OTTAWA (Staff) – Canada’s pasta manufacturers are fighting a decision by Ottawa and Quebec to lend $3 million interest-free to a company building a large new pasta plant in Montreal.
It is a battle that pits the industry’s business judgment that there already is too much plant capacity in Canada against the political judgment of Ottawa and Quebec politicians that more jobs are needed in the Montreal area.
The $25 million Finepasta plant will be the largest in Canada. Promoters say 80 percent of its production will go to the United States.
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Lacks economic judgment
“We find this decision extremely disturbing and completely unjustified,” Don Jarvis, executive director of the Canadian Pasta Manufacturers’ Association, wrote to industry minister John Manley in late September. “It lacks sound economic and competitive judgment and it appears to be based on no regulatory impact analysis.”
He asked that Ottawa pull out of the deal, withdrawing its $1.5 million share which is “being unnecessarily subsidized by Canadian taxpayers.”
Industry Canada Quebec regional executive director Denise Boudrias rejected the request.
In a mid-October letter, she insisted the Montreal plant will not undermine the Canadian industry. She said Agriculture Canada and the Quebec agriculture ministry support the project as well.
“The basis for our support comes mainly from our evaluation and verification of the assurances given by the promoters to the effect that more than 80 percent of the production from this new pasta plant will be exported,” she wrote. “Very little production will be sold in Canada.”
At the heart of the project is Finepasta’s assumption it can take advantage of a decision by the American government to block imports of subsidized Italian pasta.
Finepasta says it can fill the American market gap left by the exclusion of European product.
The four existing pasta producers represented by the pasta association have been unable to win similar protection from imports of subsidized Italian product.
As a result, the industry says it has not made money since 1992 and is operating at 75 percent of capacity. Existing companies complain the new government-supported plant is unnecessary and will add more product to a saturated market.
Based on politics
The battle, and industry complaints that Ottawa and Quebec City are basing their aid more on politics than on economics, parallel a Reform party campaign against other federal loans to Quebec-based companies such as Bombardier Inc.
Jarvis complained neither government consulted Canadian pasta makers before a decision was made to support expansion. But the federal government shows no signs of backing down.
“This is an important investment for Montreal because it will create 121 new jobs,” industry minister Manley said when he announced the loan in July. “What is more, Finepasta’s plant will be using Canadian durum wheat, resulting in considerable added value. This project is an excellent illustration of the priorities of the federal and Quebec governments.”
