Thank you, Mr. Chair.
Members of Parliament, members of the House of Commons Standing Committee on Agriculture and Agri-Food, good afternoon.
Thank you for giving us the opportunity to comment on the important issue of imported dairy proteins. We would like to talk about Agropur cooperative, Canada's supply management system in the international context, and more specifically our point of view on dairy proteins and diafiltered milk imported from the United States.
Agropur is a dairy cooperative owned by 3,367 dairy producers in Ontario, Nova Scotia, New Brunswick, Quebec and Newfoundland and Labrador. We have annual sales totalling nearly $6 billion. Our 28 plants in 8 provinces process 30% of the milk produced in Canada. Our 6,000 Canadian employees and 5,000 dairy producer families contribute to the economic vitality of many communities across the country.
Over the past few years, we have invested more than $1 billion in our Canadian facilities and the acquisition of Canadian companies, while merging three co-ops in order to better meet our customers' needs. Following a number of acquisitions in the United States, our American operations now generate 44% of our sales.
In terms of supply management, 2015 was a year of mobilization at Agropur. We played an important role as an ambassador for our industry throughout the year. During the Trans-Pacific Partnership negotiations, we energetically defended the supply management system.
We believe that the leadership and mobilization of all stakeholders who believe in the supply management system gave the federal government the support it needed to be able to defend supply management against other countries that wanted it to be entirely dismantled. Against this background, we widely circulated an analysis of the potential impacts of ending supply management in the dairy industry produced by Boston Consulting Group. That study is available on Agropur's website. If you like, we could also send you a copy. That very thorough, professional and credible study advances a different point of view than the Conference Board of Canada and similar organizations.
The BCG study shows that dairy production continues to receive major financial support from governments or to be regulated in the major dairy-producing countries. The study also shows that no country has managed to make a success of dairy industry deregulation without massive government intervention.
Let us take the example of Australia. Since its government decided to deregulate the dairy industry at the beginning of the 2000s, Australia's dairy production has fallen 15% and its share of export markets has declined every year. Farm gate prices have rarely been so low, and yet Australian consumers aren't paying less for dairy products than are Canadian consumers.
In New Zealand, the government intervened at the beginning of the 2000s to help create and maintain a processing and exporting monopoly owned by dairy producers. Therefore, producers share in the benefits of almost all dairy processing.
This year, that organization has had to allocate significant funds to financing producers who were unable to meet their financial obligations. The New Zealand government is still intervening on a massive scale to support its dairy industry by making it possible for a quasi-monopoly to process and export the country's milk and dairy products, for the benefit of producers.
In Europe, the dairy industry has been deregulated since the spring of 2015, and prices for milk and dairy products are at record lows. The dairy crisis in Europe is forcing some countries to get out their checkbooks in order to help producers, who find themselves in a fast-deteriorating financial position, and the European Union has allocated 500 million euros in emergency funding.
It should also be borne in mind that our neighbour is the world's largest producer of cow's milk. In the U.S., the 135 largest farms produce as much as Canada's entire dairy industry. The largest American dairy processing plants are five to six times bigger than the largest Canadian plants. Our industry is no match for this giant.
Canada has a unique dairy system that has stood the test of time. It provides dairy farmers with enough income to cover their costs and processors with a stable environment. It helps maintain the social fabric and supports the economic development of our communities, while supplying consumers with high-quality products at competitive prices. Therefore, we believe it is warranted and indeed more important than ever for all stakeholders to work to support supply management. In the recent trade agreements, the federal government has succeeded in maintaining high tariffs at the border, a key requirement for preserving our dairy system.
We will now discuss the third point—ingredients and diafiltered milk.
While supply management has been protected in the international agreements, it is now up to us to safeguard it domestically. The federal government took some important steps in 2007-2008 by establishing cheese manufacturing standards that limit the quantity of ingredients that can be used. However, recent imports of diafiltered milk from the U.S. pose a new threat to supply management. This product was developed for the sole purpose of circumventing Canadian border controls and Canadian cheese standards. These proteins are being used to replace Canadian skim milk in the making of cheese and yogourt, and there are no technical limitations on their use in the manufacturing process.
Canadian skim milk that is not needed to make cheese or yogourt is dried to make skim milk powder for export or sold for animal feed. As Mr. Gould mentioned, it has also been thrown away in recent months. Since drying capacity is no longer sufficient, given massive imports of diafiltered milk, skim milk unfortunately had to be dumped in 2015. Large amounts could be thrown away again in spring 2016 if nothing is done.
The deliberate confusion must end. At the border, this product is considered an ingredient by the Canada Border Services Agency, allowing it to enter the country duty free. On the other hand, when it comes to yogourt and cheese manufacturing, it counts as milk for the Canadian Food Inspection Agency. That means its use is not limited by the cheese and yogourt manufacturing standards.
Therefore, the federal government has an important role to play. Diafiltered milk should be treated as an ingredient in the cheese and yogourt composition standards and should therefore have to respect the letter and the spirit of the standards. As well, verification rules need to be strengthened to ensure compliance with the standards.
Minister MacAuley's announcement at the Dairy Farmers of Canada annual meeting in early February is a step in the right direction. We offer the government our full cooperation in strengthening, clarifying and enforcing the rules. That is also in our interest as a processor. Our priority is to make sure all processors are operating on a level playing field and playing by the same rules.
The federal government must keep its promise and do something about dairy ingredients such as diafiltered milk that circumvent import rules and limit the use of such ingredients in Canadian manufacturing.
This is a priority issue for Agropur, its members and all Canadian dairy producers.
At the same time, the industry is currently negotiating the details of a national ingredients strategy that will be a win-win for both producers and processors. We must negotiate conditions that will promote the production of dairy ingredients in Canada at competitive prices and capitalize on our Canadian skim milk. We also have to capitalize on our structural surpluses for the benefit of producers, while supplying processors with ingredients for their domestic manufacturing.
The ingredients strategy presents many challenges but also opportunities. As my colleagues said earlier, we are heartened by recent developments. The negotiations are confidential, but we need the federal government's support. The government must take clear action regarding diafiltered milk, and that will help us finalize a national industry agreement.
An ingredients strategy, accompanied by clear action by the federal government to strengthen the standards, is the only solution. It is what producers, dairy cooperatives and government must promote and defend if an effective supply management system is to be maintained and strengthened.
Thank you.