International Trade Committee on Nov. 21st, 2013

[Don Davies, NDP, Vancouver Kingsway, BC]

I've heard the Conservatives and ministers of the government say that the dairy industry has nothing to worry about. Some say there will be no losses whatsoever, because they claim that whatever losses you may have from the increased European access to our market will be offset by the natural growth in the industry.

In fact, Maxime Bernier said yesterday:

The milk guys...don't have to be concerned, everything in the deal is good. I know that the program [the mitigation program the government is talking about] will be there, but I think that nobody will use it because they won't lose any money.

What's your assessment of that position? Is the market just going to fix this for you?

[Yves Leduc]

That is exactly what we've tried to point out in this presentation. We are losing. We are losing future growth in which we have heavily invested over the past 15, 20, 30 years. That growth did not occur just like that; it's the result of the investment that farmers have put into growing that market. This is what we are losing. We are estimating, depending on whether the agreement is implemented over a five or seven-year period, losses of income at the farm level between $600 million and $750 million.

[Don Davies, NDP, Vancouver Kingsway, BC]

To be clear about this, the increased market share of cheese in this country will not be enough to compensate the dairy farmers for the losses of market to the EU. Is that your testimony?

[Yves Leduc]

This is what we are losing.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay.

You talked about the subsidization. Is there anything in CETA you've seen that has dealt with the massive EU subsidization of their dairy farmers? Have we negotiated that successfully?

[Yves Leduc]

No. That's an interesting point. When the negotiations started, it was done on the basis that there would be no exceptions a priori. However, one important element that was not added to the negotiating agenda was domestic support to the common agricultural policy that's in use in the European Union, and there has been no discipline whatsoever with respect to the direct payments that are being paid to dairy farmers in the European Union.

[Don Davies, NDP, Vancouver Kingsway, BC]

We know that in many trade deals we have tariffs, but then we have the non-tariff barriers and subsidization. Would my understanding be correct that here we have not successfully addressed the heavy European subsidization of their dairy industry? Would it be fair to say that dairy farmers in Canada still have to compete with cheese and dairy producers that are heavily subsidized by the European countries?

[Yves Leduc]

That is correct.

[Don Davies, NDP, Vancouver Kingsway, BC]

Do you have any concerns about any precedent being set? Right now we're at the TPP bargaining with Australia, New Zealand, and the U.S., which I think I can say are aggressive countries in terms of our supply-managed system. They don't like it. I've heard the Conservatives say it's only another 4%. You've gone from 4% to 8% in the cheese market, and you still control 92%. Do you have any concerns that at other tables, other countries will now seek to make further inroads into that, and that the 8% will become 12%, then 16%, then 20%, so we'll be sitting here in 10 years with the Conservatives saying you still control 70% of the market or 50% of the market? Do you have any concerns in that regard?

[Yves Leduc]

I'll defer on that one to Mr. Versteeg.

[Ron Versteeg]

It is a concern. In our view this may set a precedent. Certainly other countries looking at this will be saying that if you did this for Europe you can do this for us, too. It's fair game, right?

[Don Davies, NDP, Vancouver Kingsway, BC]

This is my last question to you on this. Is this consistent with our supply-managed sector, and do you think CETA is consistent with the three pillars of supply management, specifically whether giving the EU greater tariff rate quota access to cheese is consistent with the pillar of import controls?

I'm mindful of the fact that tomorrow is the 8th anniversary of the all-party resolution passed in this Parliament, including by the Conservatives, that committed to zero-zero--no reduction in over-quota tariffs and no increase in tariff quotas. I'm unclear. The Conservatives say that giving the EU more access to cheese has left supply management completely intact, whereas I see that they've allowed more over-tariff rate quotas come in, which, to me, is an attack on the third pillar of import controls. Who is right there?

[Ron Versteeg]

Obviously, 18,000 tonnes is not zero. So it is a further incursion of imported cheese into the Canadian market. I think that's pretty self-evident.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Masswohl, I have a couple of things to say. The devil is in the details. You got the numbers you wanted. I would point out that I think you got the minimum numbers that the beef producers wanted, about the 40,000 tonnes. I know we got 55,000 but that's bone-in. You talked about the technical barriers. I know there are issues about acid washing cattle in Alberta. There is the approval rate to get EU-certified beef into the European market. There is a CFIA certification process. I understand there are still details to be worked out in CETA to determine whether or not we can actually get our beef approved by the European Union. Am I correct in that?

[John Masswohl]

You're close. We got 65,000 tonnes of new duty-free access. Of that, 50,000 of it is fresh, 15,000 of it is frozen, and there's no distinction between bone-in or boneless.

With respect to acid wash, I believe you mean lactic acid, which is a naturally occurring substance in our own human bodies as well as in cattle. It's an organic wash that is used and approved in Canada and the United States to reduce pathogens such as E. coli and other things. That's a standard—in fact, it's a requirement that there be a carcass wash here in North America.

The European Union has reviewed that and other carcass washes by the European Food Safety Authority, EFSA. They have recommended that those things be adopted in Europe. But these things then have to go through the European Parliament, and we've found in the past that the European Parliament often takes a protectionist view, knowing that if they approve things like this, it will mean more beef imports into Europe.

There is, perhaps, some reason to be encouraged. They did approve lactic acid earlier this year in limited circumstances, not in full circumstances. But they haven't approved all of the washes that we use. That's our concern, and our objective on this follow-up step on the technical issues is to achieve full equivalency of the Canadian system as being equally safe as the European system.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. Shory, the floor is yours. Seven minutes.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

Thank you, witnesses, for being here today.

Mr. Chair, before I came to Canada, I didn't have a chance to deal with holy cow meat, but I have had some experience being a dairy farmer myself. I was a certified dairy farmer, I did some courses on dairy farming, and started with very few animals.

What I found out in my experience was that the goal was always to figure out how to grow production and how to find more consumers. I believe it is demand that runs the price of any product.

We talked about, Mr. Davies, a 4% increase in the Canadian market by EU cheese, and Canadian cheese producers would have tariff-free, unlimited access to the European market.

What I'm trying to understand is that with more than 500 million consumers and more than $130 billion worth of agriculture imports a year, how can Canada's dairy industry say that becoming a part of this incredibly lucrative market could have a negative impact? That's number one. Then, another question is how can the dairy industry even take this position, considering the limits of the Canadian market, whose population is just 7% of the European market? Please make me understand.

[Ron Versteeg]

To answer your first question, because of the massive amount of subsidies in the European Union, dairy producers there receive 40% to 50% of their revenue from the mailbox, from government program payments. So that means that they don't have to receive as much from the market. They can take a lower price. Those products, then, are much more competitive, or have a much lower price than Canadian dairy products, where we get all of our revenue from the marketplace. We get zero dollars in subsidies from the government.

That puts us at a very significant disadvantage when the competition across the pond is getting 40% to 50% of their revenue from government program payments.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Is it correct that there is a limit of up to a 4% increase of supply by the European market in Canada? Is understanding right that there will be an increase of up to 4% from the existing...?

[Ron Versteeg]

Currently, under the access that was negotiated during the GATT agreement, Europe obtained about 13,400 tonnes out of the 20,000 tonnes of total cheese access. Now, with CETA, that will augmented by a further 17,700 tonnes.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Another thing I read somewhere is that approximately 96% of nearly 420,000 tonnes of Canadian cheese is used domestically. Is that right?

[Ron Versteeg]

That's correct, yes.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Now my question is this. If Canadian cheese consumption is growing at the rate of approximately 8,000 tonnes a year, and also taking into consideration that it will take two years—we talked about it, and Mr. Davies upon touched on it too—for implementation of CETA to start, and up to an additional five years to fully implement the agreement, would this 8,000 tonne increase in domestic consumption a year over all this time period offset the additional tonnes of European imports? And if you say no, why not?

[Ron Versteeg]

First of all, our numbers indicate that the rate of growth is probably about half of the number that you cited.

Secondly, speaking as a dairy producer, that growth is very important to us as producers. Our production per cow increases on an annual basis and we need to grow our farms so that we can capitalize on economies of scale and efficiencies. When that growth potential is handed over to another country, then we don't have that opportunity. That stifles our drive for efficiency; it stifles the growth of our farms and our industry. That's a very significant impact on the dairy production sector.

[Devinder Shory, Conservative, Calgary Northeast, AB]

What has been the percentage of growth in the last 10 years in the dairy industry here in Canada?