Agriculture Committee on June 1st, 2006

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

As I understand it, the government's failure to act in controlling milk protein imports means that the government accepts there can be only a third of the farms surviving, as long as the volume of milk produced remains the same. I find it very worrying to hear Mr. Price saying the situation is stable because the volume has remained the same.

The government has to understand that dairy farms and milk production constitute wealth, generate economic activity in the region, create jobs and help make their regions vibrant and dynamic. I find it an issue of great concern when I see you so unworried about the drop in the number of dairy farms in Quebec and Canada. Frankly, I think processors have very good lobbyists to succeed in making the government delay in passing legislation or taking concrete action to protect our dairy farms. I am not generally paranoid, but I believe the processors will probably create a product that will make it possible to artificially reduce the amount of milk protein. So even if the percentage changes, when the product goes over the border their profit margin will increase even more.

Mr. Price, can you assure me that our government will not encourage dairy farms in Quebec and Canada to close?

[Richard Tudor Price]

Thank you, Mr. Chairman.

One of the principles of these supply managed sectors is the amount of quota in the system is managed by the stakeholders to equate to the domestic requirements for the product. When you look at the national quota for industrial milk, for example—and I was talking about how it grew after the Uruguay Round and has slipped back a little in the last couple of years—what that's reflecting is the disappearance of dairy products, in effect the consumption of dairy products by Canadians. The system is geared to respond to consumer demand. So the national quota reflects what consumers are purchasing and consuming.

In terms of the consolidation of dairy farms, this is a world-wide trend. If you look at any major dairy-producing country across the world you'll see there has been a tendency for greater specialization. A consolidation in the number of farms has been continuing for 50 years in Canada. At one time there were a quarter of a million or more dairy farms; there are now 16,000. That's a trend that is difficult to see changing.

That is facilitated by the producer organizations themselves in that they allow producers who leave the sector to sell their quota to other producers. That tends to lead to larger operations, and that is implied in decisions made by individual provincial marketing boards. It's not a trend the government controls, and it is one most people would regard as hard to change.

[The Chair, Conservative, Gerry Ritz]

Thank you.

André.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Thank you, Mr. Chairman.

That is not how we want to operate in Quebec. We have very specific goals, and one of them is keeping the number of farms we have.

Earlier on, we were talking about imports, which have remained stable at some 6,000 tonnes. It should be understood that we were in the middle of a challenge at the Canadian International Trade Tribunal. In January 2006, the CITT rendered its final decision. The facts are these: we know that we have lost the battle for butter oil imports in ice cream. At present, Coaticook ice cream is almost the only one to be made with real cream. I invite you to taste it.

As for increased imports, here are some facts: casein imports increased by 718% between 1998 and 2005; caseinate imports increased by 336% between 1998 and 2005. With respect to butter oil, we have unfortunately lost the battle, as I said earlier. For dairy farmers, losses are assessed at some $250 million. They could reach $500 million if we continue on the same path. Am I pulling these figures out of nowhere, or do you agree with them?

[Graham Barr]

The 6,000-tonne figure is for the imports under the tariff line in chapter 4. It's important to note that there are other products beyond milk protein concentrates within that tariff line. Another point there, of course, is that the tariff line is limited by a tariff rate quota. That is the reason for its stability overall at those times. There's a cap. There's a tariff rate quota for those products.

With regard to going forward, as you might know, the government recently took action to ensure that milk protein concentrates with a concentration of 85% or below are clearly captured under the TRQ in chapter 4.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Bellavance.

Mr. Anderson, go ahead for five minutes, please.

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

Coming back to the subject of the industrial milk quota, I'm wondering what allowance is made for the quantity of milk that's displaced by the imports of MPCs. Is there a part of the formula that accounts for that?

[Richard Tudor Price]

No, Mr. Chairman. The quota is set on a butter fat basis, and any displacement by MPCs that takes place, for example, in the manufacture of cheese, affects the solids, not the fats side of the equation. Therefore, the way the system is currently operated, displacement by MPCs would not affect the quota. It would affect, however, the skim milk powder surplus.

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

Mr. Barr talked earlier about the United States having a 90% content requirement and how it wouldn't help us out if we raised it, because it has no practical impact. Your rationale seemed to be that it wouldn't have an impact because the United States has no tariff restrictions on MPCs. My impression was that if we were to raise the content requirement from 85% to 90% in Canada, it would have an impact here because we do have those restrictions, and that would make a difference in our country. Is that accurate or not?

[Graham Barr]

Earlier, when I was talking about no practical impact, I was referring to within the United States, because the tariff applied to imports with milk protein concentrates is either identical or not substantially different between chapter 4 and chapter 35. I wasn't commenting on the potential significance of making the necessary domestic legislative change to clarify that chapter 4 has a 90% cut-off.

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

Okay. I'd like to come back to that change. I think someone talked about the fact that these tariff rates can't be raised without legislation. Is that correct? Perhaps I wasn't paying close enough attention. In order to change that from 85% to 90%, what's the procedure?

[Graham Barr]

My colleague from the Department of Finance will comment specifically on the procedure. I'd also like to make the point that in general, a principle of the WTO is that most, if not all, tariff lines are “bound”, which means that they're bound in schedules, and it's very difficult to raise them. An advantage of that principle is that our own trading partners also can't be raising tariffs that would affect our export-oriented sectors as well.

So there is a very rigorous process, both at the WTO and within nations to go forth and change those tariffs or to establish TRQs. That's the reason behind it: to provide predictability for our exporters so they know that the tariff they have to deal with, if in fact there is one, is the tariff which will be there for the longer-term.

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

The question, then, is whether the procedure to raise that content requirement within a tariff line is the same as the one to raise the tariff line.

[Graham Barr]

For the answer to that specific question, I'll turn to the Department of Finance.

[Dean Beyea]

Yes, if the effect you're having by shifting products, by using an explanation to ship products from a lower tariff to a higher tariff, is the raising of the tariff, legislation would be required to do that. There's no regulatory means to do that within the powers of the customs tariffs.

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

It doesn't matter if you're bringing that into line with another country's requirements or tariff lines; it's just that it's the same procedure?

[Dean Beyea]

No, it was clearly classified as in Canada; if you went beyond that, you would need a legislative amendment to do that.

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

Okay.

Mr. Ritz had asked a question a little bit earlier about controlling the importation of these products. I wasn't entirely comforted by what I heard. I'm just wondering how you control the importation of MPC products that may fall outside the requirements we have in place. You suggested that you sample once in a while and the rest of the time you trust the documentation. Is that the procedure? Or is it that once in a while you don't sample?

[Darwin Satherstrom]

Thank you for the question.

The practice is to conduct periodic verifications of importers, and in doing so, to investigate the documents with respect to their importations. I'm talking generally across the board. We will assure ourselves that in fact the imported product was properly classified at the time of importation. If it's not properly classified, we can ask them to reassess their importation. If that results in a change in the rate of duty that's applicable to the import product, they would be required to pay that amount to the government.

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

So it's these sporadic spot checks, then, that would guarantee, in your mind, that the classification is correct?

[Darwin Satherstrom]

The implication for an importer who does not have a proper classification would be that they would have to pay an adjusted rate of duty. Depending on the difference in the rate of duty applicable between two tariff classifications, they would have to decide what the consequences would be of paying that higher rate.

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

What is the risk of being caught?

[Darwin Satherstrom]

We like to think that if we do a verification, we can do a full forensic verification to determine that the goods are in fact properly classified. We will ask for all the documentation necessary to assure ourselves that the goods were properly classified.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Anderson.

Just to follow up on that point, before I move to Mr. Atamanenko, have you ever done a forensic audit? Has that ever been called for?

[Darwin Satherstrom]

Let me put it in these terms. We have someone go to the company, ask for their import documents, and review their documentation.