Ottawa and Canadian dairy farmers have bowed to pressure from the fast-food industry and will let thousands of pizza restaurants buy heavily discounted mozzarella cheese.
The move, announced Wednesday, potentially creates a new hole in the protective wall that surrounds the country's supply-managed dairy industry, which keeps prices artificially high and bans most imports.
McCain Foods Ltd. and other Canadian frozen pizza makers have for years been able to buy mozzarella at world prices, which are roughly 30 per cent cheaper than in Canada. McCain had warned it wouldn't be able to survive without the concession.
The discount has been a long-standing irritant of the restaurant industry, which complained that it's competing for the same consumers with one arm tied behind its back. Mozzarella can account for 70 per cent of the cost of ingredients for a pizza.
The Canadian Dairy Commission said it will create a new class of milk for mozzarella cheese effective June 1 that will substantially lower prices paid by restaurants making fresh pizza.
The dairy industry has been fighting a flood of foreign mozzarella, imported in duty-free packages bundled with pepperoni to avoid Canada's 245.5-per-cent tariff on cheese.
"It looks like the farmers have raised the white flag," said James McIlroy, a Toronto-based international trade consultant.
Mr. McIlroy added that he didn't see how the government would prevent discounted cheese from finding its way to consumers and other unauthorized buyers.
The dairy industry has been at odds with Pizza Pizza Ltd., which figured out that it could buy mozzarella in conveniently packaged cheese-and-pepperoni pizza topping kits in the United States.
Dairy farmers estimate that as much as 4,000 tonnes a year of U.S. mozzarella is now finding its way into Canada in duty-free kits, representing as much as 12 per cent of the fresh pizza cheese market.
The importer and the dairy industry are now contesting those imports before the Canadian International Trade Tribunal, arguing they are an effort to skirt the tariff.
Jacques Laforge, chief executive of the CDC, said the discount could be worth as much as $25-million to $27-million a year, and perhaps more if the lower price stimulates higher demand for pizza.
"If they sell more pizza, it reduces the cost to producers," Mr. Laforge said in an interview. "It's a win-win."
But Mr. Laforge said restaurants, which will have to register with the dairy commission to get the special price, will still pay more than frozen pizza makers.
And consumers won't get any break at all on the mozzarella they buy at the grocery store.
Garth Whyte, president and chief executive of the Canadian Restaurant and Foodservices Association, said the new price "responds to longstanding concerns" and he applauded the dairy industry's willingness to move.
Frank Morra, owner of Ragazzi Pizza Co., in Vancouver, estimates that mozzarella cheese accounts for about two-thirds of the cost of ingredients that go into his restaurant's large 17-inch margherita pizza with mozzarella, tomato sauce and fresh basil. The ingredients on that pizza cost roughly $7 in total, of which $4.62 would be the cheese. "We give a healthy portion of cheese," Mr. Morra said.
He sells the large margherita pizza for $15.45 plus tax, noting that he has to pay wages and incurs many other expenses.
Mr. Morra said he plans to cancel a price increase planned for the fall. He said cheese prices have steadily escalated over the past four years for him, and he's resisted raising prices. Assuming he gets savings from lower-priced cheese, he said won't raise menu prices.