Hey there, time traveller!
This article was published 29/4/2017 (1027 days ago), so information in it may no longer be current.
Slice through all the rhetoric and posturing in recent weeks and it becomes clear U.S. President Donald Trump wants to turn Canada into America’s dairy dump.
It’s no secret American dairy farmers are going through hard times. What’s unclear, however, is how any of that is Canada’s fault.
U.S. farmers, along with dairy producers in other exporting countries, are suffering through a 55 per cent drop in global dairy prices since 2014, caused primarily by a worldwide glut of skim milk.
Consumers are eating more butter after learning that it’s not so bad after all. That means more demand for dairy products made with butterfat but less for skim milk, which is a necessary byproduct.
It’s not as though Canada is flooding the U.S. with cheap or subsidized dairy products. It’s quite the contrary.
Canada’s dairy industry is focused on the domestic market, and despite high tariffs designed to protect farmers from import competition, producers here have seen a steady rise in imports from other countries.
Various trade deals have gradually lowered those barriers to allow more imports, and changes in milk-processing technology have created products that aren’t covered by the regulations. For example, imports of milk protein isolates and diafiltered milk from the U.S. more than doubled between 2012 and 2014, according University of Guelph economists Al Mussell and Doug Hedley.
The Canadian dairy industry is dropping its domestic price for these same ingredients, so processors have the option to choose competitively priced local product.
Much has been said about the difference between Canadian and U.S. consumer milk prices, with some economists going so far as to say consumers here are being gouged. What isn’t talked about is the fact Canadian farmers get almost all of their income from the marketplace.
The government "subsidy" is in the form of border protection and regulations that factor cost of production into milk prices.
In the U.S., government "subsidizes dairy production using a number of instruments, including its milk marketing orders, which set the minimum price for dairy products, the Milk Price Support Program that keeps market prices artificially high, and the Milk Income Loss Contract, among others," University of Waterloo professor Bruce Muirhead said. "These subsidies represent about 40 per cent of U.S. dairy farmer incomes."
U.S. and European taxpayers have also periodically helped pay for slaughtering dairy cows to bring milk supplies back into sync with demand.
One study found that the price of a gallon of milk in the U.S. would increase by 91 per cent in 2015 dollars if the U.S. starts expelling illegal immigrants, as promised by the current administration.
So is American milk really that much cheaper?
Much is said about the high tariff walls protecting Canada’s producers from imports. However, only about two per cent of the U.S. dairy market is open to imports, Muirhead said.
While some tout the so-called "opportunities" Canadian producers are missing out on in the global market, the producers in that market are as often as not selling at below their costs of production. In places such as Europe and the U.S., they count on taxpayer-funded support programs to stay in business. Some opportunity.
Canada’s supply management system is controversial and riddled with issues, but it is in full compliance with trade rules.
Trump wants to renegotiate some of those deals under the threat of withdrawal.
That would hurt Canada. But in a newly published paper, Mussell and Hedley say pulling out of NAFTA would hurt the U.S. economy, too. Major U.S. farm groups were in the news last week urging Trump to keep the deal intact.
Canada ships bulk and intermediate commodities to the U.S. and buys back the consumer-ready products.
"Of the more than one million jobs associated with U.S. agri-food exports in 2015, almost 297,000 — or 30 per cent — can be attributed to exports to NAFTA countries," they write.
Besides, Trump shouldn’t be dictating this country’s domestic policy any more than Russia should be meddling in U.S. elections.
Canada should tell Trump — politely or otherwise — to butt out.
Laura Rance is editorial director for Farm Business Communications. She can be reached at email@example.com or 204-792-4382
Laura Rance is editorial director at Farm Business Communications.