Dairy industry fears 'death by 1,000 cuts' through new trade deal

It's been less than two weeks since dairy sector spokespeople from across Canada were asked how many of them believed the Trudeau government would defend their industry in tradetalks.

The prime minister had promised he would, right? Taking him at his word, all the farmers raised their hands.

How quickly things change.

As of Monday afternoon, at least one of those spokespeople said he wasstill waiting tobe briefed on the triple-whammy of concessions Canada just gave upin the new U.S.MexicoCanada trade agreement. Not only did Canadian dairy farmers lose an additional3.6 per cent of their market the part unnamed federal officials disclosed right away Sunday night but the new deal also imposesunprecedented export controls and endsa dairy ingredient pricing system that was helping dairy processors compete without using cheapAmerican imports. Those concessions required more digging to understand.

Dairy farmers are no longer an obstacle to trade deals, Dairy Farmers of Ontario spokesman Ralph Dietrich told CBCNews Network. On the contrary, his industry's sacrificesnow seem to be "what makes trade deals happen."

He may have a point about farmers being useful bargaining chips.

U.S. President Donald Trump's repeated fixation on Canadas "high" and "unfair" dairy tariffs pretty much spelled out Canada's price of admission particularly after a preliminary agreement was reached with Mexico in late August.

Giving Trump a "win" on dairy no doubt greased the wheels forCanadian negotiators. But in Prime Minister Justin Trudeau's words, Canadaat least didn't give in to U.S. demands to dismantle the entire marketing board system.

"Yes, supply management per se is not taken away from us," Dietrich said. "But there is such a thing as death by a thousand cuts."

The original NAFTA did not give dairy market access to the U.S. But a small amount of American dairy imports enter under World Trade Organization rules, or becausecustoms loopholes allowdairy ingredients like diafiltered milk or ultrafiltered milk products to slip intariff-free.

Canada's three biggest trade deals the Comprehensive Economic and Trade Agreement (CETA) with the European Union, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and now this revised North American deal togetherserve up nearly10 per cent of Canada's market toforeign farmers and processors, Dietrich said.

'Trying to buy us over'

"We had a system where we didn't need compensation," Dietrich said. The pricing and import controls in Canada's marketing board system were tailored to guarantee reliable compensation for producers.

Now, Canada is falling into the "trap of the rest of the world," he said, where taxpayers pay to keep farmers afloat.

The Trudeau government's promise ofa compensation programamounts to "trying to buy us over," Dietrich said.

But deals like this risk collapsing the entire supply management system, he said. "Then they'd really have to compensate us."

That won't exactly be music to Finance Minister Bill Morneau's ears as he ponders his fall economic statement andnext spring's final budget before the 2019 federal election.

When TPPnegotiations concludedduring the 2015 election, the previous Conservative government reckoned that a smaller dairy concession than the one in the USMCAwould require compensation of more than $4 billion.

Farmers "will be fully compensated because that is the fair thing to do," Foreign Affairs Minister ChrystiaFreelandsaid during her news conference Monday.

Dairy, poultry producers to be compensated under USMCA

6 years ago

Duration 0:44

Foreign Affairs Minister Chrystia Freeland says Canada's supply-managed agriculture producers will be fully compensated under the USMCA trade agreement.

But unlike the case of the TPP (the Conservativeshad compensation details ready to roll out when the TPP concessions were revealed),the feds had no reassuring details to offer Monday.

Freelandsaid her government was taking the time to "get that compensation right."

In fact, the government hasn't yet announced what sort of compensation it intends to offerfor the CPTPP an agreementthatmight be ratified and ready to take effect this winter.

It's unclear whether Liberals willfollow the model of the innovation fund offered as compensation for CETA: a $350 million strategy to help industry compete. It was gobbled up and completely spoken for shortly afterfunds becameavailable.

More competition on the way

The hope of those in favour of liberalizing dairy markets is that more competition brings the price of Canadian dairy products down for consumers. But at least one analyst interviewed by CBCNews Mondaysuggested littlewould change for consumers.

More American dairy products could also re-ignite concerns voicedafter the TPP was concludedaboutmilk produced using bovine growth hormones entering Canada's market.

Fewer than one in five U.S. farms usehormones, and a quick spin through U.S. grocery aisles reveals many American dairy brands proactively marketingtheir dairy as hormone-free to appeal to consumers.

Hormonesare bannedforCanadian milking herds not because of health risks for human milk consumers, but becausethe cows who received the hormones got sick.

With more U.S. imports on the horizon, the Canadian industry proactively developed a new logo to make it easier for hormone-cautious consumers to differentiate between dairy that was 100 per cent Canadian and products that might contain U.S. milk.

WhileCanadian milk presents its hormone-free statusas a selling point, blocking U.S. milk produced using hormones isn't likely to happen. International trade rules frown onnon-tariff barriers that aren't supported by demonstrable science.

New export caps

The USMCA language sets a curious new precedent in Canadian trade deals by setting a cap onhow much Canadian dairy product can be exported not to the other two NAFTApartners, but to the rest of the world exports that would compete with U.S. dairy products globally.

Canada is a relatively small dairy exporter. The World Trade Organization permits supply management to exist because it focuses on price and supply controls for Canada's domestic market,rather than distorting global markets.

Nevertheless, Canada has now agreed to monitor its global exports of milk protein concentrates, skim milk powder and infant formula and provide the information to the U.S.

If Canada should exceed specified thresholds, its exports would face an additional chargeto makethem more expensive for customers elsewhere.

Unlike the voluntary export restrictions Canada agreed to in a side letter on the automotive sector, the caps Canada agreed to for skim milk powder, for example, appear to be lower than the amount Canada exported last year.

Canadian exports of skim milk powder had risen toover 70,000 metric tonnes, according to the most recent year's data. In USMCA, the caps are set at 55,000 metrictonnesin year one, and 35,000 tonnes in year two.

"This deal lets the Americans dictate our dairy policies," a release from the Dairy Farmers of Canada said Monday.

Trouble in Quebec

Politically, it would be easier to dismiss grumpy dairy farmers if theydidn't have solid backing in at least two provinces Ontario and Quebecthat might be spoiling for a good jurisdictional fight.

"You're darn right we're going to hold the federal government's feet to the fire,"Ontario Trade Minister Jim Wilson told the legislature Monday.

The milk classes ended by the USMCAare not the federal government's to dismantle. Marketing boards fall under provincial jurisdiction. The idea of a special dairy ingredient priceemerged from a compromise farmers and processors reached on their own.

In the dying hours of Quebec's election campaign, Liberal Leader Philippe Couillardsaid the future of the family farm was being threatened by this deal, and Quebec would use any means at its disposal to fight back.

He didn't specify what that might mean. A court challenge? Something else? And on Monday night, his party lost the election.

But his successor has expressed support for Quebec's dairy industry too.

Quebec is the only province required by law to vote on new international trade treaties. If the next government of Quebec refuses to pass the USMCA, the Liberals' political headaches in Quebec may not wait for the judgment of federal voters in 2019.

Canada's premiers mostly held their tongues until a deal was in hand. They could startspeaking out now.Trudeau might have another bruising federal-provincial fight on his plate.