Milking Trump to our benefit

An end to supply management is good for Canada

It would be odd if ultrafiltered milk should one day prove to have been supply management’s undoing. The “non-fat milk solid” isn’t even considered milk for purposes of trade law, but an “ingredient” for use in processed foods like pizza cheese.

And whereas the point of supply management is to keep prices higher than would otherwise be the case, the express aim of Canadian policy with respect to ultra-filtered milk is to drive prices lower.

Not being milk, after all, it was not subject to the usual astronomic tariffs with which the domestic milk cartel is protected from having its complex system of provincial supply quotas undercut by lowerpriced foreign imports. That raised the ghastly prospect of Canadian milk producers, to whatever microscopic degree, having to compete for a living, and we can’t have that. Indeed, since 1971 it has been against the law.

So a deal was worked out last year between the dairy industry and domestic processors, with the usual government connivance, first in Ontario, then across the country: part of what was inevitably called a “national ingredient strategy.”

If imports of ultra-filtered milk could not be made artificially expensive by tariff, then domestic production could be made artificially cheap, by subsidy. Not only would this help domestic milk producers repel the foreign invaders, but any surplus non-fat milk solids could be exported at the same ultralow prices, without inviting charges of “dumping” (selling a good for less abroad than at home, considered a no-no in trade law).

Or at least, so charge our foreign friends, including Australia, New Zealand, and the United States. Whether this sort of price manipulation meets the technical definition of a subsidy I leave to those who, for their sins, serve on those interminable trade tribunals that decide these things. But a manipulated price of some kind it most certainly is, because that’s the only kind of price the dairy industry understands. So in that sense, it’s exactly like supply management.

At any rate, this relatively obscure corner of the dairy industry has lately caught the attention of U.S. politicians, notably one Donald J. Trump. And suddenly the tantalizing possibility arises that supply management itself might be on the table as part of the looming renegotiation of NAFTA.

It’s impossible to say for sure, of course. When Trump declares that Canada’s dairy regulations are “very, very unfair” to the U.S., it’s a safe bet he has only the haziest notion of what he means, much as when he vows to “call Canada” to fix it. By tomorrow he may have forgotten about it, or changed his mind, depending on whom he talked to last.

That’s to the extent that Trump is even calling the shots. The problem for Canadian authorities trying to anticipate U.S. demands is that the Trump administration, on this as in other matters, is sharply divided between warring factions: hard line economic nationalists like Steve Bannon, the president’s chief strategist, or Peter Navarro, his director of trade policy; versus more mainstream figures like Gary Cohn, his chief economic adviser. And despite Trump’s unscripted remarks this week, supply management may not be at the top of either group’s hit-list.

That is, unless something can be done to encourage them. From any proper appreciation of Canadian interests, an end to supply management, not only in milk but in the other sectors in its clutches — cheese, eggs and poultry — is one of the best outcomes that could be hoped for from the talks.

That governments have been so unwilling to set aside a policy that is responsible for Canadian families paying two and three times the world price for basic food items, all to benefit a dwindling number of wealthy and aging, farmers (young farmers face a formidable barrier to entry, in the form of the cost of quota: more than $25,000 per cow) is one of the great dilemmas of public policy. If we have to enlist Trump to save us from ourselves, so be it.

We should not be too eager, however, given Trump’s view of trade: not as win-win but I win-you lose. To satisfy his need for conquest — and to show the domestic industry how doggedly it had fought for its interests — the government should protest in the most extravagant terms how much it would pain it to give it up. I envisage Canada’s negotiating stance here as resembling that of the submissive partner in an S&M role-playing game: “Oh, NOT supply management, Mr. Trump! You brute! Anything but THAT! No, DON’T ask that of us again, we BEG you …”

If we are very clever, we might pair this with a proposal for an offsetting “concession” on the American side. For example, the Montreal Economic Institute has suggested a deal (I see Maxime Bernier has lately taken up the same idea) in which, in return for Canada giving up supply management, the U.S. would cease its endless campaign of harassment of our softwood lumber exporters, including the threatened 25-per-cent tariff.

As with our agreement to abolish supply management, this would not really be a concession at all. The MEI estimates the tariff would add roughly $1,300 to the cost of each new home built in America. But if each has to be presented that way to satisfy each country’s protectionist constituencies, again, so be it.

In this way, the negotiations might be turned toward trade broadening, rather than the trade-restricting exercise they might otherwise become. If supply management must be sacrificed to save NAFTA, well, at least those $25,000 cows will not have died in vain.