The Case for Interprovincial Harmony in the Margarine Industry

Background

The Agreement on Internal Trade acknowledges the reality that Canada is increasingly part of a continental and global free trade economy.  Canada is a participant in the General Agreement on Trade and Tariffs (GATT) and is in the process of lowering and removing tariffs, on a continental basis, through The North American Free Trade Agreement (NAFTA).  Canadians recognize that their economic well-being lies in a liberalized, trade- oriented economy.  For Canadian businesses to be successful in this context, they must achieve efficiencies and productivity that make them competitive at least continentally and in many instances globally.

Regulatory Patchwork Quilt

Against this backdrop, the Canadian margarine industry faces a patchwork quilt of domestic regulation and other non-tariff  barriers that hamper our ability to establish an internationally competitive industry.  Each province, impacted in great measure by the influential dairy lobby, has erected significant non-tariff barriers. Although Ontario has just introduced legislation to repeal outdated stipulations on the colour and fat content of margarine, many provinces still have regulations that are highly restrictive. Quebec and PEI maintain colour stipulations.  Quebec, Alberta, New Brunswick and Newfoundland prohibit the sale of butter blends. Even Ontario will keep vestiges of the old approach by seeking prohibitions against blends of margarine and butter. In addition, most of the provinces have some form of advertising and marketing restrictions that prohibit margarine manufacturers from making references or comparisons to butter. (Please see Exhibit A attached to this document for a summary of Provincial Margarine Regulations)

Because of this patchwork quilt, Unilever and other producers continue to face several different marketing scenarios throughout Canada.  The resulting economic inefficiencies, such as shorter production runs and multiple inventories,  hinder Canadian producers in their attempts to compete with U.S. producers both in this country and in the export market.  As a result, the industry has sought refuge from imports through quotas and tariffs.

Free Trade Inevitable

Foreign access to our market has been opened by both NAFTA and the Uruguay round of the GATT.   Currently, the United States is intent on proving that the remaining margarine tariffs run in the face of NAFTA.  A NAFTA panel has been convened to begin discussions regarding Canada's tariffs on poultry, eggs and dairy products and margarine. The U.S. position holds that Canada's transformation of import prohibitions to equivalent tariffs breaches NAFTA.

As a result of the force of the U.S. complaint, tariffs could be greatly reduced and possibly eliminated. While there is still time, all levels of Canadian government must soberly assess the impact of a domestically hampered industry forced to face unfettered international competition.  

If, in the long run, margarine producers must face the removal of tariffs and the introduction of foreign competition we should -- in fairness -- have uniform province-to‑-province regulations. To do so, would be to live up to a key element of the Agreement on Internal Trade, specifically the objective to streamline and harmonize standards and regulations.

As part of implementing the Agreement on Internal Trade, provincial governments should remove colour and advertising restrictions and harmonize requirements on fat levels, and blended and  imitation products.  Immediate priorities are the removal of colour legislation in Quebec and PEI and implementation and enforcement of  harmonized fat level standards nationally.  Unilever recognizes that some further discussion to harmonize standards on blended and imitation products may be necessary.

We recommend that other provinces follow Ontario's lead and work quickly, diligently, and co-operatively to resolve colour and fat content restrictions. Provincial action is required now on a national basis to address outstanding issues.

Federally, the government should take a leadership role and establish the consultative process to encourage the provinces to harmonize nationally.  What is required is aggressive support for two broad government initiatives: (1) the Agreement on Internal Trade itself and (2) Agriculture and Agri-Food Canada's draft principles on dairy and vegetable oil products.  

Unilever recommends that international CODEX standards related to fat content and product nomenclature should be adopted to clarify the confusing array of imitation margarine and dairy products currently in the market.  (Please see Exhibit B attached to this document for a summary of  international CODEX standards).  CODEX is adhered to by the European Union and has as its virtue broad international acceptance.  

If adoption of CODEX could not be achieved, Canada should harmonize with U.S. fat level standards and product nomenclature. Similarly, nutritional labelling and nutrient content requirements must be harmonized nationally and with other major jurisdictions. 

Finally, once national harmonization is achieved on colour, fat levels, advertising and marketing, and imitation and blended products, governments must consistently enforce the agreed national rules.  Consistency of enforcement is vital to realizing the benefits of our collective efforts to achieve national harmonization by sending a clear signal to all producers, domestic and international, that they must play by the rules of the game. 

Managing the Transition

We believe it is also vitally important to protect our domestic market during the transition to uniform standards. Unilever urges the federal government to remain vigilant in its defence of the tariffs imposed on those food products. If tariff protection is eventually eliminated, it is crucial that Canadian margarine producers be allowed to adjust to more competitive domestic and foreign pressures.  

Consumer Benefits

As stated in the Agreement on Internal Trade, "greater uniformity in standards allows firms to capture the benefits associated with a larger market and puts downward pressure on prices."  Currently, consumers bear the cost of inefficiencies in the margarine industry.  Removal of the interprovincial trade barriers to enhance efficiencies will yield a direct consumer benefit in the form of a lower price for margarine at the retail level.  

Consumers also stand to benefit in other ways.  National harmonization of fat levels, and consistent enforcement of nomenclature, would provide clarity of choice where currently confusion reigns.  Clear and unfettered communication through labelling and advertising  would enable consumers to make informed purchasing decisions based on their personal nutritional and dietary preferences.  From a dietary point of view, margarine offers a variety of choices and -- in the context of the desire of today’s consumer to reduce fat consumption -- is available in reduced fat formats.   And, finally, the removal of outmoded colour restrictions would allow producers to market margarine products with an appearance that is clearly preferred by consumers. 

The benefits of interprovincial harmonization as outlined in this document also extend to the Canadian economy.  Unilever’s recommendations will help retain jobs related to the margarine industry in Canada, and will ensure ongoing support for Canada’s oil seed industry. 

Conclusion

As Canada’s First Ministers meet in June 1996, the outstanding commitment to implement the Agreement on Internal Trade remains a priority for Canada.  Unilever adds its voice to those who encourage our First Ministers to complete the important task of removing interprovincial trade barriers and helping to secure our economic future.  For the margarine industry, the time is near when we will face increased international competition and work must begin now to establish “an open, efficient and stable” domestic market for the long term viability of our industry and the benefit of the Canadian margarine consumer.  

For more information:

Sean McPhee
Sean McPhee & Associates Inc.
(416) 214-1232

[ Home ]

Copyright © 2004 - All Rights Reserved - No part of this website may be reproduced in any manner or downloaded without written permission from Sean McPhee & Associates Inc.  

Please report any errors to : webmaster@smcphee.com .  
Last modified: March 21, 2007