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Canada forced to ease grip on its milk supply


The ramifications of the potential relaxing of milk quotas in Canada because of the Trans-Pacific Partnership agreement were highlighted earlier this year. Bruce Jobson now looks at the detail on the conclusion of the ground-breaking trade agreement signed in October.

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The much heralded 12 country Trans Pacific Partnership (TPP) was finally concluded after five years of negotiations, and the ramifications will start to be felt as the full realisation of the implications begin working through. The agreement involved Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.


It is estimated the collective strength of the Pacific Rim nations amounts to 40% of global trade. However, with such a large number of countries involved, not all the original aims of the agreement have been met and the conclusion in such circumstances is probably far from perfect. As always there will be winners and losers. One of the major stumbling blocks in the trade agreement relates to dairy products and Canada’s stance regarding imported products.


The Canadian milk quota system, known as Supply Management, has been an integral part of dairy production for the past 50 years. TPP countries were seeking open access to the Canadian market but this caused a furore amongst Canadian dairy farmers whose businesses have survived in a domestic only market. Furthermore, the concept of Canada mass exporting dairy products appears an improbability due to its current business model.


Slightly open

Under the signed agreement, Canada is slightly opening the doors to dairy products as part of the TPP.


While this may be a trickle at present, the worry for dairy producers is this will lead to an opening of the floodgates. Worse still, this may eventually lead to the collapse of the Supply Management system. The TPP agreement is allocating 3.25% of annual production to foreign dairy products entering Canada. The deal will be introduced over the next five years, with an increase in export levels from the 11 other TPP countries.


In total, this figure will displace about 250 million litres of Canadian milk in the domestic market on an annual basis. The agreement will provide $4.3 billion in federal government compensation to Canadian dairy and poultry farmers in order to offset any losses to producers due to foreign competition. For a typical dairy farmer, the figure works out at about $165,600 over the next 15 years or $11,000 per annum (£5600).


Over the course of the trade negotiations, Canada’s dairy farmers reacted to the proposed agreement with alarm. Any measure which threatened the Supply Management system, viewed as ‘untouchable’, caused Canadian farmer protests around Ottawa and the parliament area, and received widespread press and media coverage. Opening the TPP trade door will result in milk being displaced from the domestic system, in effect that can never be replaced, and a perpetual revenue loss to the Canadian economy.


However, moving forward, Canadian farmers are now being asked to compete in a global marketplace – an unknown theatre of operations for dairy farmers since Supply Management was introduced in 1965. The current system controls levels of milk by coupling production to domestic consumer demand, while at the same time limiting foreign competition through high tariffs. It is this protectionism which has antagonised the 11 other Pacific Rim nations. A political compromise was required, but not everyone would be satisfied, least of all Canadian producers who fear a potential Government ‘sell-out’.


For their part, Canadian Government was eager to get agreement with the other nations in order to have open market access for non-agricultural goods and services. However, the rural vote and strong lobbying prior to the Canadian General Election, which was held on October 19, appeared to sway the Government into agreeing to support the agricultural lobbyist groups.


Former Prime Minister Stephen Harper, who lost the October election after the TPP was signed in Atlanta on October 4, said: “We have promised we would keep Supply Management and we have been assured now we will have free trade access to most of the global economy in the Asia-Pacific, in the Americas and in Europe, while making sure we are able to maintain our system.”


Before the TPP agreement, 10% of the Canadian dairy market was open to foreign markets. In addition to the 3.25% more dairy produce being allowed into the country under the agreement, another 2% – about 17,700 tonnes of cheese a year – could or, will, be permitted under the Canadian Europe Trade Agreement (CETA) which is currently under negotiation.


This agreement is seen as another backward step at the cost of agriculture, according to Bruno Letendre, president of the Quebec Milk Producer’s Association. He said: “The Canadian Government had promised to fully protect Supply Management. This is the second time, in two years, we are paying the price of a free trade agreement.”


There are about 12,000 dairy farms across Canada, half of which are in Quebec. Had Supply Management been abolished – which is not now being considered under the current TPP terms – an estimated 6000 farms would not have been able to cover their cash costs, according to Canada’s largest dairy co-operative, Agropur. There are always two sides of the coin and Canadian consumers typically pay higher dairy prices than consumers in other parts of the world.


It is well known for consumers to travel over the US border and bring back milk and other grocery produce as they can be had there at a much lower price. But what has to be factored into the landmark agreement is that costs of production in Canada are more expensive than other countries, especially Third World economies.


Canadian farmers and consumers have expressed fears regarding the quality and provenance of imported foodstuffs, explains Canadian trade development expert Bob Lang.


He said: “It would appear most Canadian dairy farmers are not as yet, fully concerned with the concepts as long as Canadian dairy companies can, in fact, develop the relatively dormant export market potential that WTO blocked a decade ago, at the insistence of two of the current TPP signatories, namely New Zealand and the USA.


“Canadian dairy producers have, in fact, had an increasingly open market for imported dairy products in recent times. “With increasingly stringent laws enforcing significant environmental protection investments on farms, along with animal welfare regulations, the TPP may in fact offer to producing countries, like Canada, the benefits of top quality production instead of a race to the bottom price at any cost to the rest of society.


“Additionally, the requirement to prevent ‘dumping’ of milk product, at lower than the cost of production, processing and shipping, has to be maintained,” he said.

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