A Closer Look at the Canada-Honduras FTA

Canada-Honduras FlagsOn Nov. 5, Canada announced the signing of a free trade agreement with Honduras. More details on the announcement are available in this Canadian Trade Ministry news release and fact sheet.

In a news release welcoming the FTA, the Canadian Pork Council (CPC) stated that Honduras could be a $5 million to $7 million market (in Canadian dollars) for Canadian pork in the first year following implementation of the FTA.

Though it was announced separately from the FTA, Honduras also agreed to recognize Canadian inspection and certification standards for meat export purposes, meaning that all pork from Canadian federally registered establishments can be sold into the Honduran market. Canadian Pork International (CPI) states that this will effectively restore access for Canadian pork to the level it enjoyed prior to 2009, when regulatory changes made by Honduras limited the number of Canadian plants eligible to serve the market.

Through the FTA, Honduras will open a duty-free tariff rate quota (TRQ) for Canadian pork muscle cuts. In Year 1 the quota will be for 1,644 mt, and it will expand to 2,710 mt by Year 14. At the same time, the 15 percent duty rate for out-of-quota imports will be reduced by one percentage point per year, with unlimited volumes at zero duty by Year 15.

Under CAFTA-DR, Honduras became a top 10 market for U.S. pork
Honduran imports of Canadian pork peaked in volume in 2004 (1,290 mt), when Canada captured nearly one-third of the imported pork market. The value peak came in 2005 at $1.2 million, on volume of 1,223 mt. But that year pork imports from the United States and Guatemala more than doubled, and Canada’s market share sank to 13 percent.

Honduran imports of Canadian pork plunged by more than 80 percent in 2006, the same year Honduras implemented the U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Imports declined even further over the next four years as Canadian market share fell below 1 percent. Honduras reported zero imports of Canadian pork in 2011, 2012 or 2013 (through August). By contrast, imports of U.S. pork climbed steadily to more than 20,000 mt per year. This year the U.S. share of the Honduran imported pork market is nearly 99 percent in terms of volume and more than 96 percent in value.

It is also important to note that Honduran pork consumption essentially doubled from 2004 to 2008, with per capita consumption rising from around 2 kg to more than 4 kg. Consumption has remained above 4 kg, peaking at 4.5 kg in 2011, and with plenty of room for future growth.

Chart displaying the import amounts of US and Canadian pork yearly from 2004-2012 in metric tons Under CAFTA-DR, U.S. pork enjoys a duty-free TRQ for chilled/frozen muscle cuts of 3,200 mt this year and 3,350 mt in 2014. Similar to Canada’s agreement, the U.S. has an expanding duty-free TRQ for 14 years, with unlimited volumes at zero duty in Year 15 (2020). Out-of-quota imports of U.S. pork are subject to a 12.6 percent duty this year and 11.4 percent in 2014. The duty rate for most processed pork items is 7 percent this year (falling to 6 percent in 2014), and duties for most offal items are near zero. Prior to CAFTA-DR, the duty on most U.S. muscle cuts was 15 percent, and offals were charged 5 percent.

Total pork imports for Honduras in 2012 were valued at $30.3 million, with $29.4 million of that total coming from the United States. This year (through August) imports are 52 percent ahead of that pace, which projects to about $46 million. For Canada to reach its stated target of $5 million to $7 million (or about $4.8 million to $6.7 million in U.S. dollars) in the first year of the FTA, it will need to capture market share of 10 to 15 percent.

While it is unlikely that Canada will reach this target immediately, its level of market penetration it is certainly an issue that bears watching because Honduras is currently the ninth-largest destination for U.S. pork and pork variety meat exports. Through September, U.S. exports totaled 15,513 mt (+11 percent from last year’s pace) valued at $36.2 million (+10 percent).

Canadian beef sector expects little benefit from FTA
Although it is performing very well this year, Honduras is a much smaller market for U.S. beef. Through September, U.S. beef and beef variety meat exports to Honduras totaled 912 mt (+29 percent from a year ago) valued at $3.85 million (+25 percent). These results rank Honduras as the 34th largest volume destination for U.S. beef and 36th in terms of value.

U.S. Choice and Prime beef cuts enter Honduras at zero duty while other cuts pay 12.6 percent this year and 11.4 percent in 2014. Beef offals are duty-free. Prior to CAFTA-DR, duties for muscle cuts were 15 percent and most offals were tariffed at 10 percent.

Through the new FTA, Honduras will open duty-free TRQs for Canadian beef, starting at 300 mt for Prime and AAA beef, and expanding to 495 mt in Year 14 before unlimited volumes at zero duty are allowed in Year 15. The duty-free quota for other Canadian beef cuts (AA and A grades) will start at 200 mt and expand to 330 mt by Year 14. At the same time, duties on out-of-quota imports will be reduced by one percentage point per year (phased down from the current 15 percent to zero by Year 15).

Neither Canada Beef nor the Canadian Cattlemen’s Association (CCA) has published any projections on the impact FTA could have on Canadian beef exports, but expectations appear to be extremely low. John Masswohl, CCA director of government and international relations, is quoted as saying the agreement doesn’t hold much promise for the Canadian beef industry.

“We really gave it a pass,” said Masswohl in the Nov. 14 edition of The Western Producer. “We congratulate the pork industry on more access.”

NOTE: Export and import data cited is from the Global Trade Atlas