Canada / United States / MexicoTrade Disputes Workshop

Puerto Vallerta, Mexico March 2002

Canada / United States / MexicoTrade Disputes Workshop

Puerto Vallerta, Mexico March 2002

Access To Pesticides as a Source of Trade Dispute

Access To Pesticides as a Source of Trade Dispute

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OBJECTIVES AND SCOPE

Pesticides as a Potentially Significant Trade Issue within NAFTA:

• Price differentials seen as creating a competitive disadvantage for farmers growing the same crop for the international market

• A second dispute area involves the availability of specific products

A Case Study of Regulation and Harmonization in the Context of Free-Trade:

• Effects of regulation with strong product differentiation• Cooperation among the regulatory agencies with explicit

objectives for harmonization

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OUTLINE

The Context for Disputes • The role of pesticides• Stakeholder interests

The Regulatory Process • Process for resolving trade irritants• Current harmonization efforts

Sources of Conflict• Evidence of price differences• Possible causes of price divergences• Availability issues

Conclusion

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THE ROLE OF PESTICIDES

Pesticides Are Necessary 86% of the US major crops acreage planted is treated at least

once with a herbicide Fruits and vegetables have higher per acre use rates and employ

a broader spectrum of pesticides Application of pest control products can mean the difference

between no production and a normal crop

Costs Inherent in Their Use Possible harm to non-target species, including applicators,

bystanders and wildlife Possible harmful effects for consumers Evolution in the target pests so that they become resistant

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PESTICIDE IMPACT ON PRODUCTION, WORLDWIDE

Alternative? Significant expansion of cultivated land, lost species habitat More intensive use of plows, discs and harrows Increased levels of erosion

Actual Estimated % Decline in % Increase inProduction Production Production Land to Restore

Crop Avg. 1990-98 w/out CP w/out CP Actual Output

Rice (mt) 509 184 64 280Wheat (mt) 548 400 27 140Barley (mt) 172 129 25 130Maize Grain (mt) 449 295 34 150Potato (mt) 273 123 55 220Soybeans (mt) 103 63 39 160Cotton (kt) 52.4 13.9 74 380Coffee (kt) 5.9 3.0 49 200

Source: E-C Oerke, H-W. Dehne, F. Schonbeck, and A. Weber.

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Pesticide Treated Cropland and AverageApplication Rates, Selected Years

percent of croplandtreated

52% 53% 56% 68% 67% 67% 69% 70%

pounds of A.I. per acre 1.232 1.375 1.911 2.275 2.237 2.178 2.419 2.41

1964 1966 1971 1976 1982 1990 1994 1997

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Differences In Pesticide Use, Selected Compounds, 1992 - 1997

Total Percent Fungicides Change Change

Captan 795 25%

Metalaxyl -195 23%

Thiophanate Methyl -44 -9%

HerbicidesAtrazine 2,245 3%Ethalfluralin -316 -12%Paraquat 2,226 48%

InsecticideAldocarb 256 6%

Ethyl Parathion -1,789 -77%Malathion 2,433 72%

Source: L. P. Gianesi and C. Silvers. Trends In Crop Pesticide Use: Comparing 1992 and 1997. National Center for Food and Agricultural Policy, Washington D.C. Nov. 2000

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STAKEHOLDER INTERESTS

Government Itself Chemical Companies Who Produce and Sell Pesticides General Public Who Consume Food Treated with Pesticides Citizens with Special Concerns about the Environment and

Food Safety Farmers Who Buy the Pesticides Bureaucrats Who Regulate Their Use

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THE REGULATORY PROCESS

Recent Major Legislative Changes In Pesticide Regulation

The Pest Control Products Act of 1995 transferred responsibility to the Pest Management Regulatory Agency (PMRA) within Health Canada

The United States the Food Quality Protection Act (FQPA) of 1996 significantly changed the way pesticides were regulated

Increased EPA PMRA cooperation to resolve trade irritants and explicit goals for harmonization

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RESOLVING TRADE IRRITANTS

• An MRL/tolerance exists in the exporting country but it is lower in the importing country so the product is out of compliance

• An MRL/tolerance exists in the exporting country but one does not exist in the importing country

• A pesticide-commodity combination is registered in one country but not in another and growers in the country where the use is not registered wish to have that option

• A discrepancy is detected resulting from a non-registered use in the exporting country

• The exporting country has a time-limited tolerance but full registration does not exist in the importing country

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CURRENT HARMONIZATION EFFORTS

Vision / Objectives of the NAFTA Technical Working Group on Pesticides

“Growers in all three countries can access the same pest control tools”

“Develop a North American market for pesticides, while maintaining current high levels of protection of public health and the environment...”

Work sharing, the creation of a joint application process and begun work on a NAFTA label that would be used in all three countries

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Pesticide Price Differentials Between Canada and the United States

Carlson, Deal, McEwan and Deen, 1999

For Corn and Soybean Herbicides in Ontario and the Midwest States

• 6/18 the price difference was less than 5% • 11/18 were more than 5% cheaper in Ontario• 1/18 was more than 5% cheaper in the U.S.

For Herbicides on Major Crops in Manitoba and North Dakota

• 7/29 the price difference was less than 5% • 18/29 were more than 5% cheaper in Manitoba• 4/29 were more than 5% cheaper in North Dakota.

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Pesticide Price Differentials Between Canada and the United States

Carlson, Deal, McEwan and Deen, 1999

It Is Not Surprising That…• Manitoba farmers tend to spend more per acre and North

Dakota farmers tend to use cheaper bundles of herbicides

• Additionally when all pesticides, not just herbicides are examined, prices in Canada tend to be higher than in the U.S.

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Causes of Price Divergences

• Differences in price reflect differences differences in registration costs or marketing and distribution costs

• Both the previous models can apply

• Market Power / Pricing Policy

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Treflan 95% Price Confidence Intervals

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Roundup 95% Price Confidence Intervals

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Malathion 95% Price Confidence Intervals

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CAUSES OF PRICE DIVERGENCES

• Market Power / Pricing Policy

• Differences in price reflect differences differences in registration costs or marketing and distribution costs

• Both the previous models can apply

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AVAILABILITY ISSUES

Significant Numbers of Pesticides Have to Be Re-registered • Some will be considered too toxic• Others will not have a large enough projected sales volume to

warrant the cost of re-registration• Shift to a “risk cup” may make it less desirable to apply for

minor use registrations

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AVAILABILITY ISSUES

Existing Value-added strategies typically encourage expansion of low-volume crops

• Loss of access to existing pesticides may be crucial for current minor use crops

• Without chemical pest control some types of production will face lower yields, lower quality and higher production costs

• It is unlikely that new compounds will be developed if old ones are not profitable

• But without access to chemicals these strategies will be problematic

• How much will harmonization allow demand aggregation?

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CONCLUSIONS

• Pesticides are an increasingly important part of agricultural production technology, but...

• Their inherent toxicity means they will continue to face stringent regulation.

• Differences in access to pesticides, or in their cost, will affect production opportunities.

• Farmers appear to be successful in adapting their pest management strategies to differences in prices in the cases where a number of substitutes exist

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CONCLUSIONS

• While significant cross border price differences can be found, they are neither uni-directional nor do they exist for all compounds.

• Efforts to harmonize pesticide access face major challenges in terms of differences in attitude to risk, differences in environmental fate, and differences in actual costs.

• While harmonization is in the interest of most participants it may not be in the interest of all. However current efforts to harmonize the scientific base for making decisions are certainly desirable.

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Differences In Pesticide Use, Selected Compounds, 1992 - 1997

Total Percent Major Crop Changes in 1000 pounds of active ingredientFungicides Change Change

Captan 795 25% almonds (+408), apples (+308), strawberries (+136) cherries (+22), peaches (-182)

Metalaxyl -195 23% tomatoes (-13), tobacco (-101), lettuce (-8), spinach (-4) potatoes (+14), carrots (+17)

Thiophanate Methyl -44 -9% soybeans (-88), sugarbeets (+64), strawberries (-5) peaches (-86), celery (-2), wheat (+10)

HerbicidesAtrazine 2,245 3% sorghum (-1065), sugarcane (503), corn (+2037), pasture (-611)Ethalfluralin -316 -12% soybeans (-820), dry beans (+155), sunflowers (+270), canola (+171)Paraquat 2,226 48% soybeans (+334), cotton (+244), corn (+752), wheat (+402)

peanuts (-39), citrus (-38), apples (+90)

InsecticideAldocarb 256 6% potatoes (+359), citrus (-55), cotton (+668), peanuts (-414)

tobacco (-99)Ethyl Parathion -1,789 -77% sunflowers (-477), cotton (-214), sorghum (310)Malathion 2,433 72% sunflowers (-30), cotton (+2803)

Source: L. P. Gianesi and C. Silvers. Trends In Crop Pesticide Use: Comparing 1992 and 1997. National Center for Food and Agricultural Policy, Washington D.C. Nov. 2000

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CONCLUSIONS

Pesticides are an increasingly important part of agricultural production technology, but because of their inherent toxicity they will continue to face stringent regulation.

Differences in access to pesticides, or in their cost, will affect production opportunities. But while significant cross border price differences can be found, they are neither uni-directional nor do they exist for all compounds.

Efforts to harmonize pesticide access face major challenges in terms of differences in attitude to risk, differences in environmental fate, and differences in actual costs.

While harmonization is in the interest of most participants it may not be in the interest of all. However current efforts to harmonize the scientific base for making decisions are certainly desirable.