Thank you, Mr. Chairman and members of Parliament.
I'm here as the president of the Canadian Sugar Institute. We are the trade association representing all manufacturers of refined sugar in Canada. The sugar is produced from imported raw cane sugar, largely from developing countries, increasingly from Central America, as well as from domestic sugar beets produced in Alberta.
Today's industry has plants in four provinces in Canada: Quebec, Ontario, Alberta, and British Columbia. We've rationalized in the face of competing pressures, and we are extremely important to Canada's food processing sector. Sugar is a fundamental underpinning to the competitiveness of particularly Canada's confectionery, bakery, and biscuit manufacturing industries.
Canada is unique in that we don't protect our sugar producers. We have a very modest tariff of $30 per tonne, and that's essentially what I'm here to talk about today. This is a small tariff by international standards; it was 8% when the study was done and is actually 6% by today's world prices. This is a small tariff by international standards, but it's a very important tariff given the trade imbalance internationally in sugar.
The problem for the Canadian sugar industry is that trade agreements have not addressed sugar in any meaningful way. As you are probably aware from discussions at the WTO, certain agricultural products are considered sensitive and may escape even WTO liberalization. Well, sugar is very high on that list.
As a result, the Canadian industry has not achieved any improvement in export market access through the NAFTA, through the WTO, or through regional agreements. It is because countries like the United States and the European Union continue to protect producers at the expense of imports.
In fact, our access to the U.S. market for refined sugar decreased rather than improved with each trade agreement. It's not to say that we don't support the movement towards freer trade. The issue for sugar is that it must move in a multilateral context because regional agreements are not addressing the fundamental distortions, particularly when they exclude the United States.
The problem for us is that any increased access through a reduction in our small 6% tariff erodes our market. We either lose sales and close down plants or we lose earnings and are ultimately not cost-effective. We have no ability to offset the damage through exports. We are rather unique in the regional arena as well as in the WTO arena.
The Central American region is particularly problematic for us because they're surplus sugar producers. We welcome that sugar because we import a lot of their raw sugar and it's all duty free. They are in fact very good suppliers. We have a very good working relationship with the sugar producers in that region.
In fact, they are not actively pressing to remove Canada's refined tariff. The incremental benefit to sugar producers in Central America is very small, but those producers won't drive imports of refined sugar. It will be trading houses and other importers.
The problem for us is that the volume of refined sugar is a potential threat to our whole western sugar region. It dwarfs Canadian sugar beet production and will have a particular impact on our retail grocery segment.
It's very important for the sugar industry to have a large volume going through our plants, and we get that through sales to industrial users. Eighty-five percent of what is sold in Canada is for further confectionery, bakery, biscuit, and so on, processing. But the other 15% is the more profitable segment that keeps the whole alive, and it's the area that refined imports will target.
It's not to say that we're not already competing with those imports. We are competing. The 6% tariff is not prohibitive, yet its removal is like a welcome doormat.
I'd like to say a few words about the Costa Rica example. As members may be aware, we were very concerned about the model that this agreement would set for the Central America trade negotiations, so we are here today. We wanted to share the facts with the committee.
As you can see on page 3, Costa Rica has taken some advantage of their duty-free access to Canada. They started in western Canada, they moved to eastern Canada, and they captured national accounts.
The fact is, the volumes are relatively small at 5,000 tonnes, but the impact can be very large.
At the bottom of that page, you can see what has happened to Rogers Sugar, which owns the facilities in British Colombia and Alberta. There has been a significant decline in their gross margin—their gross earnings, effectively—and a very large part of that can be directly related to the new competitive activity of Costa Rica.
Costa Rica is a small producer relative to Central America; they produce about 400,000 tonnes of sugar and only 20,000 tonnes of refined sugar. The Central American countries are the third largest exporter in Latin America, exporting close to 2 millions tonnes of sugar—much more than the Canadian market—and have sufficient refined sugar supply to erode the western market.
Regarding the next page, the problem for us is that we're already competing actively with refined sugar imports from many countries. Investment in sugar-containing product manufacturing is levelling off, and we're starting to feel the hurt from the loss of market share in refined sugar. Once again, we have nowhere else to go; Canada is our market. That is our market. Until there is liberalization of export markets at the global level, we can only experience harm, and we're forced into a defensive posture when it comes to regional free trade agreements.
At the bottom of the slide, I'd just like to take a moment to speak to the CAFTA agreement. No one should be under the illusion that the United States offered any meaningful access to Central American sugar producers.
As you can see from this slide, on a market share basis, and even on a tonnage basis, these countries are already exporting much more sugar to Canada than to the United States.
So the U.S. increased its share of the market to 2% through the Central America Free Trade Agreement and maintains very, very prohibitive duties above that level.
These producers, who are suppliers of raw sugar and compete with us in our refined market, already enjoy 20% of the Canadian market.
As for the last slide, members of the committee, I just want to bring you back to the negotiations around the Costa Rica agreement and to remind you that the subcommittee on international trade at the time made a recommendation, which went to the House, that the special interests and concerns of our sector be considered very carefully in subsequent trade negotiations.
What we're asking for, indeed, is that very serious work be done on economic benefits and costs, and that sugar not be used as a bargaining chip in this negotiation.
Thank you.