Like British cheddar? Enjoy it while you can still find it

The grey weather outside Darren Larvin's window in Wiltshire, U.K., when he spoke to CBC News last Tuesday matched the forecast for his company's Canadian cheese sales in 2024.

"Essentially, we're going to fall off the edge of a cliff at the end of this year," said the managing director of Coombe Castle International, an award-winning global exporter of British dairy products like specialty creams, butters and cheeses.

After Brexit — the United Kingdom's departure from the European Union in 2020 — an interim agreement kept tariff-free British cheese on Canadian shelves for three years, as government negotiators worked on a longer-term bilateral trade deal to replace the liberalized trade the U.K. enjoyed under the terms of Canada's Comprehensive Economic and Trade Agreement (CETA) with the EU.

Those bilateral negotiations have yet to land. And in the meantime, both sides confirm their temporary cheese deal expires at the end of 2023. There's a risk British cheese imports are set to nosedive.

After four decades of working with other top British cheesemakers to find openings for fancy U.K. cheddars in Canada's notoriously closed dairy market, Larvin admits to feeling "pretty desperate." This change affects about one-third of his business. While British cheese shipments may not drop to zero, he's poised to lose a lot of Canadian shelf space.

According to international trade data, the U.K. exported over two million kilograms of cheese to Canada in 2022 — and a massive slice of that are Coombe Castle products. Cheese is a seasonal commodity: trade data suggests Canadians love their party platters and holiday gift baskets at this time of year, with strong demand for the kind of specialty cheddars Coombe Castle ships — which includes Advent calendars and even a maple cheddar uniquely targeted at Canadian tastes.

Darren Larvin, the managing director for Coombe Castle International, works with over a dozen British cheesemakers to export a range of fine cheddars to Canada. About a third of his business may be impacted if a new deal isn't reached. (Submitted by Darren Larvin)

Larvin says his company worked with its Canadian partner to ship as much as it can to close out 2023. But once that stock sells through, jobs are at risk for not only his U.K. suppliers but also small businesses in Canada like the boutique shops that feature his products.

CBC News reached Lisa MacNeil from Tree of Life, a Toronto company that partners with Coombe Castle to import British cheeses. She confirmed this change negatively impacts her business too, and said "it didn't need to happen."

'Off the table'

Canada's dairy industry believes the U.K.'s decision to leave the EU (and by extension, CETA) shouldn't become their problem to fix.

In the aftermath of the bruising renegotiation of the North American Free Trade Agreement, Prime Minister Justin Trudeau promised dairy farmers that no additional slices of Canada's domestic market will be served up to exporters in future negotiations.

"For dairy farmers, a promise made is a promise kept and we expect the same from our government," former Dairy Farmers of Canada president Pierre Lampron wrote in a Dec. 1, 2022 letter, reminding the government that trade deals the Liberals implemented since coming into office have, by the dairy sector's calculations, already outsourced 18 per cent of Canada's market to foreign producers.

"The Canadian dairy industry must not be further penalized by the U.K.'s decision," Lampron said. "New access to the Canadian dairy sector should remain off the negotiation table."

A private member's bill currently in the Senate could also tie negotiators' hands and prohibit future trade treaties from conceding additional imports of supply-managed farm products like cheese.

Competing for a smaller share

To import cheese tariff-free, a business needs to hold tariff rate quota (TRQ) — permits assigned by the Canadian government for specific annual volumes, subject to specific criteria.

Global Affairs publishes import data for specific categories of cheeses, according to the terms of Canadian trade treaties as well as World Trade Organization rules. In 2023, TRQ was allocated for up to:

• 16 million kg from the EU, under the auspices of CETA (plus an additional 1.7 million kg of European industrial cheeses, which are mass-produced, often used as an ingredient in further processing);

• 3.6 million kg from the member countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes Pacific Rim dairy exporters like Australia and New Zealand (plus an additional eight million kg of industrial cheese and 2.9 million kg of mozzarella and prepared cheeses from the CPTPP bloc);

• 4.1 million kg under the auspices of the Canada–United States–Mexico Agreement (CUSMA, which updated NAFTA in 2020), (plus an additional 4.1 million kg of industrial cheeses from the U.S. or Mexico);

• 20.4 million kg to fulfil World Trade Organization obligations, of which:

  • 14.3 million is reserved for EU members, and

  • 6.1 million is available to all other countries.

A side letter on cheese written to accompany the Canada–U.K. Trade Continuity Agreement in 2020 said that "cheese originating in the United Kingdom shall continue to be eligible to be imported into Canada under the reserve for the European Union within Canada's WTO cheese TRQ until no later than Dec. 31, 2023."

After that, companies like Coombe Castle must compete with exporters from other countries like Switzerland for space in the second, smaller WTO reserve for non-EU countries, which is already 96 per cent utilized.

In the meantime, French, German or Dutch cheese could fill the gaps British products leave on Canadian shelves. "Something else will replace it, because retailers have to plan for the future," Larvin said. "It's sad, really."

"We continue to talk to dairy farmers and producers about the potential changes at the end of the year, including ensuring that they have all the information they need to prepare," a spokesperson for the British High Commission said in a written statement to CBC News, adding that British cheese exports to Canada were up 11 per cent in 2023.

Darren Larvin, centre, met King Charles earlier this year during a reception for recipients of the King's Award for Enterprise at Buckingham Palace. It was the fifth time his business was honoured for its international export success, something now at risk if a new dairy trade deal can't be negotiated. (Submitted by Darren Larvin)

Import permits controversial

When the U.K.'s entry into the CPTPP takes effect — the text for Britain's accession was reached last summer, and earlier this month Japan became the first member of the Pacific Rim trading bloc to ratify its new membership — British cheese could compete for the TRQ available under that treaty.

That does little to ease Larvin's mind. "There isn't enough cheese in CPTPP," he said, noting that the U.K. will be up against major dairy exporters like Australia and New Zealand.

And based on his company's experience under CETA, Larvin fears the CPTPP may not be as helpful as advertised.

The CETA, CPTPP and CUSMA all allow Global Affairs to allocate import permits to Canadian dairy processors, instead of retailers or traditional importers.

"It creates almost like a black market for transferring quota," Larvin said. "That's really not what the whole trade deal was about — it wasn't meant to become an opportunity for people to make money from trading quota between themselves and not have any interest in importing."

This process also drives up the costs for consumers, he said. "CETA brought in people who were opportunists, and not really in it for the long haul."

Canada's trade agreement with the European Union made it easier to find affordable European cheeses in grocery stores like this one in Ottawa. When the United Kingdom left the EU, however, it also exited its trade agreement with Canada, and it's still negotiating to replace it. (Janyce McGregor/CBC)

The Canadian government intended the profits from dairy imports to serve as compensation to its domestic dairy industry for the market share it lost to foreign competitors.

That wasn't what treaty partners felt they'd bargained for. Canada's TRQ allocation process was challenged by both the U.S. and New Zealand in recent trade disputes, with mixed results.

The Dairy Processors Association of Canada said it wasn't in a position to comment on the expiration of Canada's side letter with the U.K. on cheese, saying CBC News' questions were outside the scope of their president's expertise.

Could WTO quota previously allocated to the EU be re-assigned to the U.K., since the EU is smaller post-Brexit? CBC News asked Global Affairs Canada if it was considering such a reallocation.

"To date, Canada and the U.K. have not agreed to any new arrangement related to U.K. access to Canada's WTO cheese TRQ," said GAC spokesperson Jean-Pierre Godbout.

Cheese for beef trade-off

"I'm not saying the U.K. is not at fault for leaving the EU," Larvin said, "but it would just be nice for us and our (importer) partner in Canada to have some comfort that we can continue trading while a sensible agreement is found for both parties."

Larvin says he understands trade negotiations are difficult. He's written letters and travelled to both London and Ottawa to meet with officials and parliamentarians to explain what's at stake. Everyone likes his products, he said, but he's left with the impression negotiators have "come to the end of the road" for reasons that have nothing to do with cheese.

With bilateral negotiations scheduled to conclude in 2024, Canada and the U.K. have yet to harmonize their food safety standards to enable more Canadian meat exports.

Beef and pork producers have been lobbying the Canadian government to hold back any new trade agreement with the U.K. until more of their products are accepted under British regulations.

The Dairy Farmers of Canada also said in their letter that they objected to the U.K.'s proposal to include a chapter on animal welfare standards, calling that a threat to Canada's sovereignty and an attempt by the British to dictate Canadian agricultural production standards.

Although the text for the U.K.'s accession to the CPTPP was finalized last summer, International Trade Minister Mary Ng's office confirmed last week she has yet to even give the required 21-day notice to Parliament to begin Canada's ratification process.

It's an echo of the "cheese for beef" standoff that characterized the end game of the CETA talks a decade ago.

"It feels like we're a bit of a pawn in the whole game of trade negotiations," Larvin said.