Canada pressured to dump dairy supply management in NAFTA talks

US President Donald Trump has called Canada’s supply-managed dairy sector, which is not included in the current NAFTA, “a disgrace.”

The Canadian government effectively sets production quotas and the price of milk, which ends up costing consumers a bit more but provides farmers with a stable income.

The system has been in place since the 1970s, and has survived several attempts to quash it — as well as the prohibitive tariffs that limit foreign imports.

“Its compatibility with trade agreements is unclear, but to date neither the WTO nor NAFTA have been able to push Canada to dismantle it,” dairy experts Richard Ouellet and Erick Duchesne of Laval University in Quebec wrote recently.

Every so often, notably when Canada negotiates a new trade deal, the system comes up again, Mathieu Ares of Quebec’s University of Sherbrooke told AFP.

Ottawa opened up a small share of its domestic dairy market to Europe in its latest trade agreement with the EU, which provisionally took effect Thursday.

It could do the same, if pressed, for the United States and Mexico as part of the renegotiation of NAFTA – but the Americans “have not yet made a formal request on dairy,” a source close to the talks told AFP.

– Global milk glut –

Trump blamed Canada’s restrictions on dairy imports for the economic woes of dairy farmers in New York and Wisconsin.

But experts point to a global oversupply of milk as consumers cut purchases in favor of alternatives such as soy or almond milk.

With several small US dairies looking to emulate Canada’s supply management system, it is unlikely US negotiators will launch a full frontal attack on Canadian dairy.

What’s more, the powerful American farm lobby does not want to upset its agricultural trade surplus with Canada and Mexico over this issue, according to Ares.

Prime Minister Justin Trudeau has passionately defended Canada’s dairy industry.

He pointed out that the United States has a surplus in dairy trade with Canada, with Can$110 million ($89 million US) in Canadian dairy exports to the US last year versus Can$550 million in imports from the US.

Over the long term, as more and more trading partners chip away at roadblocks to gain access to the Canadian market “it won’t be viable,” Ares said.

“This cartel ensures that Canadians pay slightly more for milk than Americans,” he added, “while Canadian producers are prevented from exporting to other countries.”

The system also makes it harder for young Canadians to enter the industry, he said, because “a good dairy cow costs about Can$2,000 but the right to sell its milk costs Can$27,000 annually.”

“So unless you’re a farmer’s son it’s almost impossible to get into the business,” Ares said.

Even if there was a political will, however, dismantling the quota system would not happen overnight — as it would cost Ottawa an enormous sum to buy back quotas for 1.4 million dairy cows on 11,000 farms across the country.