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Canada’s supply management system for dairy is no longer defensible

Martha Hall Findlay is President and CEO of the Canada West Foundation

U.S. President Donald Trump has made it clear: Dairy is high on the U.S. agenda for NAFTA. And Canada's Foreign Affairs Minister Chrystia Freeland has also made it clear that this government is committed to protecting supply management.

Three of the top-six milk-producing states in the United States – Wisconsin, Michigan and Pennsylvania – helped hand Mr. Trump his victory in November. Key Republicans hail from the U.S. dairyland, including Paul Ryan. And it's not just Republicans – there is substantial Democratic congressional support for U.S. dairy as well.

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But for the North American free-trade agreement, our main negotiating challenge is this: The United States has a legitimate complaint. We continue to defend a system, at significant cost to consumers and to other parts of our economy, that is no longer defensible.

Our made-in-Canada cartel, based on high-price fixing, production control and extremely high tariffs, is the sick cow of global agricultural trade. The wealthy and powerful dairy, poultry and egg lobby has been able to engage in behaviour that for everyone else would be illegal.

In recent years Australia, New Zealand – and yes, the United States – have either eliminated or drastically reduced dairy subsidies, and taken advantage of growing global opportunities for their dairy products – leaving Canadian dairy behind to stagnate, limited to our own small market. But what are we protecting? The small number of dairy farmers left in Canada are, on average, multimillionaires. It's not surprising that they want – and spend a lot of money lobbying hard – to keep the system that has made them rich, but which costs consumers and most other parts of our economy. What we need are some politicians with courage.

The evidence for reform is overwhelming. With an appropriate transition plan (which the Canada West Foundation has proposed), liberalization can be a big win for Canada – ironically, for the dairy sector, too. Which means that these NAFTA negotiations offer a tremendous win-win opportunity.

Unfortunately, we still hear politicians repeating the dairy lobby's false and misleading talking points.

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But these critical trade negotiations are no place for "alternative facts."

"Canadian prices aren't that high." Nonsense, of course they are – that's why we have tariffs ranging up to 300 per cent.

"We can't compete with the heavily subsidized U.S. dairy producers." Note that this contradicts the first position. But in recent years, the United States has dramatically reduced its own subsidization of dairy – and U.S. dairy is now exporting more and more around the world, leaving us behind.

"The U.S. maintains a large surplus in dairy trade with Canada." Between 2010-16, U.S. exports into Canada of ultrafiltered milk increased tenfold – the Americans developed this new dairy-protein product to be used in processing butter and cheese, but which was not covered by the high-tariff rules. Canadian processors increased their purchases of the cheaper product from the United States.

Under pressure from the dairy lobby, Canada has reacted, arguably in breach of international trade rules, to displace these cheaper U.S. imports with heavily subsidized pricing of milk for processing, to great hue and cry from the United States. We don't sell to the United States (or Mexico for that matter) by choice – our inflated prices aren't competitive.

"Supply management 'protects' the family farm." Not only is this false, the opposite is true. In Canada, the rate of consolidation has actually been higher – yes, higher – in the supply-managed dairy, poultry and egg sectors, than in most other agricultural sectors. Whereas in the 1970s, there were approximately 145,000 dairy producers, there are now barely more than 9,000.

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"Supply management helps 'Canadian agriculture.'" Wrong again. It actually hurts the majority of Canadian farmers, including beef, pork, grain, oilseed and pulse producers, who would benefit from more global trade. Supply management unfairly protects only dairy, poultry and eggs – a mere 6 per cent of Canadian farmers.

"Without supply management, we'll get U.S. milk produced with growth hormones." The cartel structure has nothing to do with food safety. Some U.S. dairies do use artificial hormones for their herds – just as, by the way, most Canadian beef producers do. But for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), Europe insisted that beef coming from Canada be hormone-free. Canada could do the same for U.S. milk.

"It is not a government subsidy." Government regulation protects the cartel, ensuring a subsidy that is paid for by all Canadians via artificially high dairy prices. All of the international trade authorities, including the World Trade Organization, have confirmed that it is indeed a subsidy, and a very significant one at that.

"We can't compete with our colder climate." It defies logic to claim that the climate in southern Quebec is different from immediately across the border in New York or Vermont. Most of Wisconsin is farther north than Toronto.

"It doesn't affect Canada's trade negotiations – see how many trade deals we've signed?"

Of course we have signed trade deals, but in protecting supply management we have always had to give on other things. As we engage in these all-important NAFTA negotiations, it is critically important to recognize that every trade negotiation is exactly that – a negotiation, with give and take. What are we willing to sacrifice this time?

NAFTA is a huge win-win opportunity to do what's right domestically and increase our leverage for other issues important to Canada. And the Trudeau government can blame the Americans.

Video: McKenna says free trade benefits North American auto industry (The Canadian Press)
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