PRB 98-5E
ISSUES RELATED TO THE IMPORTATION
OF BUTTEROIL/SUGAR AND OTHER DAIRY BLENDS
Prepared by:
Jean-Denis Fréchette
Economics Division
October 1998
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; the application of international rules to trade policies,
as well as food safety and labelling were also issues.
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. |