Hard to believe dairy farmers crucial to NAFTA

U.S. cheese ingredient imports are not the hill to die on, Will Verboven says.

According to U.S. President Donald Trump, Canadian milk producers, who represent less than one per cent of the Canadian GDP, are responsible for the sad state of the $300-billion American agricultural economy.

Trump implies that if those dastardly Canadians would drop their 270 per cent tariff on U.S. dairy imports, our trading relationship would be much more harmonious. And here we thought it was about steel and aluminum, involving billions of dollars in critical trade and thousands of jobs on both sides of the border.

Canadian milk producers should be flattered they wield such power over the North American economy, and that they hold the spellbound attention of the American president. This absurdity gets more nonsensical when one realizes that it’s all about an imported American dairy ingredient used to create pizza cheese — that’s right — a few hundred million dollars worth of a product called ultrafiltered milk.

If that is what’s holding up NAFTA negotiations, just give it to them and compensate our dairy producers accordingly. The Canadian dairy industry would oppose such a trade capitulation, as it would add to the cheese import concessions already made in the Canada-EU free trade treaty and the Trans Pacific trade agreement.

That pattern is ominous for stable Canadian dairy production, but in the context of a growing immigrant population, many from countries where milk is the main source of protein, Canadian dairy production will remain relatively constant.

But there is more to the story.

Milk production in Canada is ruled by a closed-shop type of marketing system known as supply management that baffles innocent consumers. It can be compared, sort of, to a union wage agreement. The system is the envy of dairy farmers around the world, and contrary to the pontifications of urban pundits, it provides long-term price stability for Canadian dairy products.

Compare that to the selfinflicted market chaos in the U.S., with its uncontrolled milk surpluses, use of milkinducing hormones, billions of dollars in American taxpayer subsidies to dairy farmers, and their strident demands to export their dairy overproduction chaos to other countries.

That’s the gist of Trump’s demand for more access. Be that as it may, restricting U.S. dairy ingredient imports is not the hill to die on, and I expect that will be the Canadian government’s negotiating approach. Its public posturing about defending supply management to the death is just a duplicitous political bromide to placate supply management farmers in Ontario and Quebec.

In a carefully timed process, you can expect Canadian negotiators to concede to more American dairy imports, as they did with previous trade agreements. Being sophisticated lobbyists, I expect the dairy industry knows this and will be demanding compensation, which is bad news for Canadian taxpayers.

There is another way, and if implemented, it could become an economic bonanza for more dairy production in Alberta.

The Canadian government is already involved in a support program to ease the market impact on dairy producers because of concessions made in earlier trade treaties. It means millions of taxpayer dollars are being used to downsize production, mostly with small dairy farmers.

A better way is to place a surcharge on dairy products to finance a buyout of dairy production, including quota values. That approach would be short-term price pain for milk consumers for longterm market price freedom without supply management. It’s not ideal — supply management is still better than the dairy marketing chaos exemplified by dysfunctional American milk production.

I would suggest to those who promote the demise of supply management, be careful what you wish for. However, such a change could open new opportunities for increased dairy production in Alberta.

In the meantime, we need to help Trump overcome his obsession with Canadian dairy tariffs — tell him to relax. We will import more American pizza cheese ingredients if he will remove steel and aluminum tariffs.