U.S. yogurt maker creams Canadian rivals in culture wars

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A New York yogurt maker has stirred up the Canadian industry, winning a big legal victory that allows it to escape hefty tariffs – but there's a best-before date of 15 months.

Chobani Yogurt, the upstart U.S. manufacturer known for its Greek-style product, has prevailed in court against Canadian rivals that had argued its arrival on Ontario grocery shelves threatened Canada's sheltered supply management system.

A Federal Court of Canada judge has dismissed a challenge of a temporary permit granted by the Harper government that allows Chobani to avoid paying hefty tariffs on imports of foreign yogurt for up to 15 months. The decision, reached in June, was only made public this week.

The court's decision, if it stands, could provide a blueprint for other foreign food processors on how to enter Canadian markets where supply-managed goods, such as dairy, eggs or poultry, are produced. That's because the court ruled that the temporary import permits – which offer a break on tariffs while a foreign company tests a new market – do not represent a threat to supply management.

Chobani, a New York company that in four short years has become a top-selling yogurt brand in the United States, found its plan for establishing a beachhead in Canada challenged by domestic yogurt makers.

Ottawa granted makers of the Greek-style yogurt a temporary permit to import their product without paying the 240-per-cent tariffs that normally would be slapped on foreign yogurt in the name of protecting Canadian dairy farmers.

Instead, for a short while, Chobani is paying only a 5-per-cent surcharge on U.S. yogurt imports while it tests whether there's a Canadian market for the popular product.

After about 15 months, however, it would be expected to build a Canadian factory and produce the yogurt using Canadian milk.

Chobani yogurt is distributed at approximately 60 Loblaw banner stores in the Greater Toronto Area under the current import permit.

But Canadian yogurt producers, Ultima Foods and Danone Inc., argued the temporary permits were bad for Canada's supply-managed system of farm products including dairy goods.

Huge tariff walls shield Canadian milk farmers from significant foreign competition and production is limited through a command-and-control approach to setting prices and output.

The Canadian yogurt makers argued that Chobani's test run in Canada using product made from lower-priced American milk would allow it to unfairly build market share.

According to evidence supplied for the court case, the type of milk used in yogurt production is 79 per cent more expensive in Quebec than in New York state.

Canadian yogurt makers warned that sales of U.S.-made Chobani during this test period would "cannibalize" sales of products made in Canada.

Judge Sandra J. Simpson of the Federal Court said she didn't think the import tariff relief granted to Chobani would hurt the supply management system because it was only for 15 months and limited to the Greater Toronto Area.

A Danone spokeswoman said the company is disappointed and has not decided whether to appeal.

"We contend that Chobani, an American dairy producer, benefits from preferential treatment by the Canadian government for the sale of its Greek yogurt, made entirely of American milk. This advantage is particularly significant when producing Greek yogurt, as it requires three times more milk to produce than regular yogurt," Anne-Julie Maltais with Danone said.

Chobani, which helped drive demand for creamy yet low fat Greek-style yogurt, was launched in 2007 by Turkish immigrant Hamdi Ulukaya who bought a plant near Utica, New York, that was being closed by Kraft Foods.

Robert Armstrong, lead counsel for Chobani, said the company welcomes the decision. He said the litigation ended up creating long delays for Chobani's plans to more broadly introduce its yogurt to Canadian consumers.

But he said the federal court decision has cleared the way and ultimately set clear principles for the introduction of innovative new products to Canada.