A panel created under a federal-provincial agreement has rejected an Ontario barrier to trade that kept products called "imitation dairy blends" out of the provincial market.

The panel, set up under the Agreement on Internal Trade, said Monday that Ontario rules preventing the sale of products that blend vegetable oil with dairy ingredients are inconsistent with the province's obligations under the AIT deal, signed by the first ministers in 1994.

"This ruling will help our oilseed producers and processors by allowing access to one of Canada’s largest markets for new and innovative healthy dairy blend alternatives," Saskatchewan Agriculture Minister Bob Bjornerud said in a release.

The release cited a 10-year-old estimate by the Vegetable Oil Industry of Canada, which placed a value of $225 million on the market that would develop if the barriers were lifted. The benefits today would be even greater, the release said.

The ruling marks the second time vegetable oil producers have overturned an Ontario rule.

After the first ruling in 2004, Ontario removed the offending act but then introduced regulations under another act that made it illegal to sell:

  • Milk products, such as milk or cream, containing any vegetable oil or fats.
  • Spreads containing vegetable oil that contained less than half milk fat and could be a butter substitute.

The province had found a new way to keep vegetable oil/dairy products out of its markets to protect its dairy industry, said Sean McPhee, president of VOIC.

Alberta, supported by Manitoba, Saskatchewan and British Columbia, challenged Ontario's second set of barriers early this year after VOIC became aware that the internal trade agreement rules governing disputes and penalties had been changed.

A three-person panel, including a Manitoba professor, a Montreal lawyer and a former B.C. deputy minister, held a hearing in July.

The panel ruling Monday said Ontario should bring itself into compliance with the AIT no later than February 2011, and Ontario should be aware of its obligations to be transparent under the agreement  if it plans new measures.

It could face a fine of up to $5 million if it fails to comply.

A spokeswoman for Ontario Agriculture Minister Carol Mitchell said the government was studying the ruling.

"We remain committed to supply management," said Sarah Petrevan.

Ontario will consult with dairy farmers, but it also talks with other producer groups, such as the Ontario farmers who produce vegetable oils.