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Countries pile on in attack of Canada’s dairy regime

Dairy cows feed in Eastern Ontario on Wednesday, April 19, 2017. A growing number of countries are criticizing Canada’s supply-managed dairy sector.

Sean Kilpatrick/The Canadian Press

Every year, World Trade Organization members huddle in Geneva to review how countries are meeting their pledge to end farm export subsidies.

This year's gathering quickly turned into finger-pointing at Canada's dairy supply-management regime. Canadian officials faced a barrage of more than 80 questions about a new national milk pricing scheme, plus numerous inquiries about contentious cheese and butter policies, according to the WTO.

Predictably leading the charge were the United States and New Zealand. Both countries are major dairy exporters and have long griped about supply management, which tightly controls prices, production and imports of dairy, eggs and poultry in this country.

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Joining the attack this time were the European Union, Mexico, Australia and Russia.

Whoa. What? Russia – architect of central economic planning in the Soviet era – is lecturing Canada about the evils of supply management?

That can't be good.

That Russian President Vladimir Putin has found common cause with some of Canada's closest trading partners is a measure of the powerful forces lining up against this country's embattled dairy industry.

If you're a Canadian dairy farmer, the list of complaints – and complainants – is growing distressingly long.

Supply management is expected to be a key target of the United States in the looming talks to renegotiate the North American free-trade agreement.

Meanwhile, the European Union is threatening to delay the planned July 1 implementation of its free-trade deal with Canada because of a dispute over how Ottawa plans to allocate increased imports of European cheese, the CBC reported last week. Some EU countries are worried Canadian dairy processors and farmers will manipulate cheese import quotas in a way that could deny them market access negotiated in the trade deal. Under the agreement, Europe won the right to export an additional 18,000 tonnes of duty-free cheese – an amount equal to roughly four per cent of Canada's cheese market.

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An even greater threat to supply management comes from the United States.

The U.S. dairy industry wants the Trump administration to push for the elimination of Canadian tariffs of 200 to 300 per cent on dairy imports as well as an end to steep new discounts on milk sold to Canadian dairies, according to a submission filed last week by the National Milk Producers Federation and the U.S. Dairy Export Council.

The U.S. industry apparently wants a lot more than Canada offered in the stalled Trans-Pacific Partnership trade deal.

"We see NAFTA modernization discussions as the last opportunity to … address unfinished business in order to truly open up the North American market," the trade groups said in their brief to U.S. Trade Representative Robert Lighthizer ahead of the NAFTA renegotiation.

High on the list of unfinished business are Canadian tariffs of 300 per cent on butter and 246 per cent on cheese. The groups want Washington to demand "very specific tariff reduction formulas," ending eventually with complete elimination of duties.

Removing high tariffs would leave Canadian farmers unable to control how much milk they produce or to sustain high domestic prices – essentially spelling the end of supply management.

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Another key U.S. industry demand is unwinding a new pricing scheme in Canada that gives dairies access to heavily discounted milk ingredients for making cheese and yogurt. Canadian farmers pushed for the change to give dairies an incentive to buy their milk ingredients in Canada, rather than importing ultrafiltered milk from the United States. Ultrafiltered milk – essentially concentrated milk protein – is a rarity among dairy products because it enters Canada duty-free from the United States. Before this year's pricing change, Canadian wholesale milk prices were sometimes double those in the United States.

"Shipping to Canada can be a game of roulette for U.S. dairy companies given that they never know when Canada will bow to political pressure and intentionally shift the rules," the groups complained in their submission.

The Trudeau government has insisted that it will defend dairy farmers and supply management in the NAFTA talks. And it will no doubt push the United States to phase out its own milk subsidies, or push for gains in other areas in return for anything it cedes on dairy.

Ottawa has given no indication that it would bend.

But it's not a good omen when Russia joins the ranks of the self-appointed do-gooders of the global dairy trade.

Video: Trudeau vows to ‘stand up’ for Canada after Trump comments (The Canadian Press)
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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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