Spoiling for Canada fight, U.S. dairies push for Trump deal

Blame Canada. That’s what U.S. farmers say about some of the bubbling gluts weighing on the milk market, and they are eager for President Donald Trump to do something about it.

While growers and exporters of U.S. crops and food products have expressed anxiety over Trump’s restrictive immigration policies and determination to renegotiate trade deals, dairies see him as an opportunity to crack what they see as Canada’s protectionist milk practices and to help ease oversupply in some regions.

A key battleground is the little known market for ultrafiltered milk, a concentrated ingredient used to boost protein content in cheese and yogurt. Canada is creating incentives for processors to buy from domestic manufacturers. U.S. producers say that could be a disaster, and they allege the new policy would violate trade agreements. Companies in Wisconsin and New York alone might lose $150 million (all figures US) in sales north of the border.

Canada “seems to want to have the free flow of goods south, but are protective of anything going north, so it’s time to sit down and talk,” said Kevin Ellis, chief executive officer of Cayuga Milk Ingredients in Auburn, N.Y. The company exports $30 million a year of ultrafiltered milk to Canada. “My hope is that the Trump administration takes them on.”

The view is different from the Dairy Farmers of Canada. The Ottawa-based industry group, which represents 12,000 farms, says imports of U.S. ultrafiltered milk causes an estimated $231 million in annual losses for domestic producers. Under the 1994 North American Free Trade Agreement, which Trump has lambasted as “the worst trade deal ever,” most U.S. dairy products face duties of as much as 300 per cent. Ultrafiltered milk wasn’t part of those rules and arrives in Canada without tariffs.

Any restriction on exports is bad news for American dairy producers, who saw cash receipts drop to a six-year low of $34.2 billion, U.S. Department of Agriculture data show. Low prices and global surpluses have hurt the entire U.S. farm economy, with net income forecast to drop for a fourth straight year in 2017.

The news isn’t all bad for U.S. producers. Even with expanding record output, domestic prices are expected to rebound in 2017, according to the USDA. Americans are eating more cheese and butter, and U.S. output may be needed to fill supply shortfalls elsewhere in the world.

The new Canadian policy on ultrafiltered milk — dubbed the national ingredient strategy — hasn’t been finalized yet, but U.S. dairy groups already don’t like what they’ve seen.

Canada is already “prohibitive” for American farmers, and its “increasingly protectionist” stance isn’t in keeping with trade obligations under World Trade Organization agreements and NAFTA, the Washington-based National Milk Producers Federation said in a statement last year. The group urged Trump to push back against the changes.

The president has pledged to renegotiate NAFTA as part of an “America first” policy. House Speaker Paul Ryan emphasized the importance of “breaking down trade barriers and improving market access for America’s dairy farmers” during a Feb. 13 meeting with Canadian Prime Minister Justin Trudeau in Washington.

At an industry conference in Winnipeg last week, Canadian Agriculture Minister Lawrence MacAulay called the country’s supply-management system for dairy a “model for the world” that the government strongly supports. The new ingredient strategy was put together by dairy farmers and manufacturers, he said.

“It’s the Canadians who have vehemently resisted trade with us and fought to slam shut what few doors are open,” said Shawna Morris, vice-president of trade policy at the National Milk Producers Federation. Still, until a final version of Canada’s new policy is released, no disputes can be officially filed, she said.

Canada controls dairy production through quotas, and imports are restricted with tariffs under a system known as supply management. Regulators have been tightlipped about the potential changes and when they will officially come into effect. The strategy is still being negotiated, “so we won’t discuss it,” Isabelle Bouchard, a Dairy Farmers of Canada spokesperson, said in an email. The Canadian Dairy Commission didn’t respond to requests for comment.