How U.S. Protectionism is Killing Canada’s Livestock Producers

Commentary, Regulation, Milton Boyd

With the recent economic downturn in the United States, lower demand for meat has meant U.S. livestock producers have struggled. That state of affairs has spurred recent trade protectionism, including country of origin labeling regulations (“COOL”) that essentially require U.S. meat processors segregate live Canadian cattle and hogs from U.S. animals. The package must then be labelled as containing Canadian meat. But this separate labelling has been too costly for most U.S. processors. The result is that U.S. processors have largely been unwilling to accept Canadian animals.

The results of COOL are a tightened, protectionist border. For example, Canadian hog exports to the U.S. for market pigs have dropped to 585,000 pigs for the six month period from January through June. That compares to 1.4 million for the same period a year earlier—about a 60 per cent drop.

At $100 per hog market value, this loss is around $81.5 million, or $163 million over a full year (not to mention a 30 per cent drop in feeder pig exports). Also, slaughter cattle exports are down 20 per cent and feeder cattle exports are down by 50 per cent.

In May 2009, Canada requested a WTO consultation to object to the U.S. regulations. While the U.S. administration along with Democrats in the House and Senate talk free trade, their actions have been the opposite and have restricted trade.

These restrictions are being championed by a small number of U.S. agricultural producer groups, primarily R-CALF and the National Farmers Union—U.S. agriculture groups who represent only a minority of farmers but who successfully lobbied the U.S. government to impose the COOL regulations.

Part of the dispute is related to the new U.S. Secretary of Agriculture who has decided to aggressively enforce the country of origin labeling.

But this isn’t surprising, since Barack Obama and Hillary Clinton both stated in last year’s presidential debates they would consider renegotiating NAFTA and were supported by anti-trade groups. This is in contrast to the Bush Administration that mostly let trade flow freely.

Keeping U.S. and international markets open for Canadian livestock is especially important for the financial survival of many Canadian producers. They have been hit hard by high feed grain prices driven up by U.S. ethanol policy, weak livestock prices, a strong Canadian dollar, BSE-related border closures, and H1N1- related border closures for pork to some countries. Enforcing country-of-origin labeling gives Canadian producers a further horse-kicking.

In the long term, a U.S. market loss for Canadian live animals would require building more meat processing capacity in Canada. More exports of Canadian processed beef and pork would go to Asia, given the rising Asian income and growing market, since it’s too expensive to ship live animals to Asia. However, Canada’s meat processing plant size is smaller and less cost competitive than the huge U.S. plants, and so Canada still needs to export live animals to the U.S., especially in the short-term.

For now, fighting COOL is the first priority for Canada. With a small population a tenth of the U.S., and 75 percent of its trade dependent on the U.S., Canada also must band together with other countries to convince the Obama administration to drop their outdated and wrong-headed trade restrictions before they get worse.

For example, back in 1930, U.S. tariffs were increased on 20,000 products as a means to rescue the U.S. from an economic downturn—the disastrous Smoot-Hawley Tariff Act of 1930. That approach should serve as a reminder of the dangers of protectionism now.

Smoot-Hawley backfired and created a world trade war, and was a significant cause of the Great Depression. Trade fell by 65 percent, and unemployment hit 25 percent. Archaic trade restrictions from the U.S. administration were tried in 1930 and brought the world economy to its knees – and they’re still nonsensical today. As baseball great Yogi Berra said, “it sounds like déjà vu all over again.”