Let’s review Marketing 101
Canada’s getting used to bracing itself for Donald Trump to drop yet another shoe. This time the U.S. president is aiming at this country’s dairy industry, specifically supply management, but it’s not clear he has a good grasp of how it works.
Trump’s claim that the Canadian system is at fault for “some very unfair things” happening to U.S. dairy farmers came out Tuesday as part of his “Buy American-Hire American” executive order – his latest attempt to blame the woes of one of that country’s sectors on a trade imbalance.
The threat has dairy farmers in Nova Scotia and across the country nervous. Politicians are adding their voices, including Nova Scotia Agriculture Minister Keith Colwell; so is Canada’s Ambassador to the U.S., David MacNaughton.
They and the farmers are saying supply management is not what’s hurting American farmers, it’s a market over-saturated with milk products.
Supply and demand, as any first-year business student would tell you, it’s that simple.
The interesting thing in this case is that supply management was instituted in Canada for that exact reason: to help match supply with demand, avoiding gluts, or shortages and resultant rollercoaster fluctuations in price.
With no reins on the industry, an oversupply leading to falling prices would see producers done in; that translates into a drop in supply and soaring prices for consumers.
More stable prices are of benefit both to the farming community and consumers.
The Canadian dairy industry isn’t the only entity that uses this principle.
Think about global oil production. The Organization of the Petroleum Producing Countries – when they can agree, that is – set a benchmark for production to help stabilize crude prices.
When producers in some countries don’t abide by the limits, it can mean a price break for consumers in the short run. But overproduction and lower prices also put a damper on some operations as well as on new projects – meaning consumers can’t count on savings indefinitely.
Typically, when Trump comes up with pronouncements like this one aimed at a “trade imbalance,” or “unfair things,” he’s telling it to a target audience.
In this case, about 70 dairy producers in Wisconsin and New York State are up in arms over Canada’s import tax on ultra-filtered milk, a protein liquid concentrate used in cheese making.
The tax was applied due to pressure from Canadian farmers because the product added to that flooded market.
As for any purported trade imbalance, Francois Dumontier, a spokesman for Les Producteurs de lait du Quebec, claims imports of U.S. milk products have increased since 1993 and now account for three-quarters of milk products in Canada.
The response from Canadian officials must be to demonstrate to Trump how a push to greater oversupply is not in anyone’s interests.