European cheese slow to arrive in Canada despite trade deal

As Canada marks the first anniversary of its trade deal with the EU this month, consumers may be wondering why they aren't seeing more European cheese in their local stores.

New varieties have been slow to trickle in a reminder of how complicated it can be to pryopen Canada's protected market.

Canada also agreed to import more foreign dairy products inthe Pacific Rim trade dealnow beingratified. And evenmore access to Canada's domestic market appears to be part of the current renegotiation of NAFTA.

The Comprehensive Economic and Trade Agreement (CETA) was provisionally applied on Sept. 19, 2017. More European cheesebegan to arrive last fall.

"It's not totally clear how this is implemented in Canada," said Bernd Lange, the German member of the European Parliament who chairs its international trade committee and continues to monitor how the deal he helped broker is workingout.

In an interview with CBCNews this summer, Lange said that when Canadian and European officials gather for their first joint committee meeting this fall, the EU side will raisethe concerns of European cheesemakerswho aren't sure they'regetting all they bargained for, thanks to the way Canada is administering its imports.

International Trade Diversification Minister Jim Carr will host European Trade Commissioner Cecilia Malmstrom in Montreal Sept. 26-27 for what's being billed as "stocktaking and a promotional tour."

Data available online suggestwhy Europeans may be concerned.

A thin slice of quota

For 2018, the first full year the trade deal isin effect, Canada agreed to import 5,333 tonnesof EU cheese.

As of the first week of September, only 1,821 tonnes of EU cheese had been imported just over a third of the amount Canada agreed to allow in. Even taking seasonal buying into account (cheese is popular during the holiday season), the imports aren'ton pace to meetCanada's commitments.

Separately, the CETA increased the EU's share of Canadian dairyimportsunder World Trade Organization rules. About 68 per cent of that total wasused bySept. 5.

Smaller volumes of cheese imports were allocatedforSept. 21 to Dec. 31,2017. Roughly 96 per cent of the total allowance arrived.

Between now and 2022, the amount of cheese Canada has committed to importannually from the EU will rise gradually to 16,000tonnes.

There's also a five-year phase-in period for imports of EUindustrial cheeses(used in food processing)up toa limit of 1,700 tonnes. Canada isn'tclose to importing as much industrial cheese as it promised, either.

The federal government grantslicencesto control whichbusinesses import EU cheese. Then-trade minister Franois-Philippe Champagne decided to split the imports 50-50between Canadian grocery retailers and processors currently active in the domestic cheese industry.

The federal government also split the imports50-50 between large and small or medium-sized enterprises, to give a range of businesses a share of the profits.

CBCNews asked Global Affairs Canada for a breakdown of 2018 imports according to the categories the department set when it awarded its import licences. It declined to release this data, making it impossible to find out what categories of importers may be lagging retailers or processors, small or large.

"We're following it closely," said Mathieu Frigon, president and CEO of the Dairy Processors Association of Canada. "We do understand there are some players for which this is new business, and it might require time to set up.

"I suspect at the end of the year the fill rate will be 100 per cent."

When import quota has been allocated to dairy processors, they have never failed to use it, he said in a later statement.

"What we are seeing now," he said,"is that [quotas] have been allocated to retailers and distributors that have little expertise and know-how in importing short shelf-life products such as the soft cheeses that the Europeans would like to bring in."

On background, a senior federal official also expressed confidence that all the importswould arrive by the end of the year.

Parmesan, cheddar top EU imports

Travellers to Europe often enjoy inexpensive cheesesthey can't find at home. Has the EU deal brought them to Canada?

Online data showthe most common productsfrom the EU so far in 2018 were varieties ofparmesan, making up about a third of the new cheese imports. Parmesan has a longshelf life, making it profitable to shiplongerdistances.

Other commonimports were varieties of cheddar, gouda and brie.

Canadians ate a lot of domestic cheddar before the imports arrived. Is the EU agreement living up to its promise of offering consumers more choice, or simply bumping offCanadian cheese?

You can't draw that conclusion from the data, according to Karl Littler of the Retail Council of Canada. New varieties coming in from Ireland or the U.K., for example (think of Lancashire, Wensleydaleor Cheshire cheeses) may be lumped into import categories thatseem like cheesealready availablein Canada, but they're actually unique.

"We may well be seeing more diversity within that category," he said.

High compliance costs

The retailers Littlerrepresents lobbied for the right to import all the new cheese, not just half of it. Having domesticprocessors import cheeseadds another middleman to the supply chain, they argued.

"The closer you put it to the consumer, the fewer people who are tollgating it through on the way, the greater the likelihood that consumers will see the price benefit," Littler said.

If importersdon't run their own stores or sell online, theyhave to negotiate shelf space withgrocery chains, often at considerable cost.

But dairy farmers and domestic processors askedthe government to give them a slice ofimport profits, as compensation for their lost market share. Over the next two decades, dairy processors say, the implementation of the CPTPPwill result in a $700 million loss intheir returnon investments.

Global Affairs Canada requiresdetailed audits fromimporters, causing some to questionwhether their compliance costs are worth the benefit they're supposed to be realizing from this freer trade.

Importers were told to return any import quotathey weren'tgoing to use by Aug.1, so it could be reallocated.

The government won't disclosehow much quota was returned. It also willnot say how it reallocated any returned quota.

CPTPP, NAFTAfocusing minds

Lessons learned from the European experience may need to be understood quickly.

While the CETAoffered newmarket access for just one product cheesethe Comprehensive and Progressive Trans-Pacific Partnership now being ratified by its 11 Pacific Rim partners provides new quotas for 20 types of dairy, egg and poultry imports, phased in between 11 and 19 years.

It's unclear whether shipping logistics make it practical toimport products from categories like fluid milk, eggs or fresh poultry from across the Pacific, but the new quotas were designed with American products in mind. U.S. President Donald Trump subsequently withdrew from the Trans-Pacific Partnership, but the quota wasn't adjusted.

How much access Canada provides toAmericans, and for what specific products, remainsa bone of contention.

Without speculating on the outcome of the NAFTA talks, Frigon said dairy processors are "adamant that any new dairy imports should not follow the CETAmodel."

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Meanwhile, Global Affairs Canada held a consultation over the summer to hear feedback on how tofulfil its CPTPPcommitment.

Littler suggested that if the new CPTPPquota was divided up similarlybetween small and large, and retailer and processor categories, the volumes for some of the new products at least in the early years of the long phase-in period might be too small to be worth bidding on.

Cheese is a high-margin product. Milk powder, for example, isn't.

The minister for trade diversification told CBCNews last month he was "making no assumptions"and "relying in this case on consultations" to figure out how to administer the nextwave of imports.

"We're always looking at fixing things that aren't working well enough, and improving the way things have always been done," Carr said.

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