Bottom Line: After a spirited fight, on June
21, 2012, the Federal Court of Canada ("Court") upheld
import permits issued to Agro-Farma Inc. ("Agro"), the
maker of the top-selling U.S. brand, Chobani® Greek yogurt.
Although Canadian processors strongly protested the grant of the
permit, arguing that they would be at a competitive disadvantage
and the move would contravene the dairy industry's supply
management system, the Court found differently, looking through a
Greek yogurt has exploded in popularity over the past year, with
Canadian sales increasing from 1% to 6% of the Canadian yogurt
market. With sales growing at such a fast pace, it is no wonder
that Agro, the maker of top-selling US brand Chobani® Greek
yogurt, wanted a piece of the Canadian market. In 2011, Agro was
granted a one-year test market import permit from
Canada's Minister of International Trade whereby it could
temporarily import and sell its Greek-style yogurt in the
Greater Toronto Area.
CANADIAN PROCESSORS SAY NO
Major Canadian yogurt processors opposed the granting of the
permit to Agro on the basis that it contravened the supply
management system regulating the Canadian dairy industry. The
supply management system, through control mechanisms on domestic
pricing, the volume of milk produced and the volume of imported
dairy products, aims to help milk and cream producers
obtain a fair return for their labour and investment.
Canadian processers argued that their sales would be harmed by
Agro's import permit and would result in a reduced demand for
Canadian milk. Given that the US government pays direct
subsidies to dairy farmers, the import permits would allow
Agro to sell Chobani® made with much less expensive US milk. As
the Canadian processors explained, this would mean that even
accounting for the cost of importing the yogurt from the US,
Agro's Chobani® sales would be more
profitable than sales made by Canadian processors, who are
required to use more expensive Canadian milk.
COURT SAW A ROSIER PICTURE
In deciding to dismiss the Canadian processors' application
for judicial review, the Court considered whether the issuance of
the import permit to Agro would harm the supply management system
in the long term in light of the following factors: geographic
scope and duration of the import permit and the market conditions
for the relevant products.
The Court acknowledged that while the import permit
might mean greater competition for Canadian yogurt
processors in the short term, which could potentially
impact their future market share gains, there was no
evidence that the permit would have a long term negative
impact on supply management. The Court noted, among other
things, that sales of the Chobani® Greek yogurt would be
limited to the Greater Toronto Area and imports were only possible
for 15 months. Further, although the import permit might result in
a short term reduction in domestic yogurt sales, the Court
anticipated an increase in demand for milk in the long run
which would have a positive impact on supply management.
Ultimately the Court found that the Minister of International
Trade made a reasonable decision in extending the temporary permit
to Agro, and therefore dismissed the challenge to block the
Chobani® Greek yogurt importation.
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