International Trade Committee on Feb. 25th, 2014

[Louis Arsenault, President, Association des fromagers artisans du Québec]

Thank you very much, Mr. Chair. Thank you for the opportunity to express myself in French. My presentation today will be a quick rundown of the situation of artisanal cheesemakers.

I am the president of the Regroupement des producteurs et transformateurs du Québec, an association made up of approximately 40 companies in Quebec. Those companies are spread out across Quebec. Our province has three dairy production sectors: cow's milk, goat's milk and sheep's milk.

Of course, the current situation is of great concern to us. We fully understand how important such an agreement is. However, this agreement is of great concern to the agricultural sector and to our processing sector in particular.

We prepared a little summary on what Europe is currently doing. We can see that the 27 European countries produce and process around 8 billion kg of cheese. This production mainly comes from France, Italy and Germany. If we look at France, we see that it basically exports 760 million kg of cheese all over the world. That number converted into tonnes is 760,000. That's basically about 2.8 billion euros.

The math is quite simple. At the end of the day, the average price for French exports around the world is 4.17 euros, or around CAN$7.25, based on the exchange rate. For producers, processors and some semi-industrial producers in Quebec, that amount does not even cover the price of milk.

You can see why we then agreed that we had to try and understand how those people managed to have such a low price. The fact is that they have various subsidy programs, for both cheese production and cheese factories. Subsidies are even granted to companies like Lactalis, Bongrain and European artisanal cheese factories.

In fact, by digging a little deeper and doing a bit more research, we found that, in some sectors, such as the sheep industry or the goat industry, subsidy programs cover up to 115% of the gross profits generated by companies. That says it all. If they did not receive support from the government, those companies would not survive. It's sort of the same thing for the dairy cow sector. I think the latest figures I have seen were around 76%. We in Canada get 17,500 tonnes, 16,000 of which are fine cheeses.

Take goat's milk for example. We, including the industrial sector, process 10 million litres annually, 80% of which are processed into cheese; that's 8 million litres. The average yield is 10%, which gives 800,000 tonnes. Ten percent of the 16,000 tonnes of fine cheeses from Europe is twice the volume of Canada's goat's milk sector. So it's completely different. In that sense, the competition is completely and clearly unfair because of the subsidy programs they have.

We know that Quebec and Ontario are the provinces that import and consume most of that cheese. That is especially true for Quebec because I think 58% or 60% of the cheese is sold there. Inevitably, those two provinces will definitely be affected.

Of course, the situation is alarming for us. As I said earlier, Quebec's production and processing sector is made up of around 40 companies. As a result, over 200 jobs have been created across Quebec. And over 250 types of cheese are being produced. Our sector has grown a great deal over the past 20 years.

We are working hard to develop the market in Ontario and western Canada. You will agree that the fleur de lys may not always be popular, but, when it comes to cheese stalls in Ontario and the rest of Canada, the Quebec fleur de lys is very popular because of the quality of the product. However, with the cheeses that will keep coming to Canada, it will surely be replaced with the French fleur de lys.

Many people will say that various bodies will work hard to promote Canadian and Quebec products to help them keep their market share and receive the exposure they deserve. However, there will be price gaps. Even though consumers like Canadian and Quebec products, they will do the logical thing. I think we can all understand that.

I must admit that, at our last general meeting, people were very worried. What really worries them is that they will find themselves in a position similar to the current position of French companies. You are able to see all the problems they are experiencing, despite the financial support provided to this sector in France.

I actually have a very interesting story to tell you. Some of our members have European roots. Two of them came to Canada to have the freedom to manage their own company without having to rely on the government. Today, the dynamics are changing. Unfortunately, the fact is that we don't have a choice. We will need to be subsidized and supported by the government. That is not what we wanted and hoped for. However, the dynamics have changed significantly.

Do you have any questions? If not, I can add things as we go. I shortened my presentation because the copy I submitted was from a presentation I gave before the Syndicat des producteurs de chèvres du Québec. You can see a brief overview of the amount of cheese processed in Quebec and Canada. The gaps are significant. Would you like me to specifically elaborate on certain issues?

[The Vice-Chair, NDP, Don Davies]

Mr. Arsenault, you have another two minutes or so, if you'd like.

Your submission to us was in French only, so we're unable to distribute it because it is not translated. We will have it translated and distributed to committee members later. There will be, of course, questions from the committee once you and Mr. McInerney are finished.

You can take another two minutes, if you'd like, or you can end now.

[Louis Arsenault]

Okay.

I can just list some figures that need to be considered. Canada produces roughly 400 million kg of cheese. Of that, 215 million kg come from Quebec. Quebec produces 32 million kg of fine cheese. The Association des fromagers artisans du Québec produces 800,000 kg of cheese.

The gap is significant when compared to the 8 billion kg that we initially had with Europe. With the massive entry into Canada of European cheeses over which we have no control and since we have no idea how the quotas will be distributed, how do you expect the cheese market to be competitive?

I talked to them about it yesterday and I know that this is still a mystery and a concern for all the producers, processors and members of the food industry. Because of those various variables, we still don't know how those products will get to market. We know that quota holders who are required to import cheese will buy cheeses that are more profitable in terms of added value. Cheeses that have the added value are inevitably fine chesses, the cheeses we produce.

[The Vice-Chair, NDP, Don Davies]

Merci, Monsieur Arsenault.

Mr. McInerney, the floor is yours for 10 minutes, sir.

[Gary McInerney, Vice-President, Sales and Marketing, GreenField Speciality Alcohols Inc.]

Mr. Chairman, on behalf of GreenField Speciality Alcohols, thank you for the opportunity to present our views on the Canada-EU comprehensive economic and trade agreement.

Let me begin by telling you a bit about GreenField.

We are the leading specialty alcohol producer in Canada, with a focus on corn-based bulk industrial alcohol, packaged alcohol, and fuel ethanol, as well as associated agricultural co-products.

In addition to being the largest producer of fuel ethanol in Canada, we are also the market leader in the production of high-quality industrial alcohol for both domestic and export markets. As well, we are a major producer of grain neutral spirits for the beverage alcohol industry in Canada, the United States, and selected markets around the world.

Our company also manufactures and sells co-products from the alcohol process, including distillers grains, corn oil, and carbon dioxide.

GreenField owns and operates four state-of-the-art manufacturing plants in Ontario and Quebec. All plants are strategically located close to the corn supply. We process more than 60 million bushels of Canadian corn each year. These facilities produce a combined annual output of 650 million litres per year, of which 125 million litres is industrial beverage-grade alcohol and the balance is fuel ethanol.

We are known as one of the top producers of specialty alcohols in North America. Our specialty alcohols are found in a wide range of consumer applications and products. You can find it in paints, solvents, inks, detergents, repellants, pharmaceuticals, disinfectants, and in the food and flavour preparation industry. As well, of course, it is very common as grain neutral spirits used in the production of vodkas and alcoholic coolers and for beverage fortification.

Through its membership within the Canadian Association of Importers and Exporters, GreenField has been actively following the progress of CETA. We are encouraged that the European Union and Canada signed an agreement in principle on CETA last October and look forward to CETA coming into effect. We support the idea of free and open trade between Canada and Europe.

In particular, we have no reservations about the removal of the Canadian tariffs on European alcohol, fuel ethanol, or related co-products coming into Canada. We believe that we are low-cost producers within the global marketplace and are fully prepared to compete fairly on price, quality, and service.

To date, GreenField has had limited export activity into Europe, principally due to the existence of both tariff and non-tariff barriers. The removal of the EU duties on our product—non-denatured alcohol is currently, in euros, at 0.19 per litre and denatured alcohol at 0.11 per litre—would be a welcome first step in advancing our ability to access the EU markets. However, it should be noted that the elimination or the phase-out of the EU tariffs will not in itself lead to any meaningful level of GreenField exports into the EU. Certain non-tariff barriers will need to be addressed and overcome before we truly see open trade of our products.

By way of example, EU Regulations 1829/2003 and 1830/2003 are regulations that deal with genetically modified foods and ingredients. These regulations would apply to any of our alcohol products that might find their way into the food industry. Any products that are derived from a genetically modified organism, such as hybrid corn, cannot be imported into the EU without EU approval, which then requires traceability and mandatory labelling of GMOs also on the final consumer products. Alcohol for human consumption that is derived from genetically modified corn would be considered to be food produced from GMOs.

To make matters more complicated, the responsibility for enforcement of EU regulations for imported GMOs falls on the member states within the EU, each of which has its own food and safety and regulatory bodies.

In our case, the majority of the corn grown in Ontario and Quebec is derived from hybrids and traits that are not presently approved in the EU.

Even though they are perfectly safe and approved for use in food and feed in Canada, the United States, and Asia, there is just no practical way we can operate our plants by trying to source and certify the use of identity-preserved, EU-approved corn hybrids. This disparity between the GMO regulations will continue to act as a non-tariff barrier for many of our alcohols that we produce here in Canada.

Another example of a non-tariff barrier is the European regulatory initiative called registration, evaluation, authorization, and restrictions of chemicals, better known as REACH. A number of our denatured industrial alcohol products are used as chemical intermediaries and require the addition of approved denaturants to meet end-use specifications. Any denatured alcohol products that we wish to export to the EU would be required to be registered under REACH. Complying with the registration and labelling and protocols contemplated under REACH will be extraordinarily complicated and expensive, so you can see that we will continue to have challenges accessing the EU markets unless there is some harmonization of regulations between Canada and the EU.

We are encouraged that the CETA framework contemplates the establishment of a working group to examine biotech issues, such as GMO, with the objective of achieving such harmonization.

Before I conclude my remarks, I would like to comment on the prospects for exportation of fuel ethanol to the EU. Presently, all of our fuel ethanol production is sold in Canada to Canadian oil companies that blend ethanol to comply with federal and provincial renewable fuel standards. Canada is short of fuel ethanol and is a major importer of ethanol from the United States, importing about 1.2 billion litres of its total three billion litres consumed last year. With this structural supply imbalance, it is unlikely that we would be selling significant quantities of fuel ethanol into the EU in the near future.

On the other hand, the prevailing price for ethanol in the EU is higher than in North America, reflecting higher costs of production due to economies of scale, higher feedstock costs, and higher energy input costs. Access to this premium EU market could prove to be important in the future. Currently the EU imports about 20% of its 5% mandated fuel ethanol requirements. There is support in Europe to increase the renewable content in their transportation fuels to 10%, and some European auto manufacturers are recommending a 20% ethanol blended standard by 2025. Long term, there is a future market for Canadian-produced biofuels like ethanol in the EU markets.

Members of the committee, I would like to conclude my remarks by commending the government on bringing the Canadian-European trade deal forward. Through our membership of the Canadian Association of Importers and Exporters and the Canadian Renewable Fuels Association, we at GreenField Speciality Alcohols look forward to staying informed of the progress of CETA and to providing our input.

Thank you.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. McInerney.

Mr. Morin, go ahead. You have seven minutes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Mr. Arsenault, let's talk about the production of artisanal fine cheeses in Quebec. You will agree that it's not really something new. I personally consume fine cheeses and I think, over the past 20 or 25 years, the production has developed a great deal. We have high-quality products that are as good as the best imported cheeses. Renowned cheese factories have been around for several generations.

What is the difference between the potential impact of imported European fine cheeses on local artisanal cheese factories—which are fairly recent—and the potential impact of those imports on the bigger and more established cheese factories?

[Louis Arsenault]

I will focus on the sector I am most familiar with, the artisanal sector. Of course, the impact will vary from one company to another, but the fact remains that most of the 40 companies rely heavily on marketing outside our respective regions. So we must inevitably compete in major markets, including Quebec City, Montreal, Trois-Rivières and Sherbrooke. Most retailers, be they specialty cheese shops or big ones, will certainly take some of our products, but they will also take a lot of imported cheeses, including industrial productions, which use a dairy ingredient in many so-called fine cheeses. Clearly, we are faced with stiff competition on that front.

The fact remains that the impact is significant for industrial cheese producers as well, especially since some of them are quota holders. They are required to bring in those cheeses even if the imported cheeses are directly competing with the products they process. There used to be a limit when supply management protected us and ensured that Canadian and Quebec products were in the majority on our markets.

This new situation will inevitably bring about changes, including a large amount of European fine cheeses. And it is not always easy for consumers to differentiate between foreign and domestic products. This will definitely have a major impact on them. Despite some products having a dairy ingredient, the fact that European producers are currently able to make cheeses at such a low cost makes the situation very challenging for us.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

To some extent, we are already feeling the impact here. For instance, you can buy a good Brie cheese in Montreal for $2.99.

[Louis Arsenault]

You are absolutely right. That is a very good point. At the end of the day, we are already feeling the impact. However, as I was saying earlier, there was a limit until now. Shopkeepers currently use up 40% to 50% of their stalls for European cheeses. With the products that are going to enter the market, the situation will be dreadful no doubt. The market will be flooded.

In addition, the numbers from Statistics Canada show that, although those cheeses are primarily consumed in Quebec, they are being increasingly consumed in Ontario. In a word, we were already feeling the impact, but we were able to adjust and compete. However, things will change drastically. I think it is important to add that, with the current negotiations between Europe and the United States, the Americans will certainly ask that the existing bilateral agreement, NAFTA, be reopened so that they can export the same amount of cheese to Canada.

In other words, Canada's current supply management and the sustainability of our businesses, of course, will be called into question.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Wasn't the assistance that the government talked about when everyone was asking about the potential impact of European exports supposed to help you offset this impact?

Artisanal producers can grow on the local market only through personal investments and years of work.

[Louis Arsenault]

Absolutely.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

They should become more established on the local market before we let other producers sweep in. Shouldn't the support help to market their products locally?

[Louis Arsenault]

Yes, exactly.

With the stakes changing dramatically, we would like to receive financial compensation, as the Prime Minister pointed out when the agreement in principle was signed. Even before everything goes into effect, whether in January 2015 or in January 2016 as some authorities prefer, we would like the government to act quickly by providing cheese factories with a budget envelope, as it did in last week's budget when it set aside $500 million for the automobile sector in anticipation of an agreement with South Korea.

It hurts a little to see that the automobile sector is being protected from a significant potential impact when the same could have been done for the dairy and cheese sectors in Canada. Before the agreement even goes into effect, it would be only fair for the government to help businesses in the sector to improve their bases in order to be better prepared for what is coming.

Two things are clear. First, foreign companies will take over 30% of the market for fine cheeses from Quebec and Canada. That is not an insignificant amount. It is huge. Second, as I said earlier, their prices will be significantly lower than ours, because of the subsidies those companies receive. For those reasons, the government must respond quickly before the agreement goes into effect.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Arsenault.

Mr. O'Toole is next, for seven minutes.

[Erin O'Toole, Conservative, Durham, ON]

Thank you, Mr. McInerney and Mr. Arsenault. Today, most of my questions will be directed to Mr. Arsenault.

I appreciate your presentation. You're representing a very interesting group. In many ways, through your discussion of cheeses in France and the subsidies you're talking about, it shows the globalization of the industry.

Two of your members are Saputo and Agropur. Saputo now makes more cheese in California in one location than in all of Canada. It shows both the excellence of some of your members and also the fact that there is a lot of flow of cheese and dairy.

Have you, in your experience, seen the fine and speciality cheese market in Canada grow in recent years?

[Louis Arsenault]

That is one of the problems our sector has. Whatever people have said, cheese consumption in Canada has not gone up. That is also mentioned in the document I submitted. The amount of per capita cheese consumption in Canada has plateaued at around 12 kg. Of course, you will tell me that the amount varies with the population. If the population increases, consumption will increase as well, of course. But in terms of production, the figure still remains the same.

Consumption of fine cheese in Canada has been stagnant for the last five years, and that is a problem. It is also why companies like Saputo are inevitably turning to other markets and making acquisitions overseas. I am not really familiar with the great Saputo family or with major companies like Agropur, but I can see that they are looking more and more at diversifying their markets and at targeting international markets.

[Erin O'Toole, Conservative, Durham, ON]

Thank you.

I'm not sure whether you had the opportunity to see the signing of the agreement in principle in Europe, but the Prime Minister only spoke in those remarks in Europe about one industry, and that industry was dairy. He spoke about how, for the 18,000 tonnes of new import, which represents a little less than 6% of the market, the intention is that if rising demand does not compensate the production that the 18,000 tonnes represents, he has pledged to have a compensation structure to make dairy producers whole at the end of the implementation period.

What are your thoughts on that? Did you see the Prime Minister's remarks in Europe specific to this industry?

[Louis Arsenault]

Yes, indeed, and we took note of what he said. However, we have to be careful. As I said earlier, the 16,000 tonnes that the government is assigning to fine cheeses represents a significantly higher percentage than is understood at the moment. Actually, since the main target is fine cheeses, the cheese imported from Europe will have a higher value. We are certainly not talking about 6% here, but an impact that will be significantly higher, somewhere in the order of 30%. Some people at a meeting yesterday even talked about an even greater impact. That is the first point.

We met with Frédéric Seppey, who was the chief negotiator for agriculture in the free trade agreement. One of the first questions we asked him was how the 17,700 tonnes, 16,000 of them in fine cheeses, had been determined. The answer was very simple: since May 2009, the negotiations included no increase at all, and Canada was very insistent on that. But Europe wanted 25,000 tonnes. Canada maintained its position until January 2013. So that means that, from 2009 to 2013, people knew that it would have a significant impact.

In a visit to Brussels in October 2013, Mr. Harper managed to reach an agreement to set the amount at 17,500 tonnes in exchange for exports of Canadian beef and pork. We find it surprising to see an agreement on such a major amount with so little analysis. For four years, we maintained our position that there should be no increase.

If, for four years, you agree that the increase must be kept at zero, you are implicitly admitting that there is a major impact.

[Erin O'Toole, Conservative, Durham, ON]

You haven't addressed the compensation aspect once the additional amount over time is brought in. I'd like your comments on that.

This week I was speaking to Mr. Jarvis from one of your companion organizations. He suggested that they feel the European cheese imported under this new amount would actually not be specialty or artisanal cheeses, but would be more bulk cheeses. That seems to be contrary to what you are saying today, Mr. Arsenault. Could you comment on that?

[Louis Arsenault]

Yes, certainly. There will be quotas again in Canada. It has not been done yet, but quotas for the right to import cheese have already been assigned. It is the holder of the quota who decides on the product he wants to import. Basically, we do not want the quota holders to be the big boys, because if that is the case, and if they are able—

[Erin O'Toole, Conservative, Durham, ON]

Your members hold a good portion of the quota, do they not?

[The Vice-Chair, NDP, Don Davies]

I'm sorry, Mr. O'Toole, you are out of time. I'm just going to allow the witness a brief time to answer.

[Louis Arsenault]

Essentially, the quota holders have all the rights. I certainly understand your question, but I cannot answer it precisely because the quota holder has all the rights once he gets the right to import.

As to the financial compensation that the Prime Minister mentioned, you are right, I forgot to answer that question. Basically, we want him to intervene immediately, given the size of the subsidy programs available to French cheesemakers. That is what he is going to have to do if he wants to keep companies, especially artisanal ones, alive all over Quebec and Ontario. Ontario actually is seeing significant growth in the area at the moment. The French support their producers, and the Prime Minister is going to have to support ours to the same extent.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Arsenault.

Mr. Pacetti, you have five minutes.