The United States–Mexico–Canada Agreement is an established trade policy agreement among the US, Mexico and Canada, implemented in 2020 with a mandatory review after six years. As that review unfolds, its chances of being extended seem increasingly bleak.
A failure to renew USMCA will mean disrupting the highly interconnected North American food system where, for example, Canadian wheat can be ground into flour in the US, shipped back to Canada to be baked into pastries or bread, which can then be sold in either country. Many Canadian feeder cattle are finished in US feedlots, or finished in Canada, then sold to US processors, and sold back to either Canadian or US further processors or retailers.
Farmers, consumers and food companies will bear the costs. Several US agricultural organizations clearly recognize this.
A better approach is to evaluate what’s working well for all North Americans, what’s not, and needs to change.
Agrifood products currently trade with few restrictions, reducing supply shocks and price volatility. Canada’s short growing season provides demand during the prolonged seasons of southern US horticultural industries. Food and feed grains, whose prices in both countries are discovered on the Chicago Mercantile Exchange, trade back and forth as needed. Regional crop yields are often inversely related, partly owing to weather phenomena. When yields are low in Canada, and high in the US, Canada buys more, thereby relieving downward pressure on US prices. Similarly, when Canadian yields are high and US yields lag, Canadian foodstuffs are rerouted to meet that demand, reducing upward price pressure.
Relatively free trade in basic food ingredients is always good risk management, but particularly so under extreme circumstances. Beef prices are currently high. History shows the highest prices occur when ranchers keep females to build their breeding herds, reducing the number available to be processed into beef. Two recent USDA reports show that hold-back hadn’t started. When it finally occurs, we will see much higher meat prices. Canada has heaps of grassland and exports more beef and cattle than it uses for its population and it’s cheaper to import than Brazilian or Argentine beef. Stopping exports to the US with high tariffs will drive American prices even higher, while Canada looks to Asia to sell its extra beef.
Minimizing trade restrictions also helped manage risk around avian influenza, which has had greater effect in the US. Canada doesn’t normally export turkey meat to the US, but currently it is, thereby alleviating some of the upward price pressure caused by culling.
Finally, the US has a very limited natural endowment of potash, which is essential for crop growth. The US imports 90 percent of its requirements, of which more than 80 percent is from the province of Saskatchewan. The next three largest suppliers are Russia, Belarus, and China. With USMCA, American farmers got Canadian potash at the same prices as farmers in other countries. It’s working well. A threatened US tariff on it would put American farmers at the mercy of less-friendly countries.
The US, and other countries, have long complained about Canada’s supply management system for dairy (the Hub). It allows Canadian producers of dairy (and poultry) to avoid Canada’s Competition Act by colluding to control supply and prices.
Supplemented by high tariffs and tight tariff quotas on imports, the Hub works to keep foreign dairy products out of the Canadian market. It also raises prices for dairy in Canada (giving dairy and poultry producers an advantage over other farmers in buying or renting land, thereby driving up land and financing costs for everyone) and makes access to foreign markets for other Canadian products more difficult.
A major barrier to reforming Canada’s supply management is that the US dairy sector is even more protected than Canada’s. Its dairy prices and imports are “managed” by a different mechanism than Canada’s that is even more effective keeping foreign products out. The US wants more access to Canada’s dairy market; that access needs to go both ways. Lower trade barriers can be phased in over time so farms and processing companies can adjust slowly, but both countries must agree on an equitable way to do so.
The food and agricultural regulatory framework is also overdue for reworking. Both countries have constructed regulatory hoops that protect their markets while raising costs to farmers and food companies in both. Both are experiencing increased criticism of their red tape. For example, the Canadian Federation of Independent Business recently published a survey reporting 70 percent of Canadian agribusinesses discourage the next generation from staying in farming because of red tape and regulation.
Finding ways to reduce and rationalize the two food regulation systems could materially improve the competitiveness of agrifood sectors in both nations.
Focusing on the things that need to change and leaving alone the things that are working would put resources in the right places. Leaders of the two countries have a clear choice: continue to improve conditions for their farmers, consumers, and food companies, or pull the rug out from under them with short-sighted protectionism.
