MONTREAL — Canadian consumers outside Quebec could see lower dairy prices from a new massive trade deal signed Monday, says an industry observer.
Retail prices could fall if dairy processors like Saputo (TSX:SAP) pass along savings from lower imported milk costs to consumers, says Sylvain Charlebois, professor of distribution and food policy at the University of Guelph's Food Institute.
"When you look at prices dropping at farm gate, usually consumers do win over the long-term; that's what we've seen over the last five to 10 years," he said in an interview. "There are no guarantees but you actually do increase that possibility."
Canada's protected dairy sector remains mostly intact under the Trans-Pacific Partnership. However, another 3.25 per cent share of imports would be allowed over five years, adding to the pressure from 17,700 tonnes of cheese permitted under a separate trade deal with Europe. The increase in exports from 11 other TPP countries will displace about 250 million litres of Canadian milk.
Still, 86.75 per cent of dairy products sold in Canada will remain domestically sourced and protected by production, price and import controls, said Saputo analyst Irene Nattel.
In exchange for lost income, Ottawa would compensate Canadian farmers and processors $4.3 billion over 15 years.
In Quebec, dairy is regulated with minimum retail prices that are higher than elsewhere in Canada and the United States. However, retailers outside Quebec could take advantage of lower prices to use dairy even more as a way to attract consumers to their stores, he said.
Charlebois, who sits on the national board of the Canadian Food Inspection Agency, said one concern that needs to be addressed is the lack of harmonization over the use of hormones. They are permitted in the U.S. but banned in Canada.
Groups representing dairy farmers in Quebec and Ontario said they're disappointed by the deal which they argued will result in lost revenues for farmers and the Canadian economy.
While they would have preferred no additional market access, the Dairy Farmers of Canada said the federal government fought hard against demands of other countries and lessened the burden with a "fair compensation package."
"We have come a long way from the threat of eliminating supply management. The government has clearly understood the importance of supply management dairy farms in rural Canada and the economic activities they generate," said president Wally Smith.
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