U.S. President Donald Trump was nothing if not emphatic in his April 25, 2017, tweet about Canadian dairy practices: “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!” What on earth did he mean by this?
By: Bruce Muirhead
Source: Hamilton Spectator
Of course, it has to do with the ongoing NAFTA renegotiation, and Trump was reflecting a long-held determination of the U.S. National Milk Producers Federation that American dairy be granted unfettered access to Canada’s market. That it does not have this currently is because of our model of supply management, or fair farm pricing, that restricts imports in the affected sectors including dairy, eggs and poultry. This said, Canada does import about $550 million worth of American dairy each year, eclipsing the $110 million that we send there.
A few Canadian critics have sided with Trump on this issue, making outrageous claims about supply management, an agricultural system that matches domestic demand with domestic supply and which impedes imports (and exports) while also negotiating a sustainable farmer income for these critical commodities. It is a highly regulated system which puts it at odds with the economic free-for-all that characterizes so much faulty economic thinking and puts off those who think “the market” does a better job of guaranteeing food security and sovereignty. That could not be further from the truth.
Are Canadian farmers losing export opportunities as those critics maintain? The answer is not really. Only about seven per cent of total global dairy production is traded internationally and, of that seven per cent, Australia contributes almost five per cent, the EU-27 controls roughly 27 per cent, New Zealand 29 per cent, and the U.S. approximately 18 per cent. So, of minuscule seven per cent of total dairy production traded internationally, the Big 4 have a hand in about 79 per cent. That leaves 21 per cent of that seven per cent, or about 1.4 per cent of global production, to be divided up among all other exporters, of which there are a number. The fraction that remains is very, very small. As Trump might Tweet, “tiny.”
Whose trade would Canada steal if we were to enter the saturated export market? We are a higher cost producer because our cows require barns and our farmers spend their summers baling hay and bringing in other crops for winter forage. That doesn’t happen in Australia and New Zealand, while the U.S. state with that country’s largest dairy industry — California — is also a warm-climate environment.
Moreover, U.S. producers have the advantage of subsidies. For example, there are subsidized insurance programs operated by the federal government that help with feed prices, while the wholly owned subsidiary of the NMPF, Cooperatives Working Together, heavily subsidizes the export of some U.S. dairy products to overseas markets. In the EU, dairy farmers have recently received subsidies not to produce milk in light of the tsunami of unsold product washing around the world. As a result, 2017 production in that region is expected to be down by 1.2 million tonnes, dislocating hundreds of dairy farmers, their families and the rural communities in which they live.
This excess of product over demand has resulted in a significant decline in milk production with a spillover effect on farm viability.
While prices have started to slowly recover, producers have adopted a wait-and-see attitude. In deregulated Australia, for example, over the period May 2016 to May 2017 production was off 6 per cent as producers were still reeling from low farm gate prices and clogged international markets. The country is expected to produce its lowest volume of milk in 35 years.
What about New Zealand, the world’s largest dairy products trader? Given that 95 per cent of all dairy production in the country is exported, and that dairy exports are that country’s largest earner of foreign exchange, it is imperative to return to the market in a robust way, but that is unlikely to happen.
Moreover, following 30 months of greatly depressed international prices, that country’s dairy farmers are struggling under mountains of debt that greatly concerns the New Zealand Reserve Bank.
In short, dairy exports have proven to be no long-term panacea for producers. Indeed, the U.S. insistence on flooding Canada with its milk is a sign of the desperation of American dairy organizations. They need markets literally anywhere as they continue to lose thousands of farmers to the vagaries of “the market.” Canada and its potential market of 36 million milk-drinking Canadians represents one of the last best hopes they have.
Bruce Muirhead, PhD, is associate vice-president, external research and professor of history Egg Farmers of Canada Chair in Public Policy, University of Waterloo