Thank you very much, Mr. Chairman and members of the committee.
Thank you for the invitation to be here today.
The Canadian Sugar Institute is the national trade association representing Canada's refined sugar producers.
I would like to have been here with one of my members as well as one of the sugar beet producers, but it's harvest time in southern Alberta. Unfortunately, I am here on my own. I will try to reflect the interests as best I can.
The Canadian sugar industry was established in Canada before Confederation, principally to process raw cane sugar as an alternative to more expensive imports of refined sugar. That was obviously to serve a growing industrial base in Canada.
The industry includes both refined cane sugar and beet sugar produced from sugar beets in southern Alberta. The industry has evolved and rationalized in response to competitive pressure and is globally efficient and competitive by world standards. We have three cane refining operations in three provinces, in Vancouver, Toronto, and Montreal. We have a sugar beet processing plant in Taber, Alberta.
The rationale for the Canadian industry has not changed since its inception. Its principal function continues to be to supply high-quality refined sugar on a just-in-time basis to food processors. That's because 85% of our production is sold for further processing in Canada. That includes confectioners, bakers, breakfast and biscuit cereal manufacturers, as well as beverage and dairy processors. The remaining 15% is sold at the retail or food service level. Despite that small size, that segment of the market is extremely important to the profitability and viability of the industry. I'll get back to that in a few moments.
Bilateral negotiations with such large sugar-producing countries as Colombia and Guatemala in the southern hemisphere are difficult for our industry. This is because these negotiations create more import penetration in the Canadian market without providing any offsetting export opportunity. It's a complex story, largely because the sugar economies of the world are plagued by government intervention that supports markets and protects those markets from competition. As well, it creates incentives for exports, including export subsidies.
In Canada we're somewhat unique. We don't have domestic and export subsidies. Our refined sugar market is insulated but for a $30-per-tonne tariff, which is small by international standards, only 5% to 8%.
We in the Canadian sugar industry, including sugar beet producers, have appeared before this committee many times in relation to various bilateral and regional negotiations as well as the WTO Doha Round. Unfortunately, on the regional and bilateral side, these agreements tend to pose more of a threat than an opportunity for our industry.
Imports of refined sugar from Colombia, Guatemala, and Brazil tend to target that more profitable small segment, the 15% of our market in the retail and food service sector. Small-volume losses in this market impose a very significant economic impact on our profitability.
The government's own studies have shown the impact of this. Studies were done in the early lead-up to the Central America Four negotiations. The conclusion of those studies was that the cost would exceed $30 million in the short term and threaten the closure of at least one plant, most likely in western Canada. The threat to our operations is also significant, given the close link we have to food processing in Canada, such as confectionery manufacturing.
Bilateral agreements have real consequences for our industry. This isn't just a threat. This leads back to the Canada-U.S. FTA and the NAFTA. The problem is that these agreements created a situation of one-way free trade. We opened our market. Our tariff was reduced to zero with the United States, while the United States maintained its protective quotas.
Today we continue to face a small quota of 10,000 tonnes in the U.S. for refined beet sugar, which represents about 0.1% of the U.S. market of 10 million tonnes. Unlike many other agricultural commodities in Canada, we haven't realized the potential of exports to the United States.
The only potential for us to see that improvement is either through emergency relief--the U.S. is in somewhat short supply now because of an explosion at a refinery last year--or through, more importantly, multilateral negotiations. We really need the global pressure, the multilateral Doha approach, to change U.S. market access.
Unfortunately, we have to repeat our message many times. It is complex. We'd like to embrace freer trade, yet we are in a defensive position on the bilateral front.
I mentioned that this has had real consequences dating back to the implementation of the WTO, which the U.S. implemented in a way that actually reduced our access to the U.S. The consequence was that we closed the Manitoba sugar beet plant. Once a plant is closed, it doesn't come back. So the result of that was the loss of sugar beet production in Manitoba.
The Costa Rica FTA set a negative precedent for our industry, and we've been working very hard since that time to ensure that this model is not adopted in future trade agreements. This committee recognized that issue back in 2001, and in reporting the concerns of our industry it asked that they be taken into account in future agreements. The problem was the Costa Rica agreement created new opportunity for Costa Rica in Canada but again did not enable any offsetting export access. There was theoretical access created as “reciprocal quotas”, but unfortunately Rogers Sugar was unable to enter the Costa Rica market. In fact, the sugar industry in Costa Rica held the import licences for imports, so certainly they weren't interested in Canadian sugar. The cost to Rogers Sugar in the second year of that agreement was significant. They reported a $5 million loss in earnings tied to that competition.
Colombia is a much bigger threat to the Canadian market, a much bigger refined sugar producer. It's the fourth most efficient sugar producer in the world. Colombia is already selling refined sugar into the Canadian market at prices below our closest competitor, the United States. The only way our industry can fight that competition is to match those low prices or lose market share. That can't be sustained in the long term, so removing that tariff, particularly in the near term, would have a devastating impact on our industry. The two plants in western Canada are the most vulnerable, given that Colombia would tend to naturally export up to the west, so both the sugar beet factory and the Vancouver cane refinery would be more vulnerable.
These bilateral agreements are essentially a problem for our industry because the U.S. market remains closed. If we had that offsetting export opportunity, we would be less sensitive to imports from other countries. At the same time, these countries are frustrated by their lack of access to the U.S. market, so the various bilaterals that the U.S. has negotiated, such as the U.S.-Central America Free Trade Agreement, have provided only small increases in access for those countries while maintaining the over-quota tariffs in the order of 150%. So Canada becomes an attractive outlet for surplus sugar essentially because the U.S. market is closed.
We're doing everything we can to try to improve exports to the U.S. I mentioned there was a refinery explosion, and that is a very unfortunate situation to have to try to leverage to improve export opportunities. That's certainly not a long-term solution. We lost access for beet thick juice to the U.S. in the Farm Bill. I was just in Washington yesterday trying to appeal to officials at the USDA and USTR to find administrative mechanisms to facilitate entry of high-quality Canadian sugar when they have shortages. But even during this time of extraordinary need, there's little enthusiasm to address our concerns.
As this committee considers the question of the Canada-Colombia FTA, we also worry about the restart of the negotiations with the Central America Four, potentially with discussions with Brazil. We also have concerns about the fast-tracking of a Canada-EU negotiation. We just want to ensure that we're not a bargaining chip, that our tariff isn't traded off, and that these agreements recognize, for example, with respect to the EU, the massive subsidies, that 1.3 million tonnes of European subsidies are still permitted under the WTO, which represents the size of the Canadian market. This is another reason we spend significant time investing in work on the WTO trying to advance that agenda, because we see it as the only mechanism to address access to the U.S. as well as disparities in policies such as with the European Union.
So as we wait for the Doha Round to re-engage and for an eventual new global agreement that may eventually improve our export access to our natural market, which is the United States, we have no choice but to be preoccupied with Canada's bilateral agenda. That small $30-per-tonne tariff is extremely important to the industry, to the refiners and the sugar beet producers, so we will continue to encourage negotiators to protect that small tariff to buffer against the effects of regional and global distortions.
Thank you.
