Donald Trump fired a shot at Canada’s dairy sector this week, in a speech to factory workers in Wisconsin. The President told his audience Canada had been “very unfair” to U.S. dairy farmers.
There to sign his “Buy American, Hire American” executive order, Trump also took the opportunity to talk about renegotiating NAFTA and protecting American farmers.
“We're also going to stand up for our dairy farmers in Wisconsin,” he said. “It's another typical one-sided deal against the United States. And it's not going to be happening for long.”
What is Trump’s beef?
He’s probably referring to two separate but related issues. The first is Canada’s supply-management system for dairy and poultry products. Implemented in the 1970s, it protects Canadian farmers in three ways: by setting high, stable prices for the country’s dairy products; by limiting the amount of milk farmers are allowed to produce; and by imposing high tariffs on dairy products coming into Canada, in order to safeguard the domestic market.
Under NAFTA, American dairy farmers can export some milk to Canada with lower tariffs, but not much. Most of their dairy exports are subject to duties between 200 and 300 per cent, even though the trade agreement eliminated virtually all other agricultural tariffs.
The second thing Trump was likely referring to started in Ontario. A few years back, U.S. dairy farmers began exporting high volumes of a new class of milk — diafiltered or ultra-filtered milk, used for making cheese — to Canada. Production kicked into gear long after NAFTA came into effect, in 1994, so it’s not subject to the same high tariffs as other types of milk. (In fact, it’s not considered a type of milk at all, but rather an ingredient.) That left Canadian farmers unprotected against imports.
But Ontario’s dairy industry would not be loopholed into competing with American farmers. There used to be five different classes of milk under NAFTA, but last year Ontario added a sixth class, plus a new “national ingredients strategy” that lowered the cost for Ontario processors to buy Canadian milk ingredients. Soon other provinces followed suit. It dramatically cut the prices on ultra-filtered milk in Canada.
Now that Ontario’s diafiltered milk is cheaper, American farmers, particularly in Wisconsin, are struggling to compete.
Is Trump the only one talking about this?
Certainly not. Where dairy trade is concerned, tensions between Canada and the U.S. have been increasing for months now. Several state governors have spoken up on the issue, and House speaker and WI representative Paul Ryan recently sent a letter to Trump’s trade team about the issue. “Canada has recently taken steps to implement targeted milk pricing programs that have compromised the ability of Wisconsin dairy farmers to access the Canadian market under existing trade agreements,” it reads.
Other countries, including Australia, Mexico, and New Zealand, have joined the chorus, arguing that Canada’s dairy practices violate international trade rules.
How has Canada’s ambassador to the U.S. responded?
David MacNaughton says the problem is not with Canada — instead, he argues American and global overproduction, coupled with low world milk prices, are what’s really harming U.S. dairy farmers.
“Dairy trade between Canada and the U.S. is important and the sectoral trade balance massively favours the U.S., at around 5 to 1,” he wrote in a letter to New York Governor Andrew Cuomo and Wisconsin Governor Scott Walker this week.
“Canada has not taken any broader actions to limit imports from the United States,” the letter continues. “As a matter of fact, Canada’s dairy industry is less protectionist than that of the U.S., which has employed technical barriers to keep Canadian dairy out of the U.S. market.”
Why should Ontarians care?
Ontario is home to 3,834 dairy farms — a third of the Canadian total — as well as a third of the country’s dairy processing plants. Any changes to the industry could have a significant impact on jobs and provincial tax revenues. They could also affect the price and variety of dairy products on supermarket shelves.
What happens next?
With the President looking to tinker with NAFTA, the dairy-trade issue could be a point of considerable debate. Cuomo and Walker have called on the Trump administration to drag Canada before the WTO for violating trade rules. All this will put tremendous pressure on Justin Trudeau and his government to act while also having to contend with Canada’s powerful dairy lobby. If the feds relax restrictions on the dairy market, greater compensation for farmers (as seen in the recent Canada-EU trade deal) will be the likely result — and that will mean another tax bill for Canadians.