Madam Speaker, nearly two months have passed since April 20, and here we are once again debating the subject of diafiltered milk. Why? Because this government does not take action. The facts have not changed. They are the same. The government has neither taken our recommendations into consideration nor changed its position.
To help the Minister of Agriculture get a clue about the situation and to remind him that his inaction is costing our cheese producers hundreds of millions of dollars right now, I would like to lay things out clearly.
Supply management is like a three-legged stool. Each leg, or pillar, is equally important. The first is farmgate prices, which ensure that the price dairy producers get for their milk takes into account production costs, including capital and labour costs, and overall Canadian economic conditions.
It is important to note that the retail price is not set by the Canadian Dairy Commission, the provincial milk marketing boards, or the producers. The price paid by the consumer at the grocery store and in a restaurant has always been set by the retailers or restaurant owners. That is the first pillar, and it is currently being undermined by diafiltered milk. Indeed, farmers are facing a drop in milk prices specifically because diafiltered milk is being allowed into the country. The first pillar is therefore under attack.
The second pillar is production discipline, which ensures that the supply of Canadian milk corresponds to the demand from consumers. Each dairy producer in Canada holds a quota, that is, a market share establishing the quantity of milk that it can produce, depending on the demand from consumers. The quantity that the quota allows to be produced is adjusted upward or downward according to demand.
That is the second pillar of supply management, and it is also being undermined by diafiltered milk, because Canadian dairy farmers have seen a drop in their production capacity, given that diafiltered milk is replacing Canadian milk. This means that two of the three pillars are being threatened by diafiltered milk.
The third pillar is import control. For supply-managed sectors, imports are controlled by means of tariff rate quotas.
Tariff rate quotas allow a predetermined quantity of dairy products to be imported at preferential tariffs, generally duty-free, while maintaining control over the quantity imported.
The third pillar is also very threatened by the import of diafiltered milk to Canada because diafiltered milk bends the rules related to American milk's access to the Canadian market.
The three pillars of supply management are being threatened by diafiltered milk. I hope that the government fully realizes that.
When the three pillars of supply management play their allotted roles, they enable the dairy industry to weather all economic storms, attain a high degree of self-sufficiency, and ensure its sustainability.
Conversely, if one of the three pillars becomes unstable, as all three currently are, it can jeopardize the whole system.
This brings me to the reason why we are here today, namely milk proteins. It used to be that Canadian milk was a primary source and basic component in the making of dairy products. Even though certain makers of cheeses and yogurts still use 100% milk, for which I congratulate them, a growing number of them are adding ingredients such as milk protein isolates, milk protein concentrates, and diafiltered milk to replace milk.
These ingredients may be produced in Canada or imported. When they are imported, they are not classed under chapter 4 of the customs tariff schedule, which includes milk products. Instead they are classed under chapter 35, which includes ingredients such as milk protein substances.
Originally, these milk protein substances were imported in dry form. Over the last five or six years, however, we have seen a change in the import model. The quantities of milk proteins imported in liquid form under the same tariff line have increased significantly.
Once they have entered the country, these milk protein substances are used as ingredients in making cheese and yogourt.
However, the situation becomes complex when the same product is treated differently by two government agencies. When one agency considers a product to be an ingredient and the other treats it as milk, then we have a serious problem.
Under the Canadian cheese composition standards, a minimum percentage of the protein used to make cheese must be sourced from milk. The percentage required varies from one type of cheese to another. For example, at least 80% of the casein contained in cheddar must derive from milk, and a maximum of 17% of the total protein content can derive from ingredients, including milk protein substances.
The Canadian Food Inspection Agency is responsible for applying the cheese compositional standards. That means that it has to verify that the milk-to-ingredients ratio defined in those standards is adhered to for every cheese. Since milk protein substances are ingredients that are sometimes less expensive, some processors use them to make up their required minimum quantity of milk in cheese making, instead of using them for their permitted percentage of added ingredients. This situation is also inconsistent with the classification of these ingredients at the border, where they are not treated under the chapter on milk and dairy products and enter the country duty-free.
One of the most serious issues today is the growth in the uncontrolled importing of milk protein isolates. Imported in ever-larger quantities, they are competing with the skim milk solids and milk proteins produced here in Canada, thereby altering the competitive context and undermining the revenue of dairy producers.
The importing of milk protein isolates has been growing exponentially since 2012. Canada adopted tariff rate quotas on milk protein concentrates around the mid-1990s. About 10 years ago, a few companies began to import milk protein concentrates, isolates, to obtain larger protein concentrations.
Milk protein concentrates are a skim milk product from which lactose and permeate, which is mostly water, have been removed to varying degrees. These highly concentrated proteins are imported into Canada duty-free, which allows companies to get around the tariff rate quotas. The Dairy Farmers of Canada tried to resolve this situation by bringing the matter before the Canadian International Trade Tribunal. The concentration of protein in normal farm gate skim milk is about 35% in dry matter. Any product whose protein concentration is above that percentage is considered a concentrate.
The Canadian International Trade Tribunal determined that a product with a concentration of over 85% is an isolate, not a concentrate, even if it is used for the same purposes. This product was designed for the sole purpose of circumventing the tariff rate quota on milk protein concentrates. This decision defies common sense and is not in line with government policy.
In any case, the Government of Canada attempted to rectify the situation. Around 2008, the government set a new tariff rate quota and tariffs for milk protein isolates. The only problem is that these tariffs do not apply to NAFTA countries, namely the United States and Mexico. Consequently, the border with the United States remains open. Milk protein isolates cross the border as ingredients but can be used in Canada as milk. This conundrum leaves an ambiguous situation.
The Conservative government took significant action in 2007-08 by establishing cheese production standards to limit the quantity of ingredients that could be used. However, recent imports of diafiltered milk from the United States are once again threatening supply management. This product was designed solely for the purpose of circumventing border controls and Canadian cheese standards.
These proteins replace skim milk in cheese and yogurt production. In fact, there is no technical limit to the use of these proteins in production. This scheme is unacceptable.
At the border, this product is considered an ingredient by the Canada Border Services Agency, which allows it to enter tariff-free. However, for yogurt and cheese production, it is considered milk by the Canadian Food Inspection Agency. This means that its use is not limited by cheese and yogurt production standards. The federal Liberal government therefore has an important role to play.
Diafiltered milk needs to be considered an ingredient under the compositional standards for cheese and yogurt. This will ensure that the standards and the spirit behind them are honoured. Also, the verification rules for these standards need to be strengthened to ensure compliance.
We all have to work together to come up with a solution to the problem of diafiltered milk. We are all aware of that. I believe that many members of Parliament are keenly affected by and aware of this serious problem. We ran into the problem of solid proteins and then pizza kits, which the previous Conservative government was able to fully resolve.
The dairy industry says it has no choice but to use diafiltered milk in the composition of its dairy products. As I said earlier, diafiltered milk was created to circumvent border rules and manufacturing rules.
I was able to confirm, when one of my questions was answered in the Standing Committee on Agriculture and Agri-Food, that no one in the United States was making cheese using liquid protein concentrates, whose protein content is 85%. Processors do not do that. That does not exist in the United States.
In Canada, processors use that product now for competitive reasons, that is, for the sole purpose of reducing their production costs. However, that makes no sense, because those savings cannot benefit Canadian dairy farmers. In the end, the processors do not benefit, either. It is profitable downstream from the processing stage.
Frankly, this situation must end, because the whole industry is doing it to the detriment of supply management. As long as the issue of imported diafiltered milk remains unresolved, we can be sure the processors will use every means possible to reduce their production costs. We want the rules of the game to be fair for everyone, and we urge the Liberal government to take action on this matter.
The processing industry in the United States produces cheese without using diafiltered milk. Hence, Americans are eating cheese made without diafiltered milk. Canadians should not be eating cheese made with American diafiltered milk. There is no justification for it, because there is no economic incentive to do so. There is no reason to act in this manner.
The only thing driving Canadian processors to import diafiltered milk is that that ingredient is cheaper, because it is not subject to tariffs and can be used in production with no restrictions. That is the only reason.
With regard to imports coming into Canada, what quantities do we need to meet market demand? We do not need any, because in Canada there is an abundance of skim milk that can be used to produce those ingredients.
If the government decided to control the use of those ingredients, we would produce them in Canada at a competitive price, and we would use them here. We have no need of those imports, since we have an abundant quantity of skim milk at our disposal.
Whether it is imported or produced in Canada, the product used by many processors is composed of milk protein substances containing at least 85% milk protein. That is consistent with the definition of ultra-diafiltered milk. According to the regulations, there are no restrictions on the use of ultra-diafiltered milk in ordinary cheese and other dairy products.
With no control of imports, it is impossible to manage supply so that it matches demand. Failure to control imports would inevitably lead to overproduction and instability in our supply management system.
Moreover, it is not enough to have the right regulations in place; the validation and audit process and the enforcement of those regulations are just as important.
At the moment, people who might want to circumvent the rules are fully aware that when it comes to dairy products, Canada is not enforcing the existing border controls consistently and uniformly.
It is therefore essential that laws be enforced and audits be performed properly to discourage those who might try to exploit those loopholes. People can be very creative when it comes to circumventing tariffs and quotas. The problem of pizza toppings is an excellent example.
The Canadian dairy system is unique and has proven its worth. It provides dairy farmers with enough income to cover their costs, and it provides processors with a stable environment. It helps maintain the social fabric and support the economic development of our communities, while providing consumers with high-quality products at a competitive price. To us, therefore, it seems clear, justified, and more important than ever that everyone involved must work to support supply management.
In recent trade agreements, the Conservative government succeeded in keeping high tariffs at the borders. That is a vital pillar in maintaining our supply management system. We hope that the Liberal government will not tear down what the previous Conservative government built up to protect the supply management system.
With regard to controlling the borders, at least four departments are concerned with the issue of effectiveness. The Department of Finance is concerned with the payment of tariffs, while the Department of Public Safety is responsible for border controls through the Canada Border Services Agency. There is also the Department of Agriculture and Agri-Food, because agricultural policy is involved, and the foreign affairs department, when we have trade agreements and we have made commitments to our partners. Our trading partners also have agricultural policies and specific requirements.
In conclusion, by doing whatever has to be done to solve the problem of diafiltered milk and other dairy substitutes crossing our Canadian borders, we will restore balance in our supply management system, thus benefiting the entire Canadian dairy industry. We will also restore harmony in the entire industry, from farmers to processors and distributors, so that products can be delivered to consumers.
For more than 45 years, we have managed to keep Canadians happy with high-quality dairy products at a fair price, in accordance with the wishes of this House. To succeed, the industry needs to be supported by a regulatory and policy climate that maintains supply management and the three pillars that are currently being threatened by diafiltered milk, including producers' revenue. At the same time, it must provide flexibility for primary and secondary processing and the value chain and support the development of new capacity through technology and cutting-edge manufacturing processes that also boost productivity.
In closing, I can assure my colleagues that we will do everything in our power to support the vitality of Canada's dairy industry for future generations.