It's April 19 and not quite 24 hours after the Canadian International Trade Tribunal (CITT) struck down the tariff on U.S. corn. On the phone, you can still hear shock and dismay in Brian Doidge's voice. As spokesman for the Canadian Corn Producers (CCP), a group that includes corn producers' associations from Ontario, Quebec and Manitoba, Doidge had been in the thick of the fight for a tariff since August 2005. That's when the group filed their complaint with the Canadian Border Services Agency (CBSA), citing their inability to compete with the flood of cheap U.S. grain pouring across the border. According to them, the fault lay with generous subsidies that allowed U.S. producers to thrive on corn prices well below the production costs of Canadian growers. 
 
 Doidge had every reason to expect the judgment to go his way. The CBSA had certainly agreed with them. They found evidence of subsidies and "dumping," or selling goods in other countries at prices below their home market value. In December, the CBSA had slapped a provisional duty of CAN$1.65 per bushel—a $0.58 anti-dumping penalty coupled with a $1.07 countervail—on U.S. corn imports. In March, its investigation concluded that the duty was justified and should be allowed to stand. The CITT investigation then proceeded. If it concurred, the duty on corn might have remained in place for up to five years.
 
 Special Import Measures Act (SIMA) investigations have two distinct phases. The CBSA focuses on illegal subsidies and dumping. If it finds evidence of either or both, the CITT investigation takes up the matter of injury to Canadian industries. The tariff could only be justified if the subsidies and dumping did actual harm. It was only at this last and critical step that the corn producers' case faltered. 
 
 The CITT did find evidence of injury. Losses to corn producers of CAN$24 million (US$21.8 million) could be directly attributed to U.S. subsidies and dumping. Divided among the 26,000-plus members of the CCP, the loss came to about CAN$920 (US$836) each—not enough to justify retaining the duty. Furthermore, 38 percent of the corn grown in Canada was insulated from the effects of unfair trading practices because it was fed to animals on the farm where it was grown and never slated for the market. 
 
 Had the decision gone the other way, U.S. corn would have been effectively priced out of the Canadian market. This would allow domestic corn prices to drift upward, and would have undoubtedly provided some relief to corn producers. For corn consumers, on the other hand, a duty of CAN$1.65 per bushel would have proved devastating. Cattle and hog producers; corn products manufacturers like Casco, Canada's nascent ethanol industry; and most other industrial corn users would have been seriously damaged. Higher feedstock prices would have seriously hampered their ability to compete in foreign markets, driving some industries—or some facets of their operations—out of the country. 
 
 With or Without Tariff, Ethanol Required
 	

 One thing was certain. Whether or not Canada had an ethanol industry of its own, its need for ethanol wasn't going to go away. Ontario had already announced that, as of January 2007, all gasoline sold in the province would have to contain 5 percent ethanol, and other provinces were beginning to follow. With its domestic industry seriously crippled, most of that ethanol would have had to be imported, much of it likely from the United States. One way or another, U.S. corn would still be flowing across the border. 
 
 There is little doubt that the overabundant and ready supply of U.S. grain has forced down market prices. The real problem is that U.S. corn sets the market price, and Canadian producers have little choice except to meet it or forget about selling their grain. One of the direct results is that there is less corn being grown in Canada; corn acreage fell from 3.2 million in 2001-'02 to 2.8 million in 2004-'05). Canadian producers blamed that on the generous subsidies their American counterparts receive. Their position was somewhat weakened by the fact that the amount of U.S. grain imports actually dropped off substantially during the period covered by the investigation (Sept. 1, 2003, to Aug. 31, 2005.) 
 
 Of course, low commodity prices are not a problem unique to grain and oilseed producers. For years, overall farm incomes in Canada have been steadily dropping. In an effort to bring their plight to the attention of the general public, desperate farmers have organized rolling blockades of Ontario's major highways, packing lanes with convoys of slow-moving farm equipment. Protest rallies held in Toronto and Ottawa were meant to bring the seriousness of their plight to the steps of the provincial and federal governments. Taken in this context, the CCP's trade action could be seen as a way of keeping farm problems front and center, a way of pressuring elected officials into coming up with some meaningful farm support programs.
 
 What corn producers really long for is some form of commodity-based price support system. They once had one in Ontario: the Market Revenue Insurance (MRI) program. Commodity-based systems are triggered automatically when market prices dive, but under current World Trade Organization (WTO) rules, such subsidies are illegal. Countries that still have them are hastening to curtail such subsidies before being buried under a flood of countervailing trade actions. Current Canadian farm subsidies, like the Canadian Agricultural Income Stabilization (CAIS) program, supports total farm incomes rather than commodities, but many farmers consider it inadequate. 
 
 As for the corn producers' woes, the CITT attributed most of them to another source entirely. According to their statement of reasons, the soaring Canadian dollar has wreaked far more havoc on their industry than U.S. subsidies. In early 2002, the Canadian dollar was worth a mere US$0.62. Currently, it hovers above the 90-cent mark. Every time the Canadian dollar gains in value against its U.S. counterpart, the more competitive U.S. corn becomes. Ironically, for many years the weak Canadian dollar made Canadian exports attractive on foreign markets, just as the loonie's spectacular rise has been largely fueled by commodities like oil, gold and nickel. Not corn, however. As the gap between the two currencies narrowed, Canadian growers were becoming less and less competitive in their own country. 
 
 Back to Business, but the Issue Lurks
 
 Back on April 19—the day after the corn import tariff was struck down— Doidge receives another phone call, and this time there's a very happy man on the other end of the line. It's Bliss Baker, vice president of Commercial Alcohols, Canada's largest ethanol producer, and he's just as surprised by the CITT decision as Doidge. Baker's voice contains an unmistakable note of relief. In anticipation of a decision in favor of the tariff, Baker had been gearing up for a long battle, hammering on government doors and launching appeals to the public. All of that was suddenly unnecessary. 
 
 With the prospect of a tariff looming, Baker had been busy developing contingency plans to work around the tariff and the resulting prohibitively expensive feedstock. The company itself would certainly have survived, sustained by the ability to claim duty drawbacks on products made from imported U.S. grain and then shipped back to the United States. But Commercial Alcohols' two new plants slated for Windsor, Ontario, and Varennes, Quebec, would probably never be built. 
 

 Suncor's 200 million liter per year (52.8 MMgy) plant in Sarnia, Ontario, was still going ahead—tariff or no tariff—according to Director of Communications Jason Vaillant. "Our plant was never in jeopardy." he said. "We were always going to open it and operate it." He qualifies his assertion with, "It would have negatively impacted the cost of our operation."
 
 On the other hand, agricultural economist Hartley Furtan points out that "you run a big risk by always relying on that export market to bring in your feedstock." Supply lines that stretch across international boundaries will always be vulnerable to potential trade actions and disputes between the two countries. Canada is now forced to rely on U.S. corn to supply the growing demand of its industrial users. Canada grows, on average, about 375 million bushels of corn annually, 98 percent of it in the provinces of Ontario, Quebec and Manitoba. That leaves a shortfall of somewhere between 85 million and 140 million bushels that has to be made up of imported U.S. grain. 
 
 If they were getting higher prices, Canadian farmers would definitely grow more corn, according to Furtan. The actual production varies from year to year. Some of that can be attributed to crop rotation. Price is undoubtedly the most significant factor in determining what farmers grow, and corn production is often determined by how much farmers are getting for soybeans or other grains. Had the corn tariff gone through, cattle and hog producers would have been forced to switch to other grains, driving their prices up as well.
 
 Like most ethanol plants west of Ontario, the Okanagan Biofuels ethanol plant being built in Kelowna, British Columbia, will utilize wheat. Richard Marshall, vice president of operations, discounts the corn tariffs indirect effect on wheat prices. "The tariff on corn would only have affected the eastern-based ethanol facilities.," he says. "It would have made little or no difference to us."
 
 Back east, however, the industry is breathing a little easier now that the threat of the corn tariff has gone away. The question is, how long will it stay away? Twice before, the tariff issue has been raised. One was successful. That tariff lasted from 1986 to 1992. 
 
 A small Ontario corn farmer from Oxford County may hold the ultimate solution to a secure feedstock supply for the Canadian ethanol industry. Wearing work clothes and sitting on his tractor, Liam McCreery doesn't look like the president of an organization promoting agricultural free trade at the WTO level. But McCreery heads up the Canadian Agri-Food Trade Alliance (CAFTA), an atypical coalition of producers, distributors and processors. He sums up CAFTA's mission in a few succinct sentences: "We're after taking down barriers. We're after getting rid of tariffs. We're after getting rid of trade-distorting subsidies—full stop."
 
 McCreery feels that it's in the best interest of the Canadian ethanol industry to join in the fight. He notes that the existing agreement permitted both the tariff and the U.S. subsidies that triggered it. "Obviously, the rules have to change," he says. "This is not a stable environment." 
 
 It is, he admits, "a long-term solution," but it may be the only way to insure trade barriers never again pose a threat to the Canadian industry's supply chain.
 

 W.R. Stephens is an Ontario-based freelance writer. He was last published in Ethanol Producer Magazine in November 2005, when he wrote "Ethanol in Tobacco Country," a feature about an entrepreneur with a plan to grow tobacco as an ethanol feedstock in Ontario.

Liam McCreery, an Ontario corn grower and head of the Canadian Agri-Food Trade Alliance, believes trade-distorting subsidies hurt Canadian farmers.

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Farm incomes in Canada have been steadily dropping for years.

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Some say farmers in Ontario would grow more corn if they could get better prices for the crop.

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It's been several weeks since the Canadian International Trade Tribunal struck down a sought-after countervailing tariff on U.S. corn. While ethanol stakeholders in eastern Canada are celebrating the decision, the contest has left a painful scar between agricultural interests north of the border—and the real problem still lies in wait.

Life After the Corn Tariff Debacle

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