”

The impact is positive, not only because of this specific deal, but also because of other movements toward stable trade agreements.

“In a nutshell, it’s good news for pork producers, and they can expect prices to now turn positive. Not just because of USMCA, (although) for sure that is a major trade issue, but also that we have some positive news on the U.S.-China trade deal,” Gopal said.

Kameleon007\iStock\Getty Images Plus photo

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