Good morning and thank you, Mr. Chair and honourable members of the committee.
My name is Frédéric Seppey. I'm Canada's chief agriculture negotiator and assistant deputy minister for trade negotiations and agreements at Agriculture and Agri-Food Canada. I appreciate the opportunity to be here today in order to speak to you about issues of concern to Canadian dairy and poultry producers. My remarks this morning will focus on issues surrounding the imports of spent fowl and diafiltered milk. My colleagues from Finance Canada and the Canada Border Services Agency have already spoken to the duties deferral program.
Canada's dairy and poultry industries operate under supply management. The goal of supply management is to match production with anticipated Canadian demand. Supply management relies on three key pillars: production control, producer price control, and import control. These pillars are essential to preserving the integrity of the system. Import control and predictability are essential to the effectiveness of supply management, and necessary to accurately determine the national supply requirements and avoid disruptive shortages or surpluses on the Canadian market. The national production quotas set by dairy and poultry marketing boards take into account imports when trying to match the Canadian demand.
Regarding spent fowl, Canadian chicken producers have expressed concerns that import controls for chicken are being circumvented by a number of importers who declare broiler chicken meat as spent fowl in order to avoid import controls and corresponding tariffs. Industry believes this to be a key explanation for the significant increase in spent fowl imports in recent years. Imports of spent fowl increased 55% from 2009 to 2015, while Canadian chicken production increased only by 9% over the same period. In 2015 imports of spent fowl corresponded to approximately 10% of total chicken production in Canada.
Chicken farmers have indicated that import predictability has diminished due to the rapidly increasing imports of spent fowl and the doubts surrounding the validity of these imports. The Canadian chicken industry is concerned that this trend will continue to lead to more broiler chicken meat being imported duty-free and thus displacing Canadian domestic chicken production.
Agriculture and Agri-Food Canada is leading an interdepartmental working group to examine ways to ensure the effectiveness of border controls for poultry products. The working group is considering issues related to the imports of spent fowl and looking at potential options to enhance border controls, such as potentially requiring certification by exporting countries or conducting additional testing, including on DNA of birds. That would ensure that products declared as spent fowl are adequately treated at the border. Government officials from various departments have been working diligently to address this issue, and continue to be in close contact with various stakeholders along the value chain.
Now I will turn to the dairy issues.
With respect to diafiltered milk, the government acknowledges that the use of this product beyond what is authorized in cheesemaking under the cheese compositional standards is a source of concern for dairy producers. It is important to distinguish the use of products such as diafiltered milk in cheesemaking from the way these products are treated at the border.
Milk protein substances, such as diafiltered milk, can be imported into Canada duty-free and quota-free from the United States under the North American Free Trade Agreement, as long as they contain 85% or more milk protein on a dry matter basis. In addition to cheesemaking, these products can be used in a variety of manufacturing processes in Canada. Therefore, imports of milk protein substances as defined in the Customs Tariff Schedule are absolutely legitimate.
With respect to the cheese compositional standards, they allow for the use of ingredients other than milk in cheesemaking within specific limits. It has therefore never been the intention to completely prohibit the use of dairy ingredients such as diafiltered milk in cheesemaking.
This issue should also be looked at in a broader context.
The dairy sector faces a number of ongoing challenges, stemming from both domestic and international market pressures. It is in this context that, over the past few months, the Minister of Agriculture and Agri-Food, the Honourable Lawrence MacAulay, and government officials met with the Dairy Farmers of Canada, the Dairy Processors Association of Canada, and provincial dairy associations across the country to discuss ways to address the impacts of new market access negotiated under the Canada–European Union Comprehensive Economic and Trade Agreement, or CETA.
At these meetings, the government heard the thoughts and views of dairy stakeholders from coast to coast on a number of key challenges and opportunities facing the industry. Discussions mainly focused on how to strengthen the sector in the face of domestic and international challenges, including regarding diafiltered milk.
The government will continue to work on addressing stakeholders' interests and concerns on this issue, looking for sustainable solutions for the whole sector. Continued close collaboration between the government and the industry is necessary to help the sector meet its current challenges and seize growth opportunities.
In closing, thank you again for the opportunity to appear before you today, and it will be a pleasure to answer any questions you may have.