Donald Trump, as the 45th president of the United States, could bring about the end of Canada’s infatuation with dairy marketing boards.
Trump has taken aim at perceived prejudicial trading tactics that harm America, mainly by China and Mexico. And now U.S. dairy groups want Trump to turn his sights on Canada.
Of course, Trump may not even know about Canada’s supply management system. But outsiders in general would assume such a system could only exist in poverty-stricken countries.
Canada’s highly protectionist dairy quota system balances domestic production and consumption. Imported dairy products are subject to incredibly high tariffs, sometimes exceeding 300 percent. Province-based marketing boards issue quotas to farmers to produce and distribute milk.
Canadian dairy producers have long refused to admit that the system fails the dairy supply chain and consumers.
But domestic milk prices are much higher than world prices, so Canadian processors began importing milk from the United States. Such an act would normally be illegal, but importing the diafiltered product under a different label circumvented the rules and bypassed tariffs. This tactic lasted for a few years, creating a huge imbalance between milk produced in Canada and our domestic demand. The milk normally sold to make cheese, yogurt or other products was slowly being replaced by American milk.
At the height of the crisis, in 2015, some reports suggested Canadian processors were buying more than $200 million worth of American milk. In April 2016, Ontario reacted by creating a new class of industrial milk. The tactic allowed Canadian dairy processors to purchase milk at world market prices instead of the higher prices determined by the Canadian Dairy Commission.
An all-provinces approach was to be established by Feb. 1, 2017, but that seems unlikely, so Ontario, for one, has tackled the problem alone with some success.
But American producers appreciated serving Canadian demand and are hungry for more. U.S. dairy groups have expressed this directly to Trump.
The problem is Canada’s dairy sector has never really had a strategy – other than protectionism. In today’s world, that won’t do.
Canadian dairy producers only have themselves to blame for this mess.
The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) will also complicate the supply management system. Based on the 17,000 tonnes of European cheeses about to come our way, Canadian producers will lose two percent of the market. But producers and artisan cheese makers will probably be generously compensated by the federal government.
In addition, the Trans-Pacific Partnership (TPP) could severely compromise the integrity of supply management. However, growing global economic nationalistic sentiment – led by Trump – will likely kill the deal.
Canada’s dairy sector is struggling and in dire need of a vision, but faces a severe test south of the border.
Trump, who is willing to challenge anything 140 characters at a time, could become the Canadian dairy sector’s worse nightmare. If he decides to care, he’ll have the support of Congress and a trade-happy cabinet.
The Canadian dairy industry’s status quo no longer suffices and most dairy farmers know it. The system is slowly falling apart. The Canadian Dairy Commission Act needs to be changed and modernized, as does a self-serving quota system that does little for rural economic growth.
The system does not focus on innovation and could never compete globally. It needs to be more market-focused to foster excellence in the sector. Our dairy farm management practices don’t measure up globally.
The quality is there but our cost structure would cause the entire sector to collapse overnight if trade borders were opened.
Trump may be just what the Canadian dairy sector needs to become relevant to our economy. Let’s hope it’s not too late.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.