Recent trade agreement leaves dairy producers with sour taste for government’s deal

With the recent signing of the United States-Mexico-Canada Agreement (USMCA), Canada’s supply management system is seemingly under threat. Many farmers and dairy product producers are saying that while the agreement doesn’t completely dismantle the system, it further chips away at it, which could lead to trouble in the future.
The agreement sets new quotas which are expected to give American dairy farmers access to up to 3.6% of Canada’s market. It’s estimated that this will increase exports to Canada by US$70M, or 0.0003% of US GDP.

Supply management is a system that limits the supply of certain commodities to make sure prices are predictable and stable and that producers can be sure of being profitable.

Canada has had one form or another of supply management for the dairy sector since the 1960s.

In the United States, on the other hand, the farming sector is supported mainly through subsidies. American consumers support farmers indirectly through taxes, while Canadians pay directly through higher prices.

Canada’s supply management rests on three pillars: quotas, minimum prices, and tariffs.

First a farmer must hold a quota, which is a licence to produce a certain amount, preventing surpluses that could affect farm incomes. Producers are then guaranteed a minimum price by provincial marketing boards. Finally consumers are discouraged from buying foreign imports with the imposition of high tariffs.

The Canadian system works very well and despite US insistence that our system is broken and unfair, many American farmers are interested in implementing a similar structure.

In the spring of 2018 the Wisconsin Farmers’ Union held more than a dozen meetings in Wisconsin, Michigan, and Minnesota to look at our system.

The Canadian government says the USMCA will preserve our system and that with agriculture and the agri-food sectors being a key driver of our economy, the agreement will help the country reach the government’s goal of increasing agri-food exports to $75 billion annually by 2025.

While the USMCA provides new market access to the US in the form of tariff rate quotas for dairy, poultry, and egg products, it also sees Canada getting new market access in the form of tariff rate quotas for refined sugar and sugar-containing products, as well as certain dairy products (including cheese, cream, milk beverages, and butter).

Despite all of this there is cause for serious concern.

The Grassroots Dairy Farmers United (GDFU), a collective of PEI dairy farmers with no link to the Dairy Farmers of Canada or the Dairy Farmers of PEI, said consumers can expect to see a few changes, some more obvious than others.

“For those consumers in rural Canada, they will see their small local dairy farmers be forced to close,” a GDFU spokesperson said in an email. “Losing market share means less Canadian milk will be needed. This means some farms will have to close—it’s a key piece to supply management—we match demand to supply to keep things stable. Projections are for 400 farms across Canada to be forced to close.”

The GDFU said consumers will eventually see new US products available on store shelves.

“This will be more obvious for items like cheese and other processed foods and less obvious in fluid milk where the item is more perishable. Many say that the price will be lower, but that is remains to be seen and many are projecting that is unlikely.”

The group said consumers will need to look for the appropriate label to ensure it’s 100% Canadian milk.

The blue cow logo signifies Canadian milk products

“The challenge is that some of the processors are multinational corporations and haven’t adopted the blue cow label. Consumers need to voice their concerns to the processor to demand 100% Canadian and show these larger corporations that you want the label by shopping for items with the label, even if there is something at a lower cost.”

“‘Prepared By’ or ‘Made in Canada’ or ‘Proudly Canadian’ are not enough to ensure it’s 100% Canadian milk. For PEI residents, this is actually quite easy, purchase ADL/Purity/Dairy Isle products. These products are 100% PEI milk and directly support the 165 Island dairy farmers. ADL is actually owned by our producers, so it keeps the money here on PEI with jobs and infrastructure,” the GDFU said.

The group said Canada has the highest standards for milk production in the world. From strict regulations on use of antibiotics and hormones to a complete program focused on animal welfare and husbandry, Canadian farmers are producing the highest quality, safest milk available.

“These are not optional programs but are standard across the country and are completely regulated with annual inspections. Milk from other countries will not be required to meet our standards of production—something every farmer in Canada takes great pride in.”

The group said the loss in market share may mean Canadian farms will have to produce less milk. What that means for producers remains to be seen.

A herd of dairy cattle graze in rural PEI Photo credit: Brian McInnis

“How the system regulates to a new production level is unclear at this time. Will every farm take a hit? Will there be a government buyout program like was seen in the fisheries? Will it be left to naturally settle out and some farms forced to close with the level of uncertainty?

“Farmers will be looking at the effects on farm gate prices and if it is viable to continue. What we do know is that Canadian dairy farmers will continue to go to the barn daily, working alongside their families to produce safe, nutritious, high quality milk.”

The GDFU said that the signing of the agreement has already had an impact on PEI dairy farmers.

“The stress and anxiety of so many unknowns has weighed heavily on the mental health of our farmers. Imagine being told over six years, you would no longer be able to sell your product to 18% of your market, that other countries would now be providing a product that you could sell but you aren’t permitted. Would you commit to continuing knowing more of your market could disappear? Or do you cut your losses and get out now? Many farmers are waiting for information and will have tough decisions to make in the coming weeks and months.”

It said that while the long-range ramifications are unknown at this point, GDFU asserts that farms will be lost across the country. “Some of those will be right here on PEI. Good farms run by good people that will be forced to close because of a decision made by our government.”

Some are slightly more optimistic, with some reservations.

Associate Professor of Business at UPEI and former provincial minister of agriculture, Tim Carroll said that the deal could have been worse for the dairy sector and as it stands it preserves our supply management system.

He said Canada’s recent trade agreements with Europe, Asia, and the US/Mexico allowing other countries more access to the Canadian market will be a challenge for industrial milk processors like ADL, Federated Co-op of Quebec, and Balderston’s. “These processors are wholly-owned by milk producers, which is why I think producers are concerned.”

Cows come home to milk at the end of the day          Photo credit: Brian McInnis

“However, trade agreements change all the time,” Carroll said. “Even with the recent trade agreement with Europe, dairy quotas in the Maritimes, Ontario, and Quebec have gone up 5%.”

He said the new trade agreement does give the US more access to the Canadian market, but it’s not as simple as that. “They don’t just get the market, they have to take it.”

Plus we have until 2020 to make adjustments, both government and suppliers, he said.

Ultimately, Carroll said, the impact on the consumer will be negligible and any increase in costs at the farm level will be small.

“I’m doubtful that the consumer will see much change,” he said. “If you go to the dairy aisle now there is cheese from around the world for sure but that won’t change much.”

Unlike GDFU’s prediction, he said he would be surprised if the USMCA results in any farms going out of business. “But I wouldn’t be surprised to see a small reduction in quota.”

One of the producers on the Island said the agreement is a major disappointment for the Canadian dairy industry—for both producers and consumers.

“This new agreement once again weakens the dairy sector which, among other things, employs more than 220,000 Canadians and contributes some $20 billion a year to Canada’s gross domestic product. The livelihood of these thousands of Canadians and the future generations of dairy producers is seriously at risk,” Jamie MacPhail, marketing manager for ADL, said in an email.

“This is the third consecutive trade agreement that Canada has signed and used the dairy industry as a bargaining chip,” MacPhail said. “When USMCA becomes ratified and implemented there will be an increase in American dairy products entering the Canadian marketplace and for consumers, each concession replaces Canadian dairy products—products made with great care by Canadians, using extremely high-quality Canadian milk with no artificial growth hormones. The USMCA agreement is opening the gate even further by letting more foreign dairy products into Canadian market place. This trade is not well balanced since Canada does not subsidize our dairy industry.”

He said ADL has been very encouraged to see the overwhelming support from Canadians and Islanders for local dairy products. “We trust that this support will continue and we will be working to ensure our ADL products are more visible on store shelves.”

He said the big concern for dairy producers on PEI and across Canada is that they can no longer rely on the federal government to defend their industry and protect its future.

“The supply management system in Canada was the envy of the world with dairy producers receiving a fair return on their product and consumers receiving a fair price at the market and an assurance of high quality and safe product. Our industry has always had to deal with change, however this increased threat to our dairy sector is with competitors where government support is monetary as well as regulatory.”

He said many family dairy farms on PEI are multi-generational and the USMCA doesn’t leave the next generation with much confidence or optimism in their future. “There are concerns with USMCA language with respect to restricting future opportunities and markets in both dairy sector and for Canadian industry in general.”

He said the USMCA follows CETA and the CPTPP, two previous trade agreements in which access to the Canadian dairy market was granted. This, he said, is the equivalent to sacrificing a quarter of a billion dollars annually in dairy production to industries in other countries.

There are 165 family dairy farms on PEI; the second largest agriculture sector. The PEI dairy industry employs thousands of Islanders directly and indirectly.

“USMCA is a further hit to PEI dairy producers. It is important to note that record levels of investment have occurred at PEI family dairy farms over the past number of years.”

In a press release, Premier Wade MacLauchlan said the provincial government remains firmly supportive of supply management.

“We have concerns about any potential impacts on our dairy industry,” the statement said. “We have encouraged the federal government to act quickly to put in place adjustment programs and resources to ensure that any negative impacts on Island dairy producers or processors are mitigated.”

He also said Island dairy farmers are not responsible for the rhetoric of Donald Trump. “We will continue to stand with our dairy community to ensure they are treated fairly.”

About Rod Weatherbie

Rod Weatherbie is a writer working in the hospitality industry. He spent a number of years in Toronto as a member of the financial press before returning to PEI. Rod has published one piece of short fiction, one book of poetry, and has had work published in Red Shift, the Antigonish Review, Mitre, and the Toronto Quarterly. He has also recently co-produced, co-directed, and acted in a stage production of old television shows.

He also likes writing about food. Go figure.

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