Giving in to Trump’s NAFTA demands not good
Supply-management balance in dairy industry important to Canada
S U.S. President Donald Trump’s posturing on trade issues and just about everything else reaches new levels of hysteria, there’s a growing fear in some circles, and pressure in others, that Canada should just give him what he wants on the supply-management file.
The thinking is, yielding on that front might set the tone for concessions on important matters such as automotive parts and dispute-settlement mechanisms. Both have been targeted by the U.S. administration in the ongoing North America Free Trade Agreement (NAFTA) renegotiation talks.
After all, the argument goes, it’s a relatively small price to pay, affecting only a few wellheeled farmers who have had their way at the expense of consumers for far too long.
Except that it’s not.
Aside from the fact that giving in to a bully usually results in more bullying rather than less, capitulating on supply management would have long-lasting repercussions, two economists with the Guelph-based Agri-Food Economic Systems say in a new analysis.
“Concessions to the U.S. on dairy could be seen by some as an opportunity to provide President Trump with a quick win,” Al Mussell and Douglas Hedley say in a research paper published earlier this month.
“However plausible, this would be naive. The dichotomy portrayed between a protected dairy market with a coddled dairy industry versus U.S. free traders south of the border and elsewhere
Ais a false one, and would leave Canada exposed to competition with others who are anything but free traders.”
Much of the U.S. attention has been focused on the so-called Class 7 in the Canadian dairy-management system. This is a special pool designed to market surplus skim milk in such a way that it is competitive with world prices and with imported milk ingredients that aren’t subject to the tariff’s limits when entering the Canadian market. Until Class 7 came along in 2016, less-expensive imported milk ingredients used in processing were pouring in from the U.S. while Canadianproduced skim milk was being poured down the drain or fed to livestock.
Production quotas set for dairy farmers are based on butterfat, for which demand has grown as consumers have rekindled their love affair with high-fat dairy. That leads to excess skim milk, the bulk of which Canada was previously unable to export due to trade rules that limit exports of subsidized dairy products.
Under World Trade Organization rules, Canada will be entirely excluded from the export dairy market by 2020, except for products such as the skim milk delivered into the Class 7 pricing pool, which isn’t considered subsidized.
Mussell and Hedley say Class 7 has now become a critical component of the Canadian supply-management system for dairy — and there is no going back.
“At current levels of butterfat demand, the removal of Class 7 would begin the process of sequential butterfat quota reductions that could lead to collapse in the system.”
Canadian negotiators have already provided increased access to the Canadian dairy market under a new trade deal with the European Union. And with the Trans-Pacific Partnership in place, continuing to erode the system due to U.S. pressure would be irresponsible, they argue.
“The world dairy markets are some of the most distorted markets in agricultural trade. All of the major dairy exporters have been suffering from over production, with stocks building in the EU (powders, cheese) and the U.S. (cheese),” they write.
“World prices of most dairy products have languished at relatively low levels since 2015.”
Capitulating to Trump on dairy would not save NAFTA and it would result in a Canadian dairy system that resembles the U.S. even more than it does today. It would need taxpayer support to survive, which increases the spectre of trade disputes as Canadian dairy exports rose.
“Without taking on vastly greater fiscal liability and industry investment losses, Canada has no good alternative to milk supply management — and this needs to be clearly understood,” their analysis says.
The discussion shouldn’t be about supply management or not.
“Supply management is robust and is capable of significant evolution, needed to address the known, sobering challenges it already faces.”
Canada’s supply-management system for dairy products should not be bartered away in NAFTA talks, experts say.