Donald Trump and Canada’s highly protectionist dairy industry
Ineffective quota system must be overhauled before it’s too late, Sylvain Charlebois writes.
The great Canadian dairy crisis is about to experience a new and interesting twist.
On the verge of Donald Trump’s inauguration as the 45th president of the United States, some wonder whether he could bring about the end of Canada’s infatuation with dairy marketing boards.
Both during his campaign and after the election, Trump took aim mainly at China and Mexico for their perceived prejudicial trading tactics against America. Given that U.S. dairy groups are now calling on Trump to turn his sights on Canada, things may begin to change.
Chances are, Trump may not even know about Canada’s supply-management scheme. But once this scheme is understood, most people outside of Canada would assume such policies could exist only in poverty-stricken countries.
Supply management is Canada’s highly protectionist quota system in the dairy industry. The fundamental principle of supply management is to balance production and consumption domestically. The dairy products that are imported to Canada are subject to high tariffs, sometimes exceeding 300 per cent. Province-based marketing boards issue quotas so farmers can produce and distribute industrial milk for processing and consumption.
For years, Canadian dairy producers refused to admit the system did not serve the dairy supply chain and consumers well. The strategy in the face of any criticism was to advocate and deflect.
But since domestic milk prices were much higher than world market prices, processors started to import diafiltered milk from the United States. The product was imported under a different label, circumventing border rules and bypassing tariffs.
This lasted for a few years, thus creating a huge imbalance between milk produced in Canada and our domestic demand. The milk which was normally sold to make cheese, yogurt or other dairy products was slowly being replaced by American diafiltered milk.
At the height of the crisis, in 2015, some reports suggested Canadian processors were buying more than $200 million worth of American milk. In April 2016, Ontario reacted by creating a new class of industrial milk. The policy allowed dairy processors in Canada to purchase milk at world market prices instead of higher prices controlled by the Canadian Dairy Commission in Ottawa.
A cross-Canadian approach was to be established by February 2017, but things have been dragging on. In Ontario, the policy seems to be working. At the same time, American producers have enjoyed the increased Canadian demand and are apparently hungry for more.
U.S. dairy groups have recently expressed this interest directly to Trump, as our dairy sector never really had a strategy, other than protectionism, of course. In today’s world, this lack of strategy won’t do; Canadian dairy producers only have themselves to blame for the mess they are in.
The Comprehensive European Trade Agreement also will make things interesting for supply management. It will create a two-per-cent dent in the amount Canadian producers are asked to produce, based on the 17,000 tons of European cheeses about to come our way.
As a result, producers and artisan cheese makers will probably be generously compensated by Ottawa.
Now we are to have a new occupant in the White House. On the one side, we have a dairy sector struggling and in dire need of a vision. On the other, there is Trump, willing to challenge anything, 140 characters at a time, with the support of Congress and a trade-happy cabinet.
The Canadian dairy industry needs a complete overhaul to become more market-focused. The Canadian Dairy Commission Act needs to be modernized along with our self-serving quota system. Our dairy farming managerial practices do not measure up globally, and our cost structure would cause an entire sector to collapse should trade borders be opened.
Trump may be just what the Canadian dairy sector needs to become more relevant to our economy. Let’s hope it’s not too late.