Canada carves out more European cheese for retailers after EU concerns

Trade Minister Franois-Philippe Champagne has disappointed Canada's dairy industry with a revisedplan for how nearly 18,000 tonnes of European cheeses will be imported once theCanada-EU trade deal takes effect in September.

A much-anticipated announcement came Tuesday on how Canadawill allocatetariff rate quota (TRQ) for 16,000 tonnes of fine cheese and 1,700 tonnesof industrial cheese.

Those licensed to import this new tariff-free European cheese stand toreap the profits.

But Canada's plan to give 60 per cent of thisquota to its domestic dairy industry, to compensate formarket share it's about to lose, didn't go over well in Europe.

Negotiators were called back to Brussels and relented, hammering out thecompromise announced Tuesday:half the new quota will go to the domestic industry's cheese makerswhile the other half is allocated to distributors and end retailers. Each will get about 8,000 tonnes of new quota.

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Small and medium-sized businesses will receive the majority of the quotain each half, helping artisanal cheese makersand independent vendors. The Liberalgovernment wantsto helpsmaller enterprises realizethe economic benefits of future free trade agreements.

Trudeau on new Canada EU cheese dispute

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Trudeau on new Canada EU cheese dispute

In negotiations with the EU, Canada agreed to allocatejust under one-third of thetotal importsto new entrants during thefive-year phase-in period. (A new entrant keeps its status for three years.)

Canadian cheese makers were disappointed and "very concerned" to see the government relent to European demands, calling it a "missed opportunity" to help the dairy sector adjust to potential competitive losses under thenew trade deal.

"How do you justify attributing licences to people that won't be impacted?" said Jacques Lefebvre, the CEO of the Dairy Processors Association of Canada. For retailers, he said, "It's Christmas in July."

Imports poised to double

Under Canada's supply management system for dairy products, imports are severelylimited in order to manage domestic market prices. Few European cheeses comeinto Canada duty-free, with enormous tariffs applied to allothers to discourage high volumes of imports.

The Comprehensive Economic and Trade Agreement (CETA) changes that.

Canada will nearly doublethe amountof EU cheese it importsduty-free. It's the first time it has awarded new cheese quota since the 1970s.

Cheese-loving consumers can't know yet exactly what this means for them.

The businesses that apply for and receivethe tariff rate quota will pickwhich kinds of cheese from what countries to sell, and when.

Importersmay select unique cheeses not currently available in Canada. They could also bring in familiarcheeses at a lower price, to compete with and potentially displacedomestic cheese.

Quebec and Ontarioasked the federal government to give the quota to the domestic industry to help it adjust to the new trade deal.

During public consultations, groups representing distributors and retailers argued that consumers would benefit most ifall the quota went to those already in the retail supply chain. They said Tuesday they'resatisfiedwith the balance Champagne struck.

"We see it as a major step in the right direction," said David Wilkes, representingthe Retail Council of Canada. "We're very pleased to see the direct allocation to the retail community."

Gary Sands from the Canadian Federation of Independent Grocers said it recognized the challenges small businesses have with suppliersat a time when larger, consolidated chains dominatethe retail landscape.

"To see us get a fair shake at the allocations for the new imports coming in is really good," he said. "The status quo, from our standpoint, has not been working the government was receptive to that."

Dispute delayed CETA's implementation

CBC News reported in Junethat when Canada briefed the EU on its planslast spring, theEuropeans weren't impressed. They wanted retailers or distributors to decide what to offer consumers.

Europeans were skeptical that all the tonnes theybargained for would really enter Canada if the majority of the importersweretheir Canadian competitors, bringing in cheeses that could compete with their own.

What one source described as a"row" eventually delayedthe planned implementation of CETA, originally expected on July 1.

Imports constitute about five per cent of Canada's current cheese market. The new EU cheese will bumpthat to nine per cent (7.5 per cent will be from Europe.)

The federal government believes thatbecauseconsumer demand is risingby about one per cent per year, the Canadian industry can adjust, given the five-year phase-in.

Agriculture Minister LawrenceMacAulayrevealedmore details Tuesday ontwo new federal programsto help the dairy sector compete internationally.

Both applyretroactively, dating back to their original announcementlast November.They offer:

• Up to$250,000per licensed dairy farm for upgrades tobarn technology and equipment to improve productivity.
• Up to $10 million per dairy processor forcapital investments,or up to $250,000to access technical, managerial or business expertise.

Importers can apply now for fall

Prime Minister Justin Trudeauand European Commission President Jean-ClaudeJuncker announced at last month's G20 meeting in Hamburgthat roughly98per cent of CETA would be provisionally applied Sept. 21, including this new market access for cheese.

The remainder of the agreement is on hold until votes are held in member state legislatures across Europe, because of jurisdictional disputes over some specific parts of the agreement. Five of the 28 current member states have fully ratified to date.

Another issue holding up the deal, a dispute over changes coming to Canada's pharmaceutical patent process, also appeared to be moving alonglast month, when draft regulationsposted online kicked off a public consultation process forchanges the EU arguedhadn't been sufficiently transparent on Canada's side.

Tuesday's announcement starts an application process for would-be importers. The first duty-free cheese could arrive as early as October.

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