The great Canadian dairy crisis is about to experience a new and interesting twist. Can U.S. President Donald Trump bring about the end of Canada’s infatuation with dairy-marketing boards?
During his campaign and after the election, Trump took aim mainly at China and Mexico for their perceived prejudicial trading tactics against the U.S. Given that U.S. dairy groups are calling on Trump to turn his sights on Canada, things might begin to change.
Supply management is Canada’s highly protectionist quota system in the dairy industry. The fundamental principle of supply management is to balance production and consumption, domestically. Imported dairy products are subject to incredibly high tariffs, sometimes exceeding 300 per cent.
For years, Canadian dairy producers refused to admit that the system did not serve the dairy supply chain and consumers well. But since domestic milk prices were much higher than world market prices, processors started to import diafiltered milk (high-protein filtered milk) from the U.S. Such an act would normally be illegal, but the product was imported under a different label, circumventing border rules and bypassing tariffs.
It lasted for a few years, thus creating a huge imbalance between milk produced in Canada and our domestic demand. The milk that was normally sold to make cheese, yogurt or other dairy products was slowly being replaced by American diafiltered milk. At the height of the crisis in 2015, 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 policy allowed dairy processors in Canada to purchase milk at world-market prices instead of higher prices controlled by the Canadian Dairy Commission in Ottawa.
A cross-Canadian approach, including all provinces, was to be established by Feb. 1, 2017, but things have been dragging on. Meanwhile, in Ontario, the policy seems to be working, but American producers have enjoyed this demand coming from Canada and are apparently hungry for more.
U.S. dairy groups have recently expressed this desire directly to Trump, as our dairy sector never really had a strategy, other than protectionism. In today’s world, this lack of strategy won’t do; Canadian dairy producers have only themselves to blame for the mess they are in.
The Comprehensive European Trade Agreement will also make things interesting for supply management. It will create a two per cent dent in the amount Canadian producers are asked to produce, based on the 17,000 tonnes of European cheeses about to come our way. But producers and artisan cheese makers will probably be generously compensated by Ottawa.
Now we have a new occupant in the White House. On the one side, we have a dairy sector struggling and in dire need of a vision. On the other, there is Trump, who is willing to challenge anything, 140 characters at a time. With the support of Congress and a trade-happy cabinet, Trump could become the Canadian dairy sector’s worse nightmare, should he decide to care.
Our dairy industry needs an overhaul, and most dairy farmers know it. The system that dairy producers have been defending for decades is slowly falling apart.
The Canadian Dairy Commission Act needs to be changed and modernized, along with our self-serving quota system, which does little for rural economic growth in our country. Our system is not innovation-focused, either, and could never compete globally. It needs to be rewired and prepared to become more market-focused to foster excellence in the sector.
When compared with farms abroad, our own dairy-farming management practices do not measure up — not even close. The quality is there, but our cost structure would cause an entire sector to collapse overnight, should trade borders be opened.
Trump might be just what the Canadian dairy sector needs to become more relevant to our economy, because right now it isn’t. Let’s hope it’s not too late.
Sylvain Charlebois is a professor of food distribution and policy at Dalhousie University in Halifax.
