Canada and NAFTA: a 10-year measure of success in Canadian-U.S. agricultural trade - North American Free Trade Agreement

AgExporter, Jan, 2004 by George C. Myles, Matthew Cahoon

Despite increases in Canada's planted corn area, U.S. corn sales rose sharply to meet feed grain demand. In 2002, western provinces accounted for the majority of U.S. corn sales in Canada. Rising demand for corn for industrial purposes, namely ethanol and sweetener production, outstripped supply in Canada's traditional eastern corn-growing region. In 2002, U.S. grain corn exports reached 4.0 million metric tons valued at $395 million, more than five times their value when NAFTA was first implemented.

Pet Foods Popular: The pre-CFTA/NAFTA tariff on U.S. pet foods for dogs and cats was 6 percent ad valorem. Under NAFTA, U.S. per food manufacturers have seized opportunities to benefit from a decade-long Canadian boom in per ownership through increased pet food sales and investments. In recent years, several familiar per superstores have set up retailing operations in Canada's major cities, and all carry the major U.S. brands. Canadians currently own about 8 million dogs and cats. Total retail sales (food, accessory and veterinary costs) are expected to exceed $1.5 billion in 2003. U.S. per food sales to Canada have surged by 40 percent under NAFTA, reaching $275 million in 2003.

Snack Food Sales Swell: Before 1989, Canada applied moderately high tariffs, mostly 5-10 percent, on imports of U.S. salty snacks (popcorn, corn chips, potato chips and pretzels) and bakery snack foods (crisp breads, cookies, waffles and wafers). In general, an ascending scale typified the tariff-rate structure--the more processed the item, the higher the import duty to protect domestic manufacturers.

Under NAFTA, Canada's snack food industry has become highly concentrated, and now includes national, regional and multinational firms. It is estimated that the leading four enterprises supply over 85 percent of total Canadian snack food production. Canada's snack food industry primarily serves the domestic market. Prior to the CFTA, imports supplied about 3.2 percent of the domestic market. Although Canadian companies continue to hold a substantial portion of the snack food market, imports, mostly from the United States, have captured about 15 percent of it.

With Canada's snack food industry invigorated by the trade agreement provisions, Canadian demand also rose for key commodity inputs needed to make snacks. While many of these products, such as potatoes and oil, are supplied by domestic sources, demand has increased for many other U.S. inputs (corn meal, seasonings, etc.), reflecting the economic multiplier effect of freer trade. Imports of snack foods (excluding nuts) from the United States in 2003 are expected to have reached a record $725 million.

Canada's Perspective

How has NAFTA worked for Canada? According to Canada's Department of Foreign Affairs and International Trade, NAFTA has brought economic growth and rising standards of living for people in Canada, the United States and Mexico. The Canadian department claims that NAFTA has established a strong foundation for future growth and set a valuable example of the benefits of trade liberalization.