Industry Committee on Feb. 24th, 2020

[Luc Boivin, Owner, Fromagerie Boivin]

Thank you, Madam Chair.

My name is Luc Boivin, and I am the president and CEO of Fromagerie Boivin. On behalf of our company, I thank you for inviting me today to discuss the bill to implement the Canada–United States–Mexico Agreement, or CUSMA for short, as well as the impact it will have on my business and the dairy industry overall.

I will be drawing your attention to the harmful effects CUSMA and the other trade agreements will have on my company and my region. Then, I'll recommend mitigation measures the government can take to help the industry as it tries to adapt to the new market landscape it now faces as a result of CUSMA and the other trade deals.

Fromagerie Boivin is a fourth-generation family business, founded by my great-grandmother in 1939. Back then, the cheese dairy was used to process the surplus milk from the family farm and other farms in the area. It produced aged cheddar for export markets. With the acquisition of Fromagerie Lemaire, the Boivin group now processes 40 million litres of milk to produce 4.3 million kilograms of cheese. The group employs 340 full-time workers. We produce fresh, unripened cheese under the Boivin-Lemaire label, as well as the Amooza cheese snacks, which are available across the country thanks to a deal we signed with a major Canadian company.

In addition, we operate the only drying facility in eastern Quebec, where we dry whey from Fromagerie Boivin, as well as Fromagerie Perron and Fromagerie Saint-Fidèle, in Charlevoix, which we also have shares in. Fromagerie Saint-Fidèle processes 10 million litres of milk for Canadian Swiss cheese and employs 45 people in the regional county municipality of Charlevoix.

Fromagerie Boivin is committed to continuing its investments and exploring new markets. Unfortunately, the uncertainty created by government decisions is a major hindrance to our investment plans. The current slump in Canada's dairy processing industry has had a disproportionate impact on remote regions, particularly where I'm from, Saguenay—Lac-Saint-Jean. The current system is conducive, not to milk sheds in remote regions for dairy processing, but to consumers.

When the trade deals are fully implemented, the market access granted under CUSMA and the others will be unprecedented, accounting for 18% of the Canadian market.

It would be naïve to think that dairy market access of 18% will simply mean lost volume for Canadian dairy processors. It is important to note that, unlike dairy farmers, Canadian dairy processors do not have access to regulated pricing when selling their products. Dairy processors sell their products in a marketplace rife with fierce competition, not just among dairy processors, but also among food processors.

The level of Canadian market access—I repeat, 18%—granted under the various trade deals signed by the Canadian government reduces profit margins and expected volumes for dairy processors. Those government decisions are behind the current slump, shifting the focus these days to disinvestment, closures and consolidation in the dairy processing sector.

Let's be clear here. There is a contradiction between proclaiming that you support supply management and, then, turning around and suffocating the dairy processing sector. Supply management can't be sustainable without a viable production and processing sector. It's often said that food processing hinges on a thriving agricultural sector, but I would also point out that, without a thriving food processing sector, agricultural production could not survive.

Let's talk about the $1.75-billion compensation package that was announced for dairy farmers. When I heard about it, I was very happy for my dairy farming friends, who are not just my suppliers, but also friends I play hockey with. However, more than six months later, nothing has been announced for dairy processors. That's an insult.

If the federal government wants to mitigate the negative impact of these trade deals, it needs to announce a compensation program for dairy processors as soon as possible. The time for empty promises is over. Now is the time for action. Such a program should have a component specially designed for small and medium-size businesses in Canada's dairy processing sector, businesses like ours, to meet our unique needs.

That means having access not just to technical expertise, but also to funding to help the dairy industry deal with this consolidation. The industry was sacrificed three times on the altar of international trade, and many will go out of business as a result. Closures have already been announced. Let's at least help them die with dignity, so to speak. That's what the government committed to doing.

The market access granted has led to the closure of 16 Canadian companies the same size as ours.

Now I will turn to solutions that go beyond financial assistance.

We need to seriously explore export opportunities, particularly for cheese curds, a product we, in Quebec, take great pride in. We invented it, and there could be opportunities to sell it abroad, but breaking into new markets is very tough.

Other mitigation measures include allocating import permits, commonly known as tariff quotas, to dairy processors. This is my heartfelt plea: stop issuing import permits to our customers, meaning, retailers and distributors. Does the government realize the impact decisions like that have on our markets? When the government issues import permits to distributors and retailers, it transfers product volumes in a sector developed by dairy processors through its investments in our customers. It makes no business sense. It completely dismantles the market, decimating our margins and creating an unfavourable investment environment.

Once again, I would ask the government to consider the unique needs of small and medium-size businesses in the dairy processing sector when it grants import permits.

In conclusion, this is what I'd like you to take away from my presentation.

A sustainable supply management system is not possible without a viable production and processing sector. The dairy products covered by the trade agreements are value-added products, such as cheese, yogourt and fluid milk, which generate the most revenue under the supply management price structure. Even more disturbing is the fact that supply management is attacking our sovereignty by accepting limits on exports. Before you know it, we'll be pouring huge quantities of skim milk down the drain.

I urge all the parties to remember our recommendations when they proclaim their support for supply management. The time for talk is over. The government must now put its money where its mouth is. Dairy processors need a compensation package and a program under which they are allocated import permits. The time for action is now.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Boivin.

We will now go to Mr. Letendre and Mr. Dumontier. I'm not sure who will be presenting, but you have 10 minutes.

[Bruno Letendre, Chair, Les Producteurs de lait du Québec]

Thank you, Madam Chair.

My name is Bruno Letendre, and I am the chair of Les Producteurs de lait du Québec, as well as a member of the Dairy Farmers of Canada board of directors. Thank you for the opportunity to address the committee today.

The dairy sector produces a stable supply of nutritious dairy products for Canadian consumers. As one of the top two agricultural sectors in seven out of 10 provinces, Canada's dairy sector is a driver of economic growth, and a leader in innovation and sustainability.

With over 10,000 dairy farms and 500 processors, the dairy industry has been a bedrock of Canada's rural communities for generations. In 2015, the sector's economic contributions amounted to nearly $20 billion towards Canada's GDP and $3.8 billion in tax revenues. In addition, the dairy sector sustains approximately 221,000 full-time jobs across the country.

In Quebec, some 5,000 dairy farms produce 3.37 billion litres of milk, generating a farm gate value of more than $2.6 billion. Dairy farmers and processors are responsible for 83,000 direct, indirect and induced jobs in Quebec and contribute $6.2 billion to GDP. Lastly, they generate $1.3 billion in tax revenue.

Canada's three most recent trade agreements were made on the backs of Canadian dairy farmers. CUSMA is but the latest example. The outcome of CUSMA negotiations goes far beyond dairy market access concessions, which alone represent 3.9% of Canada's 2017 milk production, in addition to the existing imports under the World Trade Organization, plus access already granted under the Canada– European Union Comprehensive Economic and Trade Agreement, or CETA, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP. CETA and the CPTPP represent 1.4% and 3.1% of the Canadian market, respectively. By 2024, total imports will be the equivalent of 18% of Canadian milk production.

CUSMA also requires consultation with the U.S. on any changes to the administration of Canada's dairy supply management system. A trade deal that forces a Canadian industry to consult with its direct competitor in another country over any administrative changes it might make domestically in the future sets a dangerous precedent, and in doing so, Canada is giving up part of its sovereignty.

The impacts of the recent trade agreements have created uncertainty, especially among young farmers, and could have a dramatic impact on investments in agricultural exports and processing. The agreements may also lead to job losses, with ripple effects in communities across the country. These impacts go beyond economic considerations; displacing Canadian dairy to grant increased market access creates additional uncertainty at a time when the mental health of farmers and rural Canadians continues to be a concern.

The Prime Minister has repeatedly committed to full and fair compensation to the dairy sector for the cumulative impacts of CETA, the CPTPP and CUSMA.

That commitment was reiterated in a motion unanimously adopted by the House of Commons in October 2018. It reads as follows:

That the House call on the government to implement a program that provides financial compensation to egg, poultry and dairy farmers for all the losses they sustain due to the breaches to the supply management system in CETA, the CPTPP and the USMCA, and that it do so before asking parliamentarians to vote on the USMCA.

On August 16, 2019, the federal government announced a $2-billion compensation envelope to mitigate the impacts of CETA and the CPTPP. This does not include CUSMA. Of the announced $2 billion, $250 million was provided previously under the dairy farming investment program. The remaining $1.75 billion will be paid out over eight years. The dairy direct payment program, launched in the fall of 2019, is expected to pay out $345 million to dairy farmers by the program end date of March 31, 2020. The remaining commitment of $1.4 billion needs to be confirmed as direct payments and be paid out over the remaining seven years.

Canadian dairy farmers, who are all impacted by the recent trade agreements and are best positioned to know their own needs, have indicated that compensation should come in the form of direct payments. This is consistent with farmers' recommendations from the mitigation working group established by the federal government after the signing of CUSMA and the government's commitment to listen to farmers on how compensation should be paid.

The announced compensation package for the access granted in CETA and the CPTPP was a first step in this regard. However, in order to fulfill its commitment, the government will also need to deliver on its promise of full and fair compensation for the impacts of CUSMA.

The Canadian government has repeatedly stated that it wants a vibrant, strong and growing dairy sector that creates jobs and fosters investments. Compensation is needed to restore confidence within the sector. The compensation will provide stability for dairy farmers to move forward. Our dairy farms aren't relocating.

The government's assistance will be spent and reinvested in the Canadian economy. It will also help ensure that farmers can continue to maintain investments at current levels in the development and adoption of innovative on-farm best practices and sustainable technology. A viable and sustainable dairy industry is key to the ongoing provision of nutritious and healthy dairy products at an affordable cost to Canadians.

Instead of compensation in exchange for concessions granted in recent trade agreements, Canadian dairy farmers would have preferred to have seen no dairy concessions. Therefore, the Dairy Farmers of Canada recommend that:

1- The Canadian government continue to provide dairy farmers, in the form of direct payments, the remaining seven years of full and fair compensation to mitigate the impacts of CETA and CPTPP, and that the total amount be included within the 2020 main estimates.

2- The Canadian government fulfill its commitment to fully and fairly compensate dairy farmers to mitigate the impacts of CUSMA, as per the recommendations made by the mitigation working group established by the government following the announcement of CUSMA.

Let's move on to export charges.

CUSMA also contains a provision imposing export charges over a certain threshold on certain dairy products, setting a dangerous precedent that could affect other sectors in future trade deals.

CUSMA requires any exports of skim milk powder, milk protein concentrate and infant formula, beyond a specified amount, to face an export charge that effectively equates to a worldwide cap on the export of Canadian dairy products. As a result, these products won't be competitive in relation to the products of other global players.

The impact of the export charges must be mitigated. This could be done through administrative agreements with the United States, even after the ratification of CUSMA. These caps would set a dangerous precedent for any Canadian product that may be exported, since the caps would limit Canada's competitiveness in world markets.

It's also important to note that the impacts of recent trade agreements aren't limited to dairy farmers. The agreements also affect dairy processors, which are key to the long-term sustainability of the sector, as well as to other supply managed sectors.

Therefore, the Dairy Farmers of Canada recommend that:

3- The Canadian government negotiate an administrative agreement with the American government to mitigate the impact of the export charges contained in CUSMA, which are triggered after a threshold on certain dairy products, such as milk protein concentrates, skim milk powder and infant formula, has been reached.

It's important to note that, should CUSMA enter into force before August 1, the beginning of the dairy year, the export thresholds for skim milk powder, milk protein concentrate and infant formula will see a dramatic decline of nearly 35% after only a few months. This would be another blow to the dairy sector, which wouldn't be able to benefit from a transition period. It's also important to consider that the impacts of recent trade agreements aren’t limited to dairy farmers.

Therefore, the Dairy Farmers of Canada recommend that:

4- The government establish a proper transition period for the dairy industry to adapt to the export thresholds, by ensuring that CUSMA doesn't enter into force until after August 1, 2020.

Unfortunately, the Canada Border Services Agency, or CBSA, doesn't have the training, tools or resources to effectively monitor what's coming in to Canada. These agencies must guard porous borders, which will become even more problematic as imports continue to increase.

Therefore, the Dairy Farmers of Canada recommend that:

6- Increased resources, tools and training be provided to CBSA to improve its effectiveness in dealing with border issues in a timely and transparent manner, particularly given the additional level of imports granted under recent trade agreements.

In conclusion, Canadian dairy farmers still maintain that any future trade agreement mustn't include market access concessions for the dairy sector.

The Dairy Farmers of Canada understand the importance of international trade for the broader Canadian economy. They're in no way opposed to Canada exploring or entering into new trade agreements, provided that such agreements don't negatively impact the dairy sector any further. With the support of the federal government, Canadian dairy farmers can continue to build on their successes, while contributing to the health and well-being of Canadians.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Letendre.

I now invite Professor Geist to present his testimony.

Thank you.

[Dr. Michael Geist, Canada Research Chair in Internet and E-Commerce Law, Faculty of Law, University of Ottawa, As an Individual]

Thank you very much. Good morning.

As you heard, my name is Michael Geist. I'm a law professor at the University of Ottawa, where I hold the Canada research chair in Internet and e-commerce law, and I'm a member of the Centre for Law, Technology and Society. My areas of specialty include digital policy, intellectual property, privacy and the Internet. I appear today in a personal capacity representing only my own views.

As you know, the typical approach before a committee on bill study is to examine the bill, identify provisions to support and areas for amendment. In this case, at least for my areas, what really matters is not what is in the bill, but what's not. The most notable issues from a digital policy perspective, which obviously have significant implications for issues addressed by this committee, won't be found in Bill C-4, by and large. Rather, they are found in CUSMA itself and they typically limit Canada's policy options for future policy reforms rather than require immediate legislative action.

This raises a significant challenge, since the flawed aspects of the deal can't be fixed in C-4. Rather they require a change in a trade agreement that is largely presented as a take it or leave it deal.

I'd like to briefly discuss four issues along these lines, some of which could create costs that run into the hundreds of millions of dollars for Canada: copyright term extension, the cultural exemption, privacy and data protection and Internet platform liability.

I'll start with copyright term extension, and I know you heard about that earlier today. The IP provisions in the agreement raise some significant concerns, but none more so than the requirement to extend the term of copyright from the international standard of life of the author plus 50 years to life plus 70. The additional 20 years is a reform that Canada rightly resisted for decades under both Liberal and Conservative governments. By caving on the issue, the agreement represents a major windfall that could run into the hundreds of millions of dollars for rights holders and creates the need to recalibrate Canadian copyright law to restore the balance; for example, perhaps addressing some of the issues you heard earlier on digital locks.

The independent data on copyright term extension is unequivocal. It creates less access to works, higher costs for consumers and no incentive for new creativity. In the words of professor Paul Heald, one of the leading researchers on the effects of term extension, “it's a tax on consumers” with no obligations to benefit the public.

This committee's copyright review conducted an extensive review into the issue and recommended establishing a registration requirement to obtain the additional 20 years of protection, to mitigate against the disadvantages of term extension and increase overall transparency of the copyright system.

Term extension doesn't appear in C-4 because the government negotiated a 30-month transition period to address the issue. I think the government has rightly not rushed into term extension and we should be taking full advantage of the transition period to follow this committee's recommendation to establish a registration requirement for the additional 20 years. That would allow rights holders who want it to get the additional protection they're looking for, while also ensuring that many other works enter into the public domain after their term of protection expires after life plus 50 years.

Second, I'll turn to the cultural exemption. Much like copyright term extension, there is no reference to the cultural exemption in Bill C-4. That's because the exemption doesn't require legislative reform. However, I'd argue that the exemption is one of the most poorly understood aspects of this agreement, at least in the areas I focus on.

Consistent with government claims, the cultural exemption covers a broad range of sectors with a near complete exemption for Canada. While the government has emphasized its broad scope, it rarely speaks of what the U.S. demanded in return, namely the right to levy retaliatory measures of equivalent commercial effect where Canada relies on the exemption. The retaliatory measures provision means the U.S. is entitled to levy tariffs or other measures that have an equivalent commercial effect in response to Canadian policies that would otherwise violate CUSMA, if not for the cultural exemption.

Since the provision does not limit the response to the cultural sector, the U.S. can be expected to target sensitive areas of the Canadian economy such as the dairy sector in order to discourage its use. That was the U.S. strategy recently when responding to a French plan to levy a new digital tax, which led to plans or threats to levy $2.4 billion U.S. in tariffs against French goods such as wine, cheese and handbags.

How could this play out in a Canadian context? The recent broadcasting and telecommunications legislative review panel report—the so-called Yale report—contains what I would view as many ill-advised recommendations on regulating the Internet and online news services such as news aggregators.

Should the government adopt the broadcast panel recommendations on content, the U.S. would have a strong case permitting retaliation with measures of equivalent commercial effect. Panel proposals that may violate the new trade agreement include requirements to pay levies to fund Canadian content without full access to the same funding mechanisms enjoyed by Canadian firms, licensing requirements for Internet services that may violate NAFTA standards, and discoverability requirements that limit the manner in which information is conveyed on websites and services.

I emphasize that I think this is bad policy that should be rejected. However, for the purposes of this review, note that the policy flexibility to enact reforms in this area is severely limited by the agreement, which establishes the possibility of retaliatory tariffs in the hundreds of millions of dollars.

Third, I'll address the digital charter and privacy. Limitations on Canadian policy also arise in the context of privacy and data protection. Unlike the cultural exemption, which permits violations of the treaty subject to those retaliatory tariffs, on the issue of privacy, Canada would run the risk of simply being offside its commitment under CUSMA.

Once again, there is no provision on point in C-4—there's no need for one—because CUSMA prohibits certain privacy-related provisions, rather than requiring them. For example—and I know this came up in the previous panel—CUSMA includes a provision restricting data localization, which refers to measures requiring data be stored within Canada. It features a more restrictive provision than that found in the CPTPP. There are some general exceptions, but the Canadian government will be restricted in its ability to establish localization requirements under the agreement.

Those implications I think are far-reaching. Consider the wide range of policy issues with data right now: Canada's digital charter and its proposed privacy and data reforms, concerns about data sovereignty, AI-related issues and fears about the competitiveness of Canadian businesses in relation to Canadian data.

The Canadian government itself has established localization requirements as part of its cloud computing policy. Indeed, there is a recognition that data localization may be needed in some circumstances, yet under this agreement, Canada has limited its ability to regulate. The same is true on the issue of data transfers, as CUSMA also limits the ability to restrict them. As we enter into a discussion with the European Union about the adequacy of Canadian privacy laws, there are concerns that a data transfer provision could leave Canada between a proverbial privacy rock and a hard place, with the EU demanding certain restrictions and CUSMA prohibiting them.

Finally, I'll address Internet platform liability. A similar dynamic arises in the context of Internet platform liability, which raises the question of what responsibility lies with Internet companies for third-party content on their sites. The issue captures large players such as Google and Facebook, but frankly, almost anyone that offers user comments or content. There's no provision in C-4 on this either. Once again, the reason is that CUSMA restricts policy in the area, rather than requiring a new provision.

CUSMA includes a legal safe harbour for Internet intermediaries and platforms for content posted by their users. The rule is designed to provide Internet platforms with immunity from liability, both for the removal of content, as well as for the failure to remove content. Contrary to some claims, that does not mean that everything goes: sites and services are still subject to court orders and the enforcement of criminal law. Further, intellectual property rights enforcement is also exempted. However, some have now argued that the responsibility of Internet intermediaries should go further, with potential liability for failure to act, even in cases of harmful, albeit legal, content. I think that issue raises important freedom of expression concerns and questions about how we balance freedom of expression and speech with protection from harm.

The issue with C-4 and CUSMA is not to debate where Canada should land. The broadcast panel recommended liability for online harms, even if the content is legal. Others, including me, would argue that liability should rest with illegal content, but to create liability for legal content is to render Internet companies judge and jury over what remains online, thereby further empowering the large Internet companies, as well as limiting competition and freedom of speech.

The key point here is that there is a policy debate to be had, and under CUSMA, Canada has already committed to a position, one that restricts our ability to establish liability for third-party content.

I look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Professor.

We'll now begin with our six-minute round of questions. Our first speaker is Mrs. Gray.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you, Madam Chair.

Thank you for being here, Mr. Geist. I have followed some of your podcasts; I find them interesting.

I have a couple of quick questions. You started off by talking about innovation and competitiveness with this extension and how it could potentially restrict them. I'm wondering if you could talk a bit more about that and how it impacts the industry, and also how it impacts public organizations such as libraries and educational institutions in accessing information in the future.

[Dr. Michael Geist]

Thanks for that question, and for the podcast plug as well.

[Voices]

Oh, oh!

[Dr. Michael Geist]

In fact, I would note that this week's podcast, which dropped just a couple of hours ago, features an interview with Paul Heald, the expert on copyright term extension. We specifically talked about his research in the area and the costs and consequences of term extension. He's done some really interesting work that looked at things like Amazon data to try to identify the impact of access to works when they're in copyright and once they fall into the public domain. What he found in fact was that works that are out of print but still in copyright become much tougher to access. It hurts both authors and the public, whereas once works fall into the public domain, they become more widely accessible. He looked at Wikipedia data to try to put a value on the value of the public domain by noting the use of pictures that are in the public domain and what their value would be. He noted that it runs into the hundreds of millions of dollars.

In direct answer to your question, we now have multiple studies that point to the enormous costs that come from term extensions. What that would do in this case is literally stop our public domain from expanding for two decades—for really an entire generation. What that means from an education perspective at a time when, if you go into our schools, especially at elementary and high school levels, you find that the public domain works still play a critically important role.... In fact, the Ontario Book Publishers Organization conducted a study on the role of Canadian works in our schools. What they found was that the public domain still constitutes an important part of what we are accessing and using in our classrooms. If we extend the term of copyright, we increase costs and we make those works ultimately less accessible and more costly for education.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Great, thank you for that.

I also want to touch base on registration requirement. You did mention it briefly. It seems there are a number of different beliefs about this and whether it's good or not. Could you explain the analysis as to why that would be appropriate for the industry to move forward with.

[Dr. Michael Geist]

As I mentioned, it is something that was recommended by this committee as part of the copyright review. I think what it seeks to do is strike a balance between what we now face as an obligation under the treaty.... The committee also noted that it would not extend the term of copyright, but for an obligation under one of these treaties, and now we face that.

What registration would do is essentially say that we will meet the international standard of the Berne Convention of life plus 50, and that Berne Convention does not allow you to put forward registration requirements. That's for the standard of the life plus 50. For that additional 20 years, that effectively can fall outside that registration requirement found in the Berne Convention, so we can therefore say that we are at life plus 50 plus 20. We will give the option to extend the term of copyright so, if you have witnesses and others who say they think they would benefit from term extension from that extra 20 years, they can get it.

However, for the overwhelming majority of works, people don't have those same kinds of concerns, and they are oftentimes happy for it to enter into the public domain. Bear in mind that we're talking about the life of the author and now 50 years after they've passed away. Those would fall into the public domain without that extension. I think it would put Canada in the position of really being a model for how to more effectively deal with term extension, and into a better job of striking the balance between, on the one hand, providing protection for those who want it while, on the other hand, doing what we can to preserve the harm that comes from term extension.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you.

I'm going to split my time since we only have one round of questions.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much.

I have a couple of questions for the dairy farmers and producers and a quick comment on the precedent regarding the sovereignty we've given up in regard to milk powder, protein powder and infant formula, and also the question of the export threshold. Were there any discussions on that? Does the agreement follow any of the international trade rules you've seen? Was there any consultation with you?

First of all, perhaps I could ask Mr. Letendre if you would speak to that—and I only have about a minute left for both of you.

[Bruno Letendre]

Thank you for your question.

No, we were not consulted on these items. I'll give you an example. The cow produces a product that the consumer doesn't always need, so we always have a surplus. By agreeing to limit that, the government has attacked the sovereignty of the country. Dairy processors could add their comments, because they have these products to process and they are unable to sell them.

So we have not been consulted, and this is an obstacle to our sovereignty and the development of the dairy industry.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you.

Mr. Boivin.

[Luc Boivin]

I agree with that. I am sharing with you the latest consumption data from the Canadian Dairy Commission, or CDC.

Fluid milk sales in Canada this year are down 1.8% and yogurt sales are down 3%. Cheese sales increased by 1.5%, but this includes the measures related to the tariff rate quota, i.e. imported cheese. Sales of Canadian cheese are therefore down. It is the increased demand for cream and butter that creates the need in the market, which means that there is no outlet for non-fat solids. That drives the price down at the farm gate. Under the CDC's current mechanism, a force majeure is declared at that time and the price of class 1, 2 and 3 products is increased.

[The Chair, Liberal, Sherry Romanado]

I'm sorry, Mr. Boivin, your time is up.

Mr. Lemire, you have the floor.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

We can clearly see that this new free trade agreement is a step backwards for you, compared to the old NAFTA, and that it hurts your bottom line.

Do you think that what can be done indirectly about managing surplus protein, milk powder and all that is a concrete step towards the end of supply management?

[Luc Boivin]

That's what they say. There have been so many blows to supply management that the model is falling apart. We cannot ask cheese plants, people who make yogurt and who produce fluid milk to continue to pay a higher price for their milk in order to maintain the status quo on the farm.

Since the last agreements, the government has hurt our lucrative Canadian cheese markets. Now we are feeling the effects of falling prices. I will take the example of Fromagerie St-Fidèle. Swiss cheese is imported from Europe at a cost of $5.50 per kilogram once it arrives in Montreal, while the cost of our milk at the plant is $9 per kilogram. How do you want us to be competitive in a market that is not growing? This market is stagnant, despite some small breakthroughs for butter and cream. On the whole, we are facing unfair competition and this is affecting our profit margins. We are losing markets and our sales are declining. This is what we are seeing.

Profit margins in the Canadian dairy processing sector are collapsing. This is hurting our competitiveness and the sustainability of our businesses. You have sacrificed the dairy industry and there will be negative repercussions. You are Quebec MPs; listen to us. Quebec will be the most affected province. Our industry processes 80% of Canada's yogurt, and 65% of Canada's fine cheeses are made in Quebec. There will be repercussions in all regions of Quebec.

The supply management system ensures that we deliver milk FOB to the plants. This will mainly affect plants located in dairy basins where there are not many consumers to encourage consolidation of the industry towards the markets, and therefore towards the consumer basins in the Toronto and Montreal regions.

On the whole, it won't be good. In the early 2000s, I experienced the closure of the Lactel Group in my region. Plants were closed and many jobs were lost in Quebec regions. In my opinion, there will be big repercussions, but the government is not reacting at all. We are proposing solutions, but nothing is happening.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you.

I will now address Mr. Dumontier and Mr. Letendre.

Gentlemen, as you mentioned, May 1 is a very important date for you. There will be a three-month period left before CUSMA comes into effect on August 1.

You said tons of surplus protein could be exported. What will be the practical impact? Currently, how many tonnes are you exporting?

[François Dumontier, Director, Communications, Public Affairs and Trade Union Life, Les Producteurs de lait du Québec]

Today we export about 80,000 tonnes and this could increase to 100,000 tonnes. We've done a multi-year modelling and submitted it to the government. This will continue for the reasons Mr. Boivin mentioned. The increase in the consumption of fatty products necessarily leads to an increase in the structural surplus of non-fat solids.

You mentioned that the ratification date is important. Indeed, the implementation will take place in two phases: a first ceiling of 55,000 tonnes and a second one of 35,000 tonnes. The agreement provides that these ceilings will be calculated in terms of the dairy year, which begins in August. If the agreement is ratified before then, we will automatically move from the first ceiling to the second, which is 35,000 tonnes, in August. This will accelerate the impact that this ceiling will have on us.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

For the benefit of my colleagues, I'd like you to confirm my understanding. If Canada signs the agreement before May 1 or even a month before that, then you're going to be in a race against time because you're going to have to move up to 55,000 tonnes of product in a very short period of time, in two or three months. Is that right?

However, if the agreement is signed after May 1, you would have at least one dairy year to dispose of 55,000 tonnes before being subject to a 35,000-tonne ceiling. You would then go from 80,000 tonnes to 35,000 tonnes. Is that right?

[François Dumontier]

This agreement provided for a transition period that set a higher ceiling for the first year and then a lower ceiling for the second year. So, if the agreement is ratified and comes into force before the second year of the dairy sector, that is, before August, the transition period will last less than a month. We will move immediately to the second phase and the lower ceiling.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

With respect to the offset program, my question can be directed to both groups.

We're talking about full and fair compensation. Would you have preferred a cash payment mechanism, a protection mechanism against competition, or both?

Mr. Boivin, do you have any comments?