Thank you, Ron.
Mr. Chairman, members of the committee, Dairy Farmers of Canada is in fact pleased to appear before this committee to present our views with respect to the CETA deal.
As you may be aware, Dairy Farmers of Canada is the national lobby, policy, and promotion organization representing Canada's farmers living on more than 12,000 farms across the country. I would like to start by highlighting the fact that DFC leads generic dairy market development in Canada, with an annual marketing budget of $80 million, which is collected from dairy farms across Canada.
The domestic cheese market has been a priority market segment, with an annual strategic investment totalling $30 million dedicated to developing the cheese market across Canada. This investment both sustains and grows the cheese market. Studies have proven that without this yearly $30-million investment, market share would rapidly erode.
I'd like to add that this investment has resulted in an increase in per capita consumption over the past 20 years of two kilos per capita, now in the order of 12 to 12.2 kilos per capita.
I'd like to point out that the dairy sector contributes $16.2 billion to Canada's GDP, and sustains more that 218,000 jobs in Canada. It also contributes annually more than $3 billion in local, provincial, and federal taxes.
We'd like to be clear here: Dairy Farmers of Canada is not against the deal. We have, however, reacted strongly to the news of the new excessive access that was given to the European Union, in particular in the fine cheese segment of the Canadian cheese market. The access granted to the EU will have major impacts on the Canadian dairy industry, much more significant than what is being claimed by Canadian officials.
The Canadian dairy industry is one of the few industries that will be negatively impacted. That was also recognized by Prime Minister Harper, who recognized that there may be some impacts. Therefore, our strong reaction was justified, in our opinion.
Allow me to put the outcome of the agreement into perspective. The new access of 17,700 tonnes will be equivalent to 20% to 33% of the fine cheese market in Canada. It's equivalent to 4.2% of our total cheese consumption. That is equivalent to 2.2% of Canada's total milk production; equivalent to $150 million in farmers' pockets; and translates into a minimum of $300 million at the industry level.
The access for cheese will then increase from 5% to 9% of our total domestic consumption. There are no reasons to be pleased about supplying 91% of the Canadian market when compared with other countries. For example, the EU supplies 99% of its cheese market, and the U.S. supplies 97.5% of its cheese market.
If we look at Canadian cheese production, the growth in the cheese sector is not as significant as what has been reported. While certain segments of the market have grown faster than others, the reality is that cheese production in Canada has grown by only one-half of 1% these past four to five years.
The fine cheese market is the segment that will be most affected, as I pointed out earlier. Considering that this is the segment of the market that attracts the highest value, import strategies will be developed to compete primarily in this market. Failing to compete in the fine cheese market, we expect a cascading effect towards the specialty cheese and ultimately towards the mass cheese market, i.e., cheddar types. In other words, the fine cheese makers will be directly affected, and the impact at the producer's level, the farmer's level, will be spread across the country as farmers are working collectively to supply the Canadian market and are sharing returns collectively.
If the CETA agreement is implemented over a seven-year period, it will add up to a total of $595 million in cumulative losses at the farmer's level. Over a seven-year implementation period, the production of milk going into cheese production would decrease slightly. But most importantly, what Canadian farmers are losing is future growth, in which they have heavily invested.
Furthermore, if the deal were to be implemented over a five-year period, as we have heard might be the case, not only would this result in a production quota cut, but it would also result in an incremental loss of $151 million, for a total of $746 million after seven years. I think this justifies a longer implementation period.
With respect to tariff reduction, while the in-quota tariffs have been reduced to zero—and that wasn't something we were opposing—most over-quota tariffs have been maintained at their current levels, with the exception of the over-quota tariff for milk protein concentrate with a concentration of over 85%. This TRQ had been introduced following the invocation of GATT article XXVIII by the Canadian government back in 2007, and this has now been nullified.
Canada has also granted the EU geographical indicators on 50 cheeses. The protection to be afforded the EU on geographical indicators and their dairy products should be available also within this country. By that, we are talking about effective reinforcement and protection of our own standard of identity for dairy products.
I would also like to address the myth about unfettered access. We believe it is a myth. There is no doubt that Canadian cheese makers can compete on quality. However, in the early 2000s a WTO panel ruled that any export from Canada sold below domestic price be considered subsidized. Combined with a prohibition on the use export subsidies in the EU as a result of this agreement, the reality is that Canada is not in a position to benefit from the opening of the EU market. The reality is that subsidies in the European Union can make up as much as 40% to 50% of farmers' income, and they get a lower price for their milk. That puts Canadian milk and dairy products at a price disadvantage.
I will switch to French for the latter part of my presentation.
The reality is that the world market is highly distorted. The 2013 report by the International Farm Comparison Network (IFCN) highlighted that only 12% of the world’s total milk production has been produced at a cost equal to or lower than the world price. The IFCN initiative started 13 years ago and seeks to compile dairy farm financial data among over 95 countries around the world.
Furthermore, the reality is that not only are we facing higher production costs at the farm level in Canada, but this is also the case along the production chain, with processors' margins that are twice as much as in Europe
The reality is also that the European dairy industry is highly subsidized. The IFCN report provides an astonishing picture of the level of support and direct payments to European dairy farmers.
In conclusion, let us reiterate that we are not against the agreement that has been signed with the European Union. However, we are deeply concerned about the negative impact that comes with it.
Over the last few weeks, we have sat down with Canadian ministers and senior officials and we have presented options to mitigate the negative impact of the agreement, not only on the primary production of dairy farmers, but also on Canada’s entire dairy sector.
Thank you for your attention.