EU Pits Alberta Beef Against Quebec Dairy Products in Canada Trade Talks

The European Union may refuse to open its market to more Canadian beef, pork and sweet corn unless Canada provides better access to its heavily protected dairy sector, a senior European diplomat said.

The EU is “disappointed” Canada hasn’t offered any concessions for products shielded by its supply-management system, under which domestic farmers receive production quotas for dairy products such as milk and cheese, as well as poultry and eggs, said Maurizio Cellini, head of economic and commercial affairs at the EU delegation to Canada in Ottawa. Under the system, foreign products face steep tariff rates above an import quota.

“As a consequence, the EU side has withheld offers on beef, pork and sweet corn,” Cellini said in an email, adding that “further liberalization” can be still be achieved.

The impasse over agriculture may slow negotiations on a free-trade agreement between Canada, the world’s 10th biggest economy, and the EU, the world’s biggest trading bloc. The two sides started negotiations in May 2009, and are set to enter a ninth round of talks in October in Ottawa.

The impasse may also cause political problems for Prime Minister Stephen Harper in balancing regional concerns, with his Conservative Party holding all but one of the seats in Alberta, the country’s biggest beef-producing province, and hoping to rebuild in Quebec, home to almost half of Canada’s dairy farms, which supply companies like Montreal-based Saputo Inc. (SAP)

Diversify Growth

Harper has promoted such bilateral deals as a way to boost economic growth and diversify shipments beyond the U.S., which bought 75 percent of Canada’s exported goods last year. At the same time, Harper has defended supply management, making it a plank of his party’s platform in the May 2 election in which the Conservatives won a majority.

Canadian Agriculture Minister Gerry Ritz said Canada isn’t considering changes to the supply-management regime.

“We fully support our supply-managed sector,” Ritz said in a telephone interview today. “We have in the past, we’ll continue to in the future. It works well for our system. It works well for our farmers.”

European cheese-making countries, including Germany, France and Italy, hope to sell more brie and parmigiano-reggiano into Canada’s C$13.7 billion ($13.9 billion) market.

Canada’s import quota for foreign cheese is 45 million pounds, said Chantal Paul, a spokeswoman for the Canadian Dairy Commission, a federal government agency. Above that mark, importers must pay a tariff of 246 percent. Canadians consumed about 815 million pounds of cheese in 2010, according to government figures.

‘Internal Canadian Problem’

“The EU does not want to dismantle supply management,” Cellini said in a phone interview. “This is an internal Canadian problem. It has a cost for the Canadian consumer, like other policies may have costs for domestic consumers. We would like to have better market access.”

Quebec’s 6,375 dairy farms accounted for 49.2 percent of Canada’s total in 2010, followed by Ontario with 4,191 farms, or 32.3 percent, according to the Dairy Farmers of Canada, an industry association.

“We’re very pleased that Canada is not prepared to make any concessions when it comes to dairy products and other supply managed products,” said Yves Leduc, director of international trade for the association.

Michael Hart, a former Canadian trade official, said federal political parties have been reluctant to oppose supply management, for fear of alienating voters in Quebec, which accounts for 75 of the 308 seats in Canada’s House of Commons.

Quebec Seats

The Conservatives lost six Quebec seats in the election, leaving them with five.

“No Member of Parliament will stand up in the House and ask the minister of agriculture when he’s going phase out this stupid regime,” said Hart, who teaches trade policy at Carleton University in Ottawa. He said the Europeans appeared to be making a “tactical” move to put political pressure on Canada.

A spokesman for Canada’s cattle farmers said producers want the EU to remove import quotas. Canada sells very little beef into Europe because it bans use of growth hormones, which most Canadian farmers employ, said John Masswohl, director of government and international relations for the Canadian Cattlemen’s Association.

Beef producers are willing to produce more beef without hormones if it’s clear the European market is open to their products, he said.

“It’s a bit of a shell game,” Masswohl said by phone. “At the end of the day, it’s not a matter of this item for that item in the agreement.”

European and Canadian negotiators exchanged offers at the last round of talks in Brussels in July. The two sides agreed to drop tariffs on most products within seven years, said Cellini.

Canada said at the time that it expected to complete a deal by next year.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.

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