CORCORAN … Dairy farmers won’t stop milking us.

It’s all hitting the fan down in the Canadian dairy barn. Get out the big galoshes, because this is going to get really messy.

Seems the supply management regime is in trouble again, hit by freer trade rules, changing consumer habits and new technologies that are putting a big squeeze on dairy farmers. Meanwhile, the other branch of the Canadian supply management consumer milking machine — the giant dairy processing corporations — are in perpetual consolidation to adapt to a rapidly changing global industry.

But don’t think for a minute that the players — from farmers to cheese makers — are out to generate big consumer benefits. Everything is set to change, except for consumers, who will still likely get milked for years to come.

Take as one small example the big gain for consumers in the recently completed trade deal with Europe. Under the agreement, Canada will allow the importation of 16,000 additional tonnes of retail cheese from Europe free of the normal protectionist 300% tariff. Nice consumer bonus. Bring on more real brie!

But wait. Who should be allowed to bring in this cheese? In comments last month, Lino Saputo Jr., head of Canada’s largest cheese maker, said he supported Canada’s other big cheese maker, Agropur, in asking Ottawa to allocate most of the 16,000 tonnes of cheese to companies such as Saputo and Agropur.

The Dairy Processors Association of Canada actually made this little request a year ago. The cheese imports, it said, should be “assigned primarily to the current cheese processors in Canada.” It was important to do this, you see, because: “The allocation of the import quota to those businesses directly involved in the industry in Canada and who understand the unique domestic marketplace would ensure orderly marketing of the new allocation in a manner that would have the least opportunity to cause disruption of the Canadian primary and processing industries while fulfilling Canada’s new obligations.”

Spoken like a true trade protectionist. If you fail to note any consumer benefits in this, that’s because there aren’t any. Why would Ottawa eliminate a possible source of competition in price and quantities of cheese — desperately needed by consumers — by awarding the import quota and all the price-setting power to giant national protectionist cheese makers?

Remember that these are the same companies and co-operatives that fought tooth and hoof to block Chobani, the U.S. yogurt maker, from setting up a manufacturing plant in Canada, thereby preserving the Greek yogurt market in Canada for themselves.

Ottawa, once captive of the dairy farm lobby, seems to be slipping deeper into the clutches of the dairy processors who, over the years, have grown (on the backs of captive consumers paying higher prices) into giant companies with investment and supply tentacles all over the world. Their main line of business lately seems to be foreign acquisitions.

Which brings us to another cheesy development in the industry, the big increase in duty-free imports of something called “high protein concentrated dairy ingredients” containing 85% or more protein. Imports of such milk protein ingredients (MPI) have risen from near zero 10 years ago to 21-million kilograms in 2014. Total value of MPI imports hit $192-million and accounted for 20% of total dairy product imports.

The major importers of these MPIs are the big dairy processors, who are making an end run around Canadian dairy farmers. The high-protein ingredients were developed in recent years by U.S. researchers who found ways to concentrate protein after the fat has been removed. Because the MPIs are considered new products, they are not covered under NAFTA and can enter Canada duty free from the U.S. and Mexico.

Since companies such as Saputo, Agropur and other Canadian dairy processors have recently expanded into the United States via acquisition, it is reasonable to assume that some of the MPI imports are coming into Canada from Canadian-owned U.S. plants. In any case, the surge in MPI imports is killing farmers.

The milk production chain begins with extraction of fat used in butter, ice creams and other products. The remaining skim-milk products are priced and sold separately. The Canadian supply management system is designed to support the price of the skim-milk production.

However, according to a recent report from executives at the Dairy Farmers of Ontario, these MPI imports are being used to make Canadian cheese and other products and have created a “structural surplus” in the skim milk side of the supply management system. The surplus develops because the milk producers are left holding millions of kilograms of milk products that have no market. The DFO report, presented to farmers last week, says the estimated surplus for 2015 will be 78-million kilograms. Instead of selling as a milk product, the surplus is essentially dumped into the animal feed market at low prices.

What to do? The DFO has a plan to reform supply management in dairy products by bringing in a new regional or national “world price” for milk protein ingredients. The farmers are currently in negotiation with Saputo, Agropur and other processors through the Canadian Dairy Processors Association. Exactly how this system of prices and allocations would operate is far from clear.

Why would the big cheese makers who have access to unlimited dutyfree MPI imports, including from their own U.S. plants, need to a strike deal with the farmers? Both farmers and processors also claim to be seeking a new long-term pack that will see them through the fast-changing diary product trade environment for the next 10 years.

Meantime, for consumers, the best advice is to keep your galoshes on and wallets open.

In the dairy supply management system, everything is changing except for consumers