Canada cuts $48M in tariffs to boost food manufacturing

As the incoming Trump administration talks about piling on new tariffs to discourage imports and protect American jobs, the Canadian government quietly movedin the opposite direction over the holidays:eliminating tariffs.

Why? To support Canadian jobs.

A customs tariff order published Dec. 28 in the Canada Gazette describes how roughly 200 different tariffs on imported food ingredients will be repealed or amended.

The order says that based on recent import levels, an estimated $48 million in tariffsare collected annually on these products.

That's roughlyhow much revenue the government now gives up. And whatmanufacturers will save, accordingly.

The cuts took effect Jan. 16.

Some food ingredients already enteredCanada tariff-free underthe North American Free Trade Agreement (NAFTA.)

ButFinance Canada estimatedthat about57 per cent ofthese imports were subject to tariffs. The duties averagedabout five per cent.

Surprise! It's duty-free now

Wanting toboost the competitiveness of Canadian manufacturing isnotnew: the 2009 and 2010 budgets ofthe previous Conservative government cut tariffs on imported machinery and equipment.

The Liberals have addedagri-foodingredients to that list.

Theyfloated the idea in last spring's budget and aconsultation followed.But no minister or press release popped upto say what was decided.

A long list of fruits and vegetables, cereals and grains, spices, fats and oils, food preparationsand chocolate products but nothing from the dairy, egg and poultry sectors covered byCanada's controversial supply management system now classify asduty-free.

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Some new tariff classifications were created to ensure foods destined for retail sale don't slip through.

The new cuts took holdwithout any fanfare.

One food manufacturer contacted by CBC News to comment on the potential savingshadn't even heard about it yet.

But the Food & Consumer Products of Canada, the largest industry group representingfamiliar brands like Campbell's, Kellogg's and Kraft, has been lobbying for a change like this for several years.

"This is a really positive step," said CarlaVentin, the association's vice-president of federal government affairs.

'Moving in a different direction'

The industry's cause isfashionable now, with the chair of Finance Minister Bill Morneau'seconomic advisory panel, Dominic Barton,touting thegrowth potential of the Canadian agri-food industry as international food demandgrows.

Cutting these tariffs in amore protectionist international trade climate with the United Kingdom'sBrexitsplit from the European Union's single market looming and anincoming U.S. administration musing about what tariffwalls it might erect to protect domestic industries is even more interesting.

"This government is moving in a different direction," Ventin said. It's recognizedthatNorth American manufacturing ishighly integrated.

"Products cross back and forth across the border," she said. "We don't grow everything in Canada. We don't process everything in Canada."

No banana or pineapple trees grow here. There's no such thing as Canadian-grown cocoa. Need papaya for your chutney? That comes from somewhere else.

Common spices and seasonings like black pepper, nutmeg andcinnamon now enter tariff-free.

Threat to domestic growers?

The tariff list also includes produce that does grow in Canada.

The Canadian Horticultural Council, which represents domestic growers, says it wasn't notified of last spring's consultation.

"At the moment, we can't say with certainty how much of an impact the regulation will have on our members," said a statement from its president, Keith Kuhl.

Food processors don't see a serious risk ofdomestic ingredients beingdisplaced.

"Supply chains with companiesare unique and well-established. They don't change overnight," Ventin said, citing Canadian food safety and environmental standards and transport costs as reasons why Canadian manufacturers buy local ifthey can.

"A great deal of thought went into which tariff items will be removed," she said.

But crops sometimes fail. Internationalsuppliersare sometimes the only alternative.

"I'm not sure how much it will save," said Chris Kyte, the president of the Food Processors of Canada, which represents about 100 Canadian-owned companies that make things like frozen entrees, pizza and beverages.

"It's one step to becoming more competitive," he said."While it might be a 10 per cent or a 20 per cent tariff, and it might not be a large ingredient, every little bit helps, right?"

Particularly in a tight-margin business like the food industry.

"What I find gratifying is that the government recognizes that food manufacturing is important," Kytesaid. "You think of the way they fawn over car companies. They would have gotten this a long time ago."

Large employer

Food manufacturing employs about 300,000 Canadians nationally not only in large, urbanenterprises but also in small, local facilitiescloser tofarm suppliers.

"It's the largest employer in rural Canada and we do a large export business," Kyte said.

The government's movelevels the playing field.

"In the United States they got rid of tariffs on [food ingredient]inputs a long time ago," he said. "Our government's really getting around to it today."