7 November 2016
Importance of Maintaining the Duty Suspensions on Cranberry Ingredients
Further to CETA Agreement
Introduction to the North American cranberry
The North American Cranberry (Vaccinium macrocarpon) is a dark red edible fruit, grown primarily in the US and Canada and with some production in Chile. 95% of North American cranberries are processed into ingredients for the food processing industry including frozen cranberries, cranberry concentrate and dried cranberries, with the remaining 5% sold in their fresh form to consumers during the Thanksgiving and Christmas holiday season. Significant scientific research has been conducted on the health benefits of the cranberry due to its antioxidant and antibacterial properties.
Overview of European imports of North American cranberry products
In 2015, EU Member States imported approximately 4,514 metric tonnes of cranberry concentrate (CN code 2009 81 31 10) from the US. These imports have been used by the European food processing industry to make high-quality juice, sauces, jams and other food products. In the same year, over 26,074 metric tonnes of dried cranberries (CN code 2008 93 91 20) were brought in to the EU from the US, many of them for use in the production of new products such as cereal bars, bakery products, breakfast mixtures or artisan cheeses.
Also in 2015, EU Member States imported approximately 2,861 metric tonnes of cranberry concentrate and 5,120 metric tonnes of dried cranberries from Canada. Whereas from Chile, approximately 1,180 metric tonnes of cranberry concentrate and approximately 5,056 metric tonnes of dried cranberries were imported. When broken down by country, the figures are as follows:
When imported from Chile, these products benefit from the EU-Chile Association Agreement, in place since 2003, which means they are imported duty free. When imported from the US or Canada, (provided certain requirements are met) these products are currently able to benefit from duty suspensions reducing the 16-18% duty to 0%.
The EU duty suspension for cranberry concentrate is set for review by 31 December 2019, whereas the duty suspension for dried cranberries will be reviewed by 31 December 2017. However, with cranberry products now covered by both the EU-Chile Association Agreement and the Comprehensive Economic and Trade Agreement (CETA) with Canada that was signed on 30 October 2016, earlier closing dates for the duty suspensions are being considered.
Information on trade agreements covering the import of cranberry products to Europe
The European Commission hopes to conclude CETA before the end of 2016. Based on the current text, the EU is expected to fully liberalise 97% of its agricultural imports from Canada including cranberry concentrate and dried cranberries.
The Council Regulation on duty suspensions[1] notes that “it might be necessary at any time to close certain suspensions […] if it is no longer in the Union's interest to maintain the suspensions or due to technical product developments, changed circumstances or economic trends on the market.” Furthermore, according to a Commission Communication on tariff suspensions and quotas[2], where a tariff suspension conflicts with free trade agreements, existing suspensions should be closed.
Concerns about Canadian producers meeting European demands for cranberry products
Closing of the duty suspensions on cranberry concentrate and dried cranberries would be harmful to the EU food processing industry as it would result in an immediate increase of costs and disruption of supply due to the following reasons:
· Canada’s supply of dried cranberries and cranberry concentrate is not sufficient to meet European industry demand
Currently, Canada produces about 25% of the global cranberry supply and sends the majority of this product to the US market. While liberalised access to the EU market could shift a higher proportion of Canadian cranberries to Europe, this would not take place immediately. Instead, it could take several years for Canadian growers to shift their main export market from the US to the EU.
· Canadian cranberry cultivation could take three to five years to build capacity
Cranberries are traditionally grown in beds over naturally acidic peat bogs in cool climates and near access to water which is used during the harvest season of September through November. The growing cycle is an average of 13 months from bud to fruit and beds produce just once per year. Several years are usually required to reach full production on new plantings, but in some cases this may be achieved within three to five years from planting. Plantings of course, can only begin after significant investment are made to acquire and renovate new acreage located in appropriate growing regions.
· CETA Rules of Origin will delay Canadian duty free access to the EU market
CETA Product Specific Rules of Origin for dried cranberries[3] stipulate that non-originating sugar used in production [cannot] exceed 60% of the net weight of the product. This means that in order for dried cranberries to qualify for the 0% tariff rates enshrined in the CETA, 40% of the sugar used in the processing must originate (both grown and refined) from either Canada or the EU.
Currently, approximately 90% of Canada’s refined sugar is produced from raw cane sugar, most of it imported from tropical regions in South and Central America and as such, this sugar is considered non-originating sugar. Furthermore, Canada imports very little sugar from Europe due to the added cost
of both normal and countervailing duties applied to European sugar. While it could be that European sugar exports to Canada will increase with the implementation of CETA, it will take years for Canadian cranberry growers – and European sugar producers – to adjust their supply chains to this model. As a result, in the short- and medium-term, Canadian dried cranberry producers will find it extremely complicated and costly to produce goods that would be able to benefit from duty free access to the EU under CETA.
Request for a thorough capacity assessment prior to any decision on the cranberry duty suspensions
Both cranberry concentrate and dried cranberries are imported by European food and drink companies in order to create high-quality, high-value products for sale to European consumers and export to third countries. Since the duty suspensions began in 2010, there has been significant growth in the number new products using cranberries in Europe – with over 4,000 product launches taking place since 2014. Industry confirms that this has led to growth in the entire dried fruit and nut category. Access to cranberry products has helped to increase European food industry output, especially for small and medium-sized enterprises. Should there be any uncertainty as to the stability of the duty-free supply for cranberry products for food processing or should the price rise due to limited supply and lack of access to a 0% tariff, the expected gains to be accomplished by the CETA will instead turn into losses. Specifically this could result in higher costs and heavier administrative burdens for the European food and drinks industry.
Therefore, we urge all stakeholders involved in these discussions to ensure that a thorough assessment is conducted before any decision is taken regarding the premature closure of the cranberry duty suspensions. This assessment must review Canadian cranberry producers’ ability to supply the EU market, their ability to meet the Product Specific Rules of Origin and their ability to increase both production acreage and production capacity to meet the growing EU demand. Additionally, the assessment should understand the economic impact any disruption of supply could have on the EU food and drink processing industry, particularly as regards increased cost and supply challenges resulting from a premature closure of the cranberry duty suspensions.
3
[1] EU 2016/1051 of 24 June 2016 amending Regulation (EU) No 1387/2013 which deals with suspending Common Customs Tariff duties on certain agricultural and industrial products
[2] Communication from the Commission concerning autonomous tariff suspensions and quotas
(2011/C 363/02)
[3] Consolidated CETA Text – Annex 1: Product-specific Rules of Origin