How the U.S. has been milking the dairy system
Some observers question ‘hypocritical’ complaints about Canada’s trade barriers
It imposes strict quotas on how much milk product it will import freely from other nations, sets high tariffs to limit imports above those quotas and generally opens only a small portion of its dairy market to foreign competitors.
It is, surprisingly, the United States, a country that some experts say erects the same kind of trade barriers to protect its dairy industry as those it constantly blasts Canada for imposing.
That charge of unfair milk commerce by this country — mounting in intensity over recent days — has become arguably the defining issue of hard–fought trade talks that resumed Tuesday.
Yet the American system for managing dairy trade is in many ways similar to Canada’s, and the States actually imports proportionately fewer milk products than this country does, according to one analysis.
“It’s the pot calling the kettle black,” says agricultural economist Al Mussell about the complaints levelled by American officials from President Donald Trump on down.
The American call for Canada to loosen its restrictions on dairy imports has picked up pace in the last week, with Trump threatening the “ruination” of 20-per-cent auto tariffs if Canada doesn’t open the door to more American milk goods.
Agriculture Secretary Sonny Perdue added to the clamour over the weekend, saying “Our farmers don’t have access to the Canadian markets the way that they have access to us.”
But that is simply not true, contends Stanford University economist Roger Noll.
“Both countries deserve to be criticized for the trade barriers they already have,” the professor emeritus said in an interview. “And for the U.S. to complain about Canada doing exactly the same thing the U.S. does is hypocritical. I have no sympathy for it at all. It’s nonsense.”
U.S. dairy associations contacted Tuesday were unable to comment by deadline.
However, agriculture economist Andrew Novakovic of Cornell University questioned the notion the two systems are truly comparable. The main barrier to Canadian dairy producers entering the U.S. market is not American tariffs — which are lower than those north of the border — but the fact Canadian prices are much steeper than those of American competitors, he said.
“Yes, it’s true the U.S. has some protectionist elements in its tariffs,” he said. “But at the end of the day, we are a much more open economy for trade than Canada is.”
Regardless, sources familiar with the trade talks in Washington say Canada is likely to offer the U.S. more access to the Canadian dairy market.
What is clearly different between the countries is the supplymanagement system in Canada that limits how much milk farmers can generate, and sets the price for their products, versus the more free-wheeling U.S. environment.
The Canadian creation two years ago of a low-priced alternative to a new U.S. dried milk product — and its effect on world prices — has added another irritation to the relationship.
But when it comes to imports, both countries assign “tariff rate quotas” — allowing a certain quantity of dairy to be imported that in the case of NAFTA countries is free of any levy. And for imports above the quota limits, both set high duties.
Canadian “outside-quota” tariffs are very high — as much as 300 per cent for some products, a fact that Trump has often highlighted in his attacks on Canada’s protectionism.
U.S. tariffs outside of the quotas are lower, the equivalent of about 30 per cent on cheddar cheese, concluded a recent research paper by Mussell’s Agri-Food Economic Systems in Guelph, Ont.
But adding even that much on top of the base price discourages most exporters, said Mussell.
Citing data from the U.S Agriculture Department, Mussell estimates that U.S. cheese imports are equivalent to about three per cent of its overall production.
Canada already imports five- to six per cent of its cheese, he said, and that figure will rise as new freetrade agreements with Europe and Pacific nations come online, giving those countries more of a foothold in the Canadian market.
The U.S. exported just under $500 million in dairy products to Canada under tariff-free quotas last year, about triple what it imported from here.
But Novakovic said the outward similarities of the two systems don’t tell the whole story. Supply management means that Canadian prices are much higher, with two pounds of cheddar cheese at a Sam’s Club store in the U.S. selling for about US$3, versus US$5 across the border, he said.
If Canada had the lower outside tariff rates of the U.S., American producers could still compete here, Novakovic argued.
Then there is class-seven milk, the ultra-filtered dried product that the Canadian industry authorized at a low price to compete with a new American export that circumvented the NAFTA exclusion of dairy. Not only did it deprive Americans of a substantial market, but when Canadians exported surplus class-seven, it depressed world prices, Novakovic said.
Sources close to the trade talks believe Canada may offer to end the class-seven milk program.