Prime Minister Justin Trudeau tried to calm worried dairy farmers on Thursday, assuring them the government will find a way to compensate them for market losses under a proposed trade deal with the United States and Mexico.
The United States-Mexico-Canada Agreement (USMCA) announced this week covers tariff-free trade of most goods among the three countries, including autos, food and online purchases. Tense talks that concluded shortly before the Sunday midnight deadline gave the United States new access to the Canadian dairy market, in addition to changes that could limit Canada’s global dairy exports.
“It secures our access to our largest partner, the largest market in the world,” Mr. Trudeau told reporters after a meeting with dairy-industry leaders in Montreal. “But it came at a cost for dairy producers. And that is why we are going to be working with them over the coming weeks and months to figure out exactly what is the compensation they need, how we can ensure not just that they’re okay, but that they continue to have confidence in the future of the dairy sector in Canada."
Al Mussell, an economist at the independent research group Agri-Food Economic Systems in Guelph, Ont., said $4.3-billion will likely be the starting point of discussions between industry and the government, based on the amount of proposed compensation to producers and processors over earlier trade deals.
Graham Lloyd, chief executive officer of Dairy Farmers of Ontario, said it is too soon to put a number on any needed compensation, and the group, which represents 4,200 farmers, is trying to calculate the losses farmers will suffer under the third major trade deal in recent years.
Mr. Lloyd said the challenge with calculating lost farm revenue is the USMCA hurts farmers in two ways: It limits dairy exports in addition to allowing in more U.S. dairy products. Mr. Lloyd said lost sales due to new foreign competition is simple to calculate, but lost future exports are not.
In 2015, the federal government announced a package worth $4.3-billion to compensate dairy, poultry and egg producers and processors affected by trade agreements with Europe as well as the Trans-Pacific Partnership, which covers 11 countries. The package to compensate the supply-managed farmers stalled when the United States withdrew from the TPP in 2017.
The Dairy Farmers of Canada said market-share losses from recent trade deals is 18 per cent, an amount worth $1.8-billion to milk producers. Pierre Lampron, head of the national group, said farmers are not appeased by Mr. Trudeau’s comments, given the lack of any details.
Mr. Mussell, the economist, said the goal of any compensation plan needs to be made clear: Is it to account for lost sales, higher per-unit costs or the loss in value of quota?
“It’s a tough one,” he said. “We’re at the point in the dialogue where we’re at the placation phase. The problem with a dialogue like that is it’s never enough.”
Much of a dairy farm’s value is in milk quota, which is basically a licence to produce one cow’s worth of milk in a year. Prices for quota range from about $24,000 in Ontario to more than $40,000 in British Columbia.
Canadian farmers hold a total of about $34-billion worth of quota, he said, and there are fears this could plunge if demand for their milk falls.
But Mr. Mussell said it is not clear what would happen to quota values, noting much of the value cannot be realized, and it does not trade freely. Some farmers were handed their quota in the 1970s when the supply-managed system began, and some have already written it off.
Some farmers secure loans using the value of quotas as collateral, raising questions about how any decline in values would affect agricultural lending.
A spokesperson for National Bank of Canada – a major lender to the agricultural sector – said that “while we expect an impact” from the new trade agreement, the bank believes clients will adapt and doesn’t expect “any noticeable impact” on its loan book.
Desjardins Group, another major financial institution based in Quebec, also pledged its support for dairy and poultry producers and processors. The credit union’s CEO, Guy Cormier, said in an interview that Desjardins is analyzing the potential impact while waiting to see whether federal or provincial governments will provide compensation, and will consider whether there are “conditions on their loans that we can work on with [farmers].”
With a report from James Bradshaw
Eric Atkins
Nicolas Van Praet