Agriculture Committee on Nov. 7th, 2013

[The Chair, Conservative, Bev Shipley]

I'd like to call the meeting to order.

As you know, we're doing a study on the Canada-European Union trade agreement. This is meeting number 4, pursuant to Standing Order 108(2), a study of the Canada-European Union comprehensive economic trade agreement, CETA, and the effects of it on the Canadian agriculture sector.

We have Dairy Farmers of Canada and Glengarry Cheesemaking Inc. with us for the first hour. In the second hour we have Grain Growers of Canada and then a video conference from Vancouver, British Columbia, with an individual.

I want to welcome the witnesses we have with us. From Dairy Farmers of Canada we have Wally Smith, president, and Richard Doyle, executive director. From Glengarry Cheesemaking Inc., we have Margaret Peters Morris, president.

Welcome to each of you. You have 10 minutes to make opening statements.

Please go ahead.

[Wally Smith, President, Dairy Farmers of Canada]

Thank you, Mr. Chairman.

Dairy Farmers of Canada welcomes the opportunity to participate in the committee's study on the Canada-European comprehensive economic trade agreement and the effects of it on the Canadian agriculture sector.

Certainly l don't have to introduce DFC, as we have had the pleasure of appearing before this committee on a number of different occasions. However, l want to highlight that DFC leads generic dairy market development in Canada with an annual marketing budget of $80 million, which is collected from dairy farms across Canada.

The domestic cheese market has been a priority market segment for dairy farmers, with an annual strategic investment totalling $30 million dedicated to developing this market across Canada. This investment both sustains and grows the category. Studies have proven that without this yearly $30 million investment, market share would rapidly erode.

With your indulgence, Mr. Chair, I would like to repeat that. The domestic cheese market has been a priority market segment, with a yearly strategic investment totalling $30 million dedicated to developing this market across Canada. This investment sustains and grows the category. Studies have proven that without this yearly $30 million investment, market share would rapidly erode.

We are proud of the dairy sector contribution to the Canadian economy. We consider ourselves job sustainers, providing stability in the economy and supporting our rural economies. In fact, the Canadian dairy sector increased its number of Canadian jobs from 2009 to 2011 to just over 218,000. It should be noted that the Canadian dairy industry also contributes annually more than $3 billion in local, provincial, and federal taxes.

Along with fellow Canadian dairy farmers, I reacted strongly to the news of the excessive access that was given to the European Union, in particular in the fine cheese segment of the Canadian cheese market. The access granted to the EU will have major impacts on the Canadian dairy industry, much more significant than what is being reported. Allow me to explain.

The EU receives an additional tariff-free access of 18,500 tonnes—16,000 tonnes of “high-quality” cheeses, which is a term used by the EU; 1,700 tonnes of “industrial” cheeses; and 800 tonnes under the existing TRQ. This is over and above the already 13,471 tonnes the EU already has under the Canadian cheese TRQ.

This gives them an additional exclusive access of 32% of the current fine cheese market in Canada, over and above the existing generous access. The EU access will then total 31,971 tonnes, or 7.5% of the Canadian cheese market. Imports from all countries move from 5% to 9% of total Canadian cheese market.

The loss to dairy farmers is real. The additional access is equivalent to a 2.25% cut in farm quota, representing a farm income loss of nearly $150 million a year. To put that into perspective, the projected loss from the additional access given to the EU is the equivalent of the entire milk production of Nova Scotia.

In total, the estimated impact to dairy farmers and cheese makers is the loss of the domestic market valued at $300 million annually.

As you well know, supply management rests on three fundamental pillars: production management, predictable imports, and farm pricing. The ability to predict imports is critical considering that dairy farmers discipline production to ensure that domestic demand is met without creating unnecessary surpluses.

The new increased access to the EU into the Canadian cheese market and importation of MPIs, or milk protein isolates, will require predictable planning to ensure that they do not disrupt the domestic market planning and delivery of milk commitments to Canadian processing plants that employ Canadians in communities across our country.

While we have tabled a more detailed brief, l would like to address some of the anticipated negative impacts on the Canadian dairy sector as a result of the CETA deal. All of these could result in unpredictable imports into the Canadian dairy sector if left unattended.

First, the deal creates new categories of import quotas for industrial cheese versus “quality” cheese, which remains undefined.

Second, there will be a lack of predictability on what will be imported. Based on the current level of imports from the EU and the significant portion that is fine cheese, the impact, depending on the cheese that may come into the Canadian market, is anywhere from 15% to 30%.

Third, the removal of the application to the EU of the over-quota tariff on milk protein isolate is eliminating the action taken by the federal government in 2007 to control the imports of such products through article XVIII.

The protection to be afforded by the EU on geographical indicators and their dairy products should be available within this country. That is effective enforcement and protection of our own standard of identity for dairy products, which is now non-existent.

I would also like to put into context the notion that Canada now has unfettered access to the EU cheese market. In the early 2000s, a WTO panel ruled that any export from Canada sold below domestic price is considered subsidized. Canada has also granted the EU GIs on five popular cheese varieties, further disadvantaging any Canadian exports to the EU. This puts Canadian milk and dairy products at a price disadvantage.

Mr. Chair, DFC is trying to work with the government to ensure that there is no impact on Canadian dairy farmers and cheese makers. In spite of all the negative emotion amongst Canadian farmers resulting from the CETA agreement, l, as president, along with the DFC leadership, am intent on engaging in constructive dialogue with government to mitigate the negative impact to our industry.

In conclusion, l ask that you take into consideration these potential negative impacts on the Canadian dairy sector, a sector that with three reinforced pillars can remain strong, stable, and good for Canada.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you.

Mr. Doyle, do you have a comment?

Then I'd like to turn it over to Margaret Morris for 10 minutes.

[Margaret Peters Morris, President, Glengarry Cheesemaking Inc.]

Hello, and good afternoon. Thank you for inviting me to the committee.

My name is Margaret Peters Morris, and I'm the president of Glengarry Cheesemaking and Glengarry Fine Cheese in Lancaster, Ontario. We are makers of fine cheese, artisan handcrafted product, mostly from cow milk. We also work with some other species' milk.

Our new plant commenced operations in October of 2008. We make multiple varieties of hard, semi-firm, and soft cheese out of cow milk, water buffalo milk, and goat milk.

We are known in the industry for being leaders for being successful in this industry since we began production. Just recently, on September 13, we won a Global cheese award. We were grand champion of this particular competition. I think the timing of us winning that and the CETA were almost two in one: I think that's what brought attention to our company, based on our success.

Our company is also closely associated with European suppliers, as our business is also involved in supplying artisan cheese markets and farmstead cheese makers with equipment and production technologies. We have a really good perspective on the dairy business as it sits in Europe and North America, because our connections are within these boundaries.

Artisan cheese production and specialty yogourts are, from what we see, the only sectors in dairy supply management that have shown growth within the past ten years. Artisan cheese production is a sector that can still continue to grow within a supply managed system, as allocation is not restricted and is provided for Ontario, for our plant, up to three million litres once innovation cheeses that have been given allocation under the DDPIP program are expired. That's exactly where we sit right now. This number can go up to five million litres per plant under further programs. So our restriction for milk is not an issue.

To continue to enable new firms to commence and succeed within the framework of supply management, the artisan cheese domestic market during the coming years will require expansion to further markets internationally, as domestic supply could potentially reach saturation. When this will happen I cannot say, but there is a risk.

In the fall of 2011, during the height of the economic recession—that's when we felt it—artisan cheese sales dropped by 20% to 25%, depending on which plant you were. The drop lasted for a period of six to eight months, and it took a year to rebuild it.

If international markets were available to artisan cheese producers, the additional growth potential could possibly enhance this sector by ten times the current levels. That's my perspective.

The majority of artisan producers transform between 300,000 and 500,000 litres of cow milk per annum. With international trade, these producers could increase to five million litres, providing they have the quality. As mentioned in a previous comment, the milk supply can be realized by our current supply management system. This can therefore solidify more than 50% growth, which is derived from current domestic consumption. It takes an artisan plant up to ten years to develop their market under supply management. It's not easy.

Specialty cheeses and vintage Canadian cheddars can realize the potential to increase growth with these international markets. Pre-1970, Canada enjoyed some serious exports for quality cheddars. If programs were available, I know those exports could be restored.

I'll give you a bit of background on my experience in the workforce. I come from a dairy farm. I worked in industry and trade for seven years, in agricultural commodity trading. Now I work independently in business and niche marketing. I think all my perspective is just based on my experience of where I've been in the industry over the years.

What I can say is that in a small way, we have recently brought international attention to the reputation of Canadian cheese, having the goal in our plant to equal or better our European counterparts. Our plant has achieved this goal, with a prestigious award at the Global cheese competition, being crowned supreme champion for one of our cheeses—the Lankaaster aged. We sent two entries, and the second one took a bronze medal in the blue cheese category. I wanted to see if we could compete against the British, and I think we did.

Our cheeses and others in Canada have won numerous prestigious awards, are internationally recognized, and can certainly be marketed all over the world. These cheeses are not price-sensitive, which also enables marketing exporters to have more opportunity to engage in niche markets that purchase finer-quality goods.

The cheeses we manufacture at Glengarry Fine Cheese are Canadian originals. I think it's important that we protect that. They are born from the DDPIP program of the Canadian Dairy Commission. Under supply management, only innovative cheeses and domestic dairy products are given the green light for production; however, Canada has to have its own appellation d'origine to identify our work here. The DDPIP could perhaps lay the groundwork to develop this identity to ready our exports for the future and implementation of CETA.

Another mentionable criterion to ready our processors is to improve our interprovincial trade, as well as licensing criteria for the smaller processors. This has been an impediment to trade even within the framework of our own country. The supply management has enabled us and other specialty plants to manufacture very high-quality cheese, as milk quality in Canada is excellent. If we're given the tools to engage in export programs, my feeling is that Canada will succeed.

What I can comment on is that the artisan cheese sector, albeit not a large one, enables on-farm processors to realize growth for cheese within our supply-managed system. The prices for these cheeses are higher than standard cheddars and mass-produced commodity table cheeses used by consumers. Artisan cheeses are perceived as fine products, and consumers have supported the range of products offered by Canadian processors by buying more each year.

I believe our innovation and Canadian provenance on specialty, artisan, and fine cheese made in Canada will have merit on the international scene. As we have proven, we can make this high quality, and we have farms to back it up with the milk supply. Collectively, cheese factories can achieve and realize some of these export goals.

I've given an example here of what Stilton artisan-origin cheese producers have done in the U.K. They transform 100 million litres of milk into Stilton-branded cheese that is marketed all over the world. This relates to a volume of 1.5 million kilograms and is a remarkable feat from 30-plus family farms. That would be equivalent to where I'm from in the three united counties of Stormont, Dundas, and Glengarry. I don't know if we could do something like that.

This can be a Canadian goal and eventually a program for Canadian artisan cheese makers to achieve for a Canadian-branded product. It will take major cooperation between the provinces and from our supply-managed agencies, federally and provincially.

We're ready to take a step. The infrastructure is in place, there is major recognition for our cheese, and branding has already started with some of the programs of Dairy Farmers of Canada. The efforts to sell cheese in our country will make it easy on the international scene, as we've developed the identifiable blue cow. I think that's a really good program.

Canada is not a big country in dairy on the global scene. CETA will give Canadian processors further opportunity. Yes, there will be concessions; however, we need the tools to make it happen. A start with CETA will open the doors for more business. The trade-off with Europe on a small import quantity of European cheese will not adversely affect us. That is my opinion. Trade will move our dairy industry forward into the global scene where we need to be.

Canadian dairy farmers are always complaining that their markets are not growing. This is what I have heard at producer meetings year in and year out, all my life. They have nowhere else to grow. This opportunity needs to be capitalized on as soon as possible.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much to the witnesses.

Thank you, Ms. Morris.

We will now go into five-minute rounds, starting with Madame Brosseau.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

I will ask my questions in French, so it might be a good idea for our witnesses to put their headphones on.

Thank you for joining us and for your testimony, which is very important for us.

I represent the riding—

[The Chair, Conservative, Bev Shipley]

We won't take your time away, but the translation is not working.

Madame Brosseau, could you start over, please?

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

I represent the riding of Berthier—Maskinongé, in Quebec. The Mauricie has around 1,200 dairy farmers and the Lanaudière region has about 1,700. As a result, this agreement is very important for Canada and Quebec. I recognize that it is important to have good discussions to see both sides of the issue.

Fine cheese production in Quebec plays a major role and is growing fast because we make almost 60% of all fine cheeses.

Mr. Smith, can you tell me how the agreement will affect Quebec and Ontario producers?

[Wally Smith]

The impact on producers would be felt equally right across the country. We pool our production, and that production is then allocated to the various plants that process the various fine cheeses.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Do you think producers will have more opportunities to export their fine cheeses to Europe?

[Wally Smith]

That's a very perplexing question for me.

I have indicated in my opening statement that with the GI protection afforded to the five specialty cheeses in Europe, that's an obstacle. I have talked about the fact that we don't have a level playing field. We have both the CAP payments and decoupled payments that are paid directly to farmers, no matter what their production.

As I indicated, we also have suffered two losses in subsidization at the WTO panel. We are deemed to be subsidized because of our supply-managed system, even though we receive no direct dollars from government in any way. The spin that's put around this so called “unfettered access” is a little dizzying for me, although as part of my goodwill toward the government, in trying to explore opportunities we will certainly try to review and see whether or not there is some opportunity somewhere.

But I certainly would appreciate any kind of assistance from those who are spreading that message to indicate how I can, as a dairy farmer in Canada, take full advantage, profitably, from this market access.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

After the agreement in principle was announced, one minister talked about compensation and another also said that there would be compensation.

So far, has anyone contacted you to tell you how producers will be compensated?

[Wally Smith]

We certainly have had discussions. To date, we're not sure exactly what the deliverables look like, but certainly we are engaged in constructive dialogue with government on this matter and that offer they've made to us.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Ms. Morris, will your company export any of its cheeses to Europe?

[Margaret Peters Morris]

We don't do it right now, but I'm interested.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

It could be good news for you?

[Margaret Peters Morris]

I see it as an opportunity.

If anybody wants to buy something of high quality, as I said, I don't believe pricing pressure is going to be applied to that product. We're not talking about thousands of tonnes here; we're talking about maybe thousands of kilograms, but there is that opportunity.

There are programs already for any small producer, I was informed. Consolidation of product from our country to some other country, like the United States, for one, is possible.

I'm on a jury of cheese judging in Quebec. As I have experienced all through the years I've been judging, the cheeses from Quebec can compete with Europe. The Europeans would buy those cheeses. The Americans want them because they are way better than anything you can get in the States. When you go into another market, you realize how good you are. That's one thing.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I have another quick question for you.

How will this agreement benefit Canadian consumers?

[The Chair, Conservative, Bev Shipley]

Could we have a short answer, please?

[Margaret Peters Morris]

I think the gain is that they can realize that our products are better than imported products. We will set ourselves apart.

[The Chair, Conservative, Bev Shipley]

Thank you, Ms. Brosseau.

We'll move to Mr. Lemieux.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you.

Thanks to our witnesses for being here.

Mr. Smith, let me just ask you, how big is the domestic cheese market here in Canada in terms of tonnage?

[Wally Smith]

I'm told that it's 425,000 tonnes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

I have numbers here that say the cheese market has been growing by 6,000 tonnes to 8,000 tonnes a year, on average, over the last number of years. Would that be accurate? Ballpark?

[Wally Smith]

Ballpark, retail only as a category.