An effective supply management system requires the ability to determine supply from all sources, domestic as well as international. In order to be sustainable, the supply management system relies on three pillars: import controls, production discipline, and producer pricing. Import controls are essential to maintaining the stability of supply in Canada – it ensures that Canadian market demand for chicken is primarily met by Canadian farmers.
The volume of chicken imported into Canada is controlled by Tariff Rate Quotas (TRQs), which allow a calculated volume – or “quota” – of chicken to enter Canada with little or no tariff, and apply higher tariffs on volumes exceeding this volume. Combined with domestic production discipline – which discourages under- and over-production – TRQs ensure that there are no shortfalls or surges in the chicken supply, keeping prices stable and predictable. Producer pricing ensure Canadian chicken farmers are able to receive a fair and stable return for their product, keeping chicken farming economically sustainable without taxpayer-funded subsidies or support.
What is a TRQ?
Tariff rate quotas set limits to the amount of chicken allowed into Canada with little or no tariff. As a signatory to the WTO Agreement on Agriculture – which came into effect on January 1, 1995 – Canada converted its existing agricultural quantitative import controls into a system of TRQs. TRQs were designed to offer some level of protection to countries’ sensitive agriculture sectors. Canada operates 21 of the world’s 1,425 TRQs, while the United States has 54 and the European Union has 87.
Under TRQs, imports are subject to low “within access commitment” rates of duty up to a predetermined limit. Canada allows imports of more than double its WTO commitment of 39,843,700 kilograms through its North American Free Trade Agreement (NAFTA) commitment, which is 7.5% of its previous year’s production. Imports in excess of this limit are subject to significantly higher “over access commitment” rates of duty.
For example, the 2016 TRQ level for chicken was set at 83.3 Mkg, representing 7.5% of the amount of chicken produced in Canada in 2015. So, in 2016, imports up of to 83.3 Mkg could be imported with, depending on their origin, either a very small tariff or none whatsoever. Within access imports from the US face a 0% tariff because of NAFTA, and those from other WTO members are subject to a tariff of 5.4% because of the WTO. All imports above the 83.3Mkg limit are subject to a tariff of 238% (whole chicken) regardless of their origin.
The department of Global Affairs Canada (GAC) plays a very important role in operating the TRQ system in Canada. It accords the right to import at the “within access commitment” rates of duty to firms by issuing import allocations – or “import quotas” – so long as the firms meet a set of necessary terms and conditions. The Tariff Quota Advisory Committee (TQAC) is mandated to provide advice to the Minister of International Trade on the administration of the TRQ allocation system. The committee is comprised of Chicken Farmers of Canada and industry stakeholders (represented by CPEPC, FPPAC, RC, CARI, FPC, and NFDA), as well as government officials from several departments.
Allocation of the TRQ
Import quotas are allocated to 534 Canadian companies in 2016 that meet criteria that place them in one of five pools: traditional, processors, foodservice, distributors, and manufacturers of non-Import Control List (non-ICL) products.
Chicken products not covered by the TRQ (non-import Control List products):
- Chicken meat products containing 13% or more other products (HS Chapter 16); e.g. TV dinners, entrees (“specially defined mixtures”) – these are products made up of 87% or less chicken.
- Food preparations containing less than 20% chicken (HS Chapters 19, 20 & 21); e.g. meat pies, soups, egg rolls, etc.
The traditional pool receives a fixed quantity of 20.4 Mkg. The processor, distributor and foodservice pools are allocated 37.1% of the TRQ, with processors receiving 62.6%, distributors receiving 26.8%, and foodservice receiving the remaining10.6%. The non-ICL pool receives its full requirements through the volume remaining in the regular allocation, as well as through special reserves, the market development policy and the supplementary imports to complete allocation.
Companies qualifying as both processors and distributors are allowed to apply through both pools but they will only receive one allocation; related or affiliated companies are only eligible for one allocation as well. Companies that use less than 90% of their allocation in any year will have their allocation in the next year reduced to their actual level of use.
Supplementary Import Permits
The Minister of International Trade can authorize the importation of quantities of chicken and chicken products in excess of the import access quantity if they judge that this would be necessary to meet Canadian demand. There are four categories of supplementary permits, with each category being subject to different conditions and procedures.
- Supplementary imports for market shortages
Applications for supplementary imports to meet market shortages must meet the whole bird substitution policy, whereby market shortages are assessed in terms of the domestic industry’s supply and demand situation, based on production for the whole bird market. Applications for poultry parts are authorized only when there is a shortage of whole birds. Supplementary imports of parts when whole birds are available would interfere with the adjustment mechanisms in the market.
- Supplementary imports to import chicken for the manufacturing of products exempt from the Import Control List (import to compete)
An import allocation referred to as “FTA quota” is available to manufacturers processing chicken products that are not on the Import Control List (non-ICL). Under this provision, these manufacturers are required to have exhausted all of their annual FTA quota allocation before they may be issued supplemental import permits.
Manufacturers importing chicken under this provision must provide proof that the imported chicken is used to produce products exempt from the ICL.
- Supplementary imports to import chicken and chicken products for further processing and re-export (import to re-export)
Under this provision, all products manufactured from the imported chicken must be exported within three months of the date the import permit was issued.
The applicant must provide GAC with copies of the import documents, including a CFIA inspection certificate for each import, documented proof of the imported chicken being used in the production of an exported product, as well as the shipping documents for the final exported product. Failure to supply these documents may disqualify an applicant from additional import to re-export permits.
- Supplementary imports to import chicken and chicken products for the purpose of test marketing
Import permits supplementary to the annual TRQ may be issued to facilitate the test marketing of new products that are unique or that are produced with unique processes requiring a substantial initial capital investment. Companies that intend to do test marketing of a specific product must normally plan the activity within their annual TRQ allocations. Companies receiving a basic quota allocation must exhaust this allocation before supplementary imports may be issued under this provision. The supplementary import permits are only available to firms that market directly to consumers. After the successful completion of a test marketing program, companies are required to commence production in Canada as soon as is feasible.