Court upholds import permits for Greek yogurt maker

Thursday, August 2, 2012

by SUSAN MANN

The Canadian government’s decision to grant two import permits to an U.S. Greek yogurt maker so it can bring product in from the United States for up to 15 months without having to pay prohibitive duties was reasonable, a Federal Court judge has ruled.

Judge Sandra J. Simpson handed down her decision and reasons June 21 after companies, Danone Inc., Ultima Foods Inc. and Agropur Cooperative, requested a judicial review of an earlier decision by the Minister of International Trade. The minister’s decision, handed down Oct. 17, 2011, granted Agro-Farma Canada Inc. two supplementary import permits to bring in and sell its Greek yogurt, called Chobani, in 65 stores in the Greater Toronto Area. The review took place in court in Montreal on April 24 and 25.

“The evidence is that production of Chobani in Canada will result in higher incomes for dairy farmers,” Simpson writes. Agriculture and Agri-Food Canada advised the international trade minister that Chobani production would increase Canadian milk consumption by 80 million litres by the fourth year of the project. The federal agriculture department also told the minister the Canadian yogurt market is growing by six per cent per year and would bear the introduction of Chobani with minimal effect on its competitors.

Quota increase in Ontario?

Bill Mitchell, Dairy Farmers of Ontario assistant communications director, says if the projection turned out to be true it would mean an increase in quotas for provincial dairy farmers of about one per cent by the fourth year the Chobani plant was up and running in Ontario. Dairy Farmers didn’t participate in the court case.

Current yogurt production in Canada is about 320 million litres annually, which is about four per cent of total milk use, Mitchell says.

Ontario’s total milk production was 2.5 billion litres in 2010-11.

Simpson says any revenue losses would be limited to the short-term, which is the 15 months under the permits.

One of the permits was for a three-month period from Nov. 7, 2011 to Feb. 6, 2012 so Agro-Farma could test its product in the Canadian market. The other was for one year, Feb. 7, 2012 to Feb. 6, 2013, to import and sell Chobani in the Greater Toronto Area on the condition the company would invest in production facilities in Ontario and create jobs. The bridging permit is valid for one year or until Agro-Farma’s Canadian plant is operational.

Deal details kept secret

Details on how many kilograms Agro-Farma was allowed to import under the permits, the monetary investment in its Ontario production facility and the number of new jobs to be created were omitted from the written ruling by agreement of those involved in the court case, according to Federal Court documents.

The permits enabled the company to avoid having to pay a duty of 237.5 per cent on its imports. As part of the World Trade Organization agreement, Canada’s import access commitment for yogurt is 332,000 kilograms. Imports greater than this figure are subject to the duty. “This prohibitive duty effectively blocks yogurt imports,” Simpson states.

Chobani officials couldn’t be reached for comment.

Danone’s external communication’s manager, Anne-Julie Maltais, says by email they’re disappointed in the judge’s decision. The company hasn’t yet decided if it will appeal the ruling.

“Danone believes the issue is one of fair competition within the existing Canadian supply management system,” she says. “If Danone is bound by the rules of supply management our competitors should also be bound by these same rules.”

U.S. dairy producer Chobani benefits from preferential treatment by the Canadian government for the sale of its Greek yogurt made entirely of American milk, she says.

Danone is the leading traditional yogurt producer in Canada and since 2010 has sold its Greek yogurt, Oikos, in Canada and Oikos Organic Greek yogurt, which is co-packed in Ontario by Gay Lea Food Co-operative Ltd.

Greek yogurt is a style of yogurt that has a thicker consistency, lower carbohydrate content and higher protein than traditional yogurt.

There are five dairy processors currently marketing Greek yogurt in Canada – Liberte, Parmalat, Danone, Olympic, and Skotidakis.

U.S. milk prices lower

In her ruling, Simpson writes that unlike Canada, the United States doesn’t have a supply management system based on the three pillars of production management, a pricing policy that covers production costs and import controls. Instead, the U.S. government pays direct subsidies to dairy farmers to support their incomes. As a result, milk prices in the U.S. are substantially lower than in Canada. “For example, the type of milk used in yogurt is 79 per cent more expensive in Quebec than in New York State,” she says.

Chobani for the Canadian market coming in under the supplementary import permit is made in New York State. Quebec processes 70 per cent of yogurt currently made in Canada.

Mitchell says prices processors pay for milk used for yogurt in Ontario are similar to prices paid in Quebec. Both provinces are part of an Eastern Canada milk pooling agreement. Under the agreement, the provinces share revenue from industrial and fluid milk markets and work cooperatively on other matters of mutual interest. Other provinces in the pooling agreement are: Prince Edward Island, Nova Scotia and New Brunswick.

Simpson says Dairy Farmers of Ontario and the Ontario Ministry of Agriculture, Food and Rural Affairs expressed support for the Agro-Farma proposal. Dairy Farmers also said Agro-Farma would have access to the milk it needed to manufacture Chobani in Ontario. The Canadian Dairy Commission supported the proposal but said the international trade minister shouldn’t issue the bridging permit until it confirmed Agro-Farma’s plans to invest in an Ontario manufacturing facility.

Permit undercuts domestic producers, says farmer

Ontario dairy farmer Gerrit Wensink, who farms near Woodstock, wasn’t part of the court proceedings. He says he’s puzzled “that the government gave this permit for such a long time because it’s really undercutting our domestic producers.”

Simpson states that normally permit applications are confidential. But Canadian dairy processing companies and other stakeholders somehow learned about the Chobani application and wrote the international trade minister in May and June 2011. “It is significant that these letters were before the minister when he made the decision.”

The minister approved the permits primarily because of the 80 million litre increase in milk demand four years after Agro-Farma’s plant was up and running and the prospect of a significant investment in the manufacturing sector, she writes.

Simpson says that the position of the processors who wrote the minister opposing the permits was that Greek yogurt isn’t a new product and granting permits to Agro-Farma would harm Canadian processors’ competitive position, employment at processing plants and investment in processing facilities. In addition, sales of Chobani would cannibalize Canadian processors’ sales of Greek and traditional yogurt and Chobani isn’t made using a unique process.

Government guidelines permit the international trade minister to issue supplementary import permits for products already being made in Canada if a unique production process is used or investment is planned in Canada. After a meeting last June with officials from the foreign affairs and federal agriculture departments where Agro-Farma officials explained the Chobani production process, government officials were satisfied the process met the requirement for a unique process.

No harm to supply management says Attorney General

For its part, Canada’s Attorney General argued protecting processors from competition isn’t a stated objective of supply management and the companies haven’t provided evidence of actual financial harm or loss of market, even though Chobani has been sold in the Greater Toronto Area since Nov. 7, 2011. There also isn’t any evidence supply management has been injured.

Simpson states she wasn’t persuaded by the companies’ submission that the minister can only grant permits that support supply management but acknowledged “that in the short term permits for dairy products manufactured with less expensive U.S. milk will cause some disruption to supply management.”

But she concluded the minister’s decision was reasonable because: the evidence before him was the Chobani permits would not harm supply management in the long term; the volumes were less than those granted to Danone when it received permits providing duty relief in 2006 to import its U.S.-produced DanActive beverage over a 20-month period; Chobani sales are restricted to the Greater Toronto Area; and the Chobani imports are only possible for 15 months. The quantity of DanActive that Danone was permitted to import was omitted from the written decision by agreement between the participants in the court case. BF