PRB 98-5E
ISSUES
RELATED TO THE IMPORTATION
OF BUTTEROIL/SUGAR AND OTHER DAIRY BLENDS
Prepared by:
Jean-Denis Fréchette
Economics Division
October 1998
Revised 19 August 1999
Since
the volume of butteroil/sugar blend imports has increased 488% in just over 18 months, it
is hardly surprising that political interest in the issue has grown by almost the same
degree in several weeks. At first glance, it might seem that an increase in imports from
$3 million in 1995 to roughly $20 million in 1997 would not normally
generate so much attention; however, the sudden interest in this waxy, granular,
semi-processed and rather unappetizing food product is only an indication of a very
complex political and economic reality. The growth in imports of blends made up of 49%
butteroil and 51% sugar is of concern because such blends can enter Canada under tariff
line 2106.90.95, and, chiefly for this reason, allows manufacturers of ice cream and
processed cheese to reduce their production costs.
The
swift reaction of the Dairy Farmers of Canada (DFC) to increased imports of butteroil
blends shows that they completely understand the gravity of the issue. Used in principle
as a substitute in the manufacturing of ice cream, this "dairy product" is
sweetened so that not only does it cease to qualify as a milkfat, but it also ceases to
enjoy the tariff protection normally extended to true dairy products. These imports are
now, however, replacing a portion of the domestic output of milkfat, and thereby
interfering with the market. Their unimpeded entry to Canada is a good illustration of
how, since markets have been opened up, the dairy sector does not have the same protection
as it did before the Uruguay Round negotiations.
Politically,
the debate prompted by Canadian producers opposition to the imports of
butteroil/sugar blends revealed that it was not only a question of supply management;
other issues were the application of international rules to trade policies, food safety
and labelling.
From
the economic point of view, it should be pointed out that, as markets open up, producers,
processors and consumers will be presented with more and more choices that will shake up
their respective worlds.
Four
federal departments are involved in various trade aspects of butteroil/sugar blends: the
Department of Finance for general trade policy; Revenue Canada for import classification
and control; the Department of Foreign Affairs and International Trade for the
administration of tariff-rate quotas; and Agriculture and Agri-Food Canada, whose
expertise is crucial in determining the classification of the products. All it took was a
simple administrative decision by Revenue Canada based on international rules to trigger a
wave of barriers not unlike those applied to imports of raw-milk cheeses. Consequently, it
can be said that, though the stakes in this issue are high, its origin was quite mundane
and bureaucratic.
No
one is challenging internationally negotiated Canadian tariff-rate quotas or the levels of
protection they afford dairy products; on the other hand, the development and importation
of imitations or innovative products leads to administrative decisions that do not please
everyone, primarily because of the economic impact they can have on some industries. In
the sections that make up this document, various aspects of this problem will be
discussed. |