Agriculture Committee on May 11th, 2006

[James Bezan, Conservative, Selkirk—Interlake, MB]

Thank you, Mr. Chair. I'm going to split my time with David Anderson.

Thank you, ladies and gentlemen, for coming on short notice. We really appreciate it. The topic is of great concern to the dairy industry on both sides of the fence, whether you're a processor or a farmer. I know the farmers in my riding have met with me regularly on this issue.

I'm having some difficulty trying to balance some of the comments that were made earlier by DPAC. I guess I'm a little concerned about the talk that there is no innovation, there's no investment in new products, there's nothing being developed. Can you qualify that in some way? What is DFC doing?

[Jacques Laforge]

From a DFC perspective, from a Canadian Dairy Commission perspective, there are all kinds of innovation programs available and even some discounts available for domestic innovation. The fundamental difference between us and the processors is that when we look at market development innovation, we look at things from a domestic standpoint--at domestic price--as much as possible, and processors have a tendency to look at what kinds of innovations they can create with a cheaper raw material. They'll bring us back to special classes. They'll bring us back to....

The more our structural surplus increases, the more they look at that as an opportunity. They see us, because of the panel, now selling it for animal feed. We went through this dialogue at the CDC level and so on. Any innovation now in these areas is not based on world price, it's based on animal-feed price.

Very, very importantly, in 1999 the structural surplus was 26,000 tonnes, and that was roughly at the time that the imports of milk protein concentrates started to come in. Two years ago it was up to 75,000 tonnes of skim milk powder surplus. This year it's going to be around 60,000 tonnes. We've borne the cost of that. They see that as a little bit of a gold mine, to get cheap raw materials, and they're causing....

[James Bezan, Conservative, Selkirk—Interlake, MB]

But that's not an accurate surplus, because even now with the changes.... We used to have the two-price system. You used to have your quota price, and your over-quota was the industrial price. Everybody's now getting penalized on over-quota, so they're pouring it down the drain. So there's actually a bigger surplus out there, because there's been milk that.... I have producers in Manitoba who do that. Instead of getting penalized, they'd rather dump a day's worth or a couple days' worth of milk.

[Jacques Laforge]

Not to get too technical, but over-quota milk, if you ship it, goes to even less than world price, so that's why they leave it on farms. In the old days, CDC would end up exporting it. Now we can't export it. That's supply management; you limit your production for your domestic market.

[James Bezan, Conservative, Selkirk—Interlake, MB]

The question I have on the over-quota milk--because there has been a shift in policy in the last four or five years in how we deal with it, and a lot of farmers are dumping it rather than putting it into the marketplace--is whether there would be an opportunity to make use of that product to displace all these imports that are coming in, the protein derivatives.

[Jacques Laforge]

As soon as you start doing that, you start cannibalizing the domestic market with other milk that is domestic quota, first of all, because you have to produce one of these products. The only place you end up with a surplus is if you have over-quota milk and you ship it--it ends up in skim milk powder, and butterfat ends up in stock, and it can be used only domestically.

So that butterfat would displace domestic butter, and that's why that levy or fee is there. It's to give everybody their fair share of the market, I guess. If the export market were still open, it would be a different scenario. But there is structural surplus there of skim milk powder that is going for animal feed and is at less than world price.

[James Bezan, Conservative, Selkirk—Interlake, MB]

Just before I turn it over to David, I want to say that I appreciate your comments on article 28 and the idea about harmonization with the U.S. I think that might be the appropriate avenue to take. It's something that I'm definitely going to read more about in detail, and we'll see how we deal with that at committee here.

[The Chair, Conservative, Gerry Ritz]

Mr. Anderson.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Just quickly, I was looking at the bottom of page 4 here, where you talk about what would cause your system to collapse, and I was trying to work the numbers backwards. What level of these MPC imports would you say would constitute the breaking point for you? I don't know if I'm doing my math right, but I thought it worked back to 40,000 tonnes, and we're being told there's only 4,000 tonnes in the system right now.

What do you folks think would be the breaking point for you?

[Richard Doyle]

The way this analysis was done, it was using, I believe, 11.5% of the protein substitution for standardization of all milk and cheese and complete substitution of non-fat solids in yoghurt and ice cream. These numbers were verified by Canada, just as mentioned, because they wanted to have our analysis behind it.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

What is the tonnage of MPCs, then, that you think is the breaking point? Do you have that?

[Richard Doyle]

It represents 25% of the protein market. I'd have to go back, because I don't have the exact numbers in my head. Sorry.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay, if you don't mind.

I'd like to thank you for coming on short notice today, and thank you for your willingness to work with the minister and DPAC to resolve the issue.

I would like Alex to have time, so I'll turn it over to him.

[The Chair, Conservative, Gerry Ritz]

Thank you for doing my job, Mr. Anderson.

Mr. Atamanenko.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

I have just a very quick question, and forgive me if I don't understand this. That's why I'm asking the question.

As it stands now, if it's over 85% it's classed not as a dairy product but as a protein, and that's where the crux of the problem is.

What if this were classed as a dairy product? What would happen? Now it's classed as a protein and it's coming in with no tariff. If it were classed as a dairy product, what would the situation be?

[Richard Doyle]

It's an interesting debate, because the purer a dairy product is, the less it would be a dairy product under that kind of approach, which is why we're saying it doesn't make a lot of sense to make that distinction. This is an issue of pure protein. The milk protein concentrate that you're talking about at 87.5% is 100% dairy. It's pure dairy; it just has less water. There's only milk protein in there. So why is something that's 70% pure milk protein--a little bit more water, maybe a little bit more minerals--from milk more of a dairy product than one that has more milk protein? This is why the debate doesn't make sense.

To a large extent, one of the debates that the panel and the tribunal did not address is that all of these products were put in classification 0404, which deals with natural milk constituents. If protein is not a natural milk constituent, if butterfat is not a natural milk constituent, somebody will have to tell us what that particular section in 0404 is supposed to cover. Basically, what's left are minerals, water, and sugar. That's all you've got left--that's milk.

So at one point it doesn't make a lot of sense, the way they're approaching it. To accept that in a tariff line that talks about hide powders and peptones and other proteins--not milk, but other protein substances.... It makes more sense for pure milk protein to be there than in a section of natural milk constituents.

But that's my own view. I still haven't figured out why the tribunal came out with that decision.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

To follow up on this, if that decision wasn't made, then we wouldn't be having the problem. Is that right?

[Richard Doyle]

No, it would be subject to the 4,345 tonnes of import quota.

I know you'll have other witnesses, and maybe one other good question you need to ask is this. How were the 4,345 tonnes of historical imports determined back in 1995, when you had to look at the imports of a whole different range of dairy ingredients?

I know milk protein concentrate is part of how that 4,345 tonnes was determined. The issue of the intent of the government during the WTO negotiations on covering these milk protein concentrates in 0404 is not under debate here. Now that our own tribunal has said we have to consider the definition in a different way, it's a question of whether or not we're prepared to let go of a right that we negotiated back at the WTO.

There is a tariff. There is an access for MPCs under the dairy tariff, if you want, under chapter 4. If you leave it in chapter 35, there's absolutely no limit on volume and the tariff is 6.5%, zero in the case of the U.S. and NAFTA countries.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

We have to switch chapters. Is that right?

[Richard Doyle]

We should never have had a decision that forced us to switch chapters. We should have left it where we negotiated it.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Okay. Maybe that's the crux of our problem here.

Thank you very much.

[The Chair, Conservative, Gerry Ritz]

Thank you, Alex.

We'll move to Mr. Boshcoff, for five minutes.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Thank you, Mr. Chair.

When the dairy farmers of my riding come to me and when the dairy producers of my riding, company representatives, come to see me, both groups are mighty honest, hard-working, and sincere people, I believe.

This has been going on for quite some time, even before this January decision. The timeline of what seems to be a continuous crisis continues on, and it continues on now that the minister is saying we should all get together. How long before we actually get a long-term solution or a very short-term solution? How long can you hold on without a short-term solution?

Secondly, I'm going to ask this as a supplemental. Where can we get some philosophical conversions? Is there anything that the parties agree on at this stage? Where is there some common ground?

[Jacques Laforge]

I'll try to answer that, and maybe Richard will want to add to it.

To use article 28 today makes a lot of sense, but if we wait until three years from now, when de-escalation takes place, then it's worthless, because de-escalation will take place and the 10% compensation will do the same thing as the butter oil/sugar blends.

The timeline is such that as this working group is done, and the minister knows what we do on compensation standards and so on, then I'm pretty sure he'll make a decision on some of this stuff, because you might need legislation for a compensation standard and so on.

On import control, he'll know what we actually have agreed upon as a long-term vision, and then he'll know what kind of import control is best to use, once he has that judgment. You could have a compensation standard that you accept in pieces today, and it might not serve us well in the future if we don't mutually agree. I think that's the situation.

But remember that in order to do some of this stuff, you need legislation. Unless you tell me that legislation can be passed in a week, we have to address the other issues in the long term, and in the short term we have to complete the plan and take it from there.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

All right. It seems to me that for several things you mentioned, the government considers it strategically unsound--for example, the difference between the quid pro quo for the 10% increase in levels of imports. You stated that the federal government has expressed concern that bringing some action may not be applicable.

During the course of this debate over the past couple of years, it seems to me that for the public service, notwithstanding the political diversions, politically you seem to have all four parties solidly lined up behind you. What is the stumbling block for getting our public servants to line up for you philosophically, spiritually putting their hearts and souls into it, so that you can actually have confidence that they're representing your interests wherever these talks are?