Many Canadians breathed a collective sigh of relief when Canada, the U.S., and Mexico agreed to a new trade agreement at the end of September.
But for the country’s dairy industry, this proposed deal is just another in a series of blows that is slowly but surely bleeding the industry dry.
“This is definitely death by a thousand cuts,” said Mike Southwood, general manager of Alberta Milk. “CETA, TPP, and now this — how many more of these hits can we take?”
Access for dairy was one of the key sticking points during negotiations for the new United States-Mexico-Canada Agreement (USMCA). At the heart of the dispute was Class 7 — a new class for milk protein isolates (or dried milk powders high in protein) that was put in place in 2016 in response to diafiltered milk (another high-protein milk ingredient used by food processors) that was flooding into Canada tariff free from the U.S.
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Under the deal, Class 7 will disappear (along with Class 6, another new milk class), and the Canadian dairy industry will be left scrambling to find a new home for these products.
“Class 7 was targeted predominantly for the domestic market. For us, it was really to better use skim milk and skim milk-related products in the domestic market,” said Southwood.
“As our industry grows, that skim milk component needs to find a home. Otherwise, we’ll have a surplus of skim milk powder.
“So we’ll need to assess now just how we’re going to find a good home for skim milk in the domestic market.”
But Class 7 isn’t the only thing the dairy industry lost under the new trade deal. The agreement also allows 3.6 per cent more American access to the Canadian dairy market while limiting Canadian exports of skim milk powder, milk protein isolates, and infant formula.
For skim milk powder and milk protein concentrates, the aggregate export cap will be 55,000 tonnes in the first year after the agreement enters into force, falling to 35,000 tonnes in the second year. Exports above this threshold will have a surcharge of $0.54 per kilogram. These caps are significantly below what is now exported.
For infant formula, the export cap will be 13,333 tonnes in the first year, increasing to 40,000 tonnes in the second and subsequent years. Above this threshold exports will face a surcharge of $4.25 per kilogram.
Both caps will be increased by 1.2 per cent a year, an amount equivalent to Canada’s historical population growth, with reviews of this agreement five years after it comes into force and every two years after that.
“You know you have to give up something in negotiations, but we already had concessions made under CETA (the trade deal with the European Union) and TPP (the Trans-Pacific trade deal),” said Southwood.
“It’s very disappointing for us. It took us by surprise just how much was offered on dairy.”
Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland said in an Oct. 1 press conference that there would be significant compensation for dairy farmers that will arrive when the trade agreement comes into effect. But they didn’t specify what that compensation would look like.
But that is only a band-aid solution, said Southwood, pointing to the compensation the dairy industry received following the signing of the Comprehensive Economic and Trade Agreement (CETA) two years ago. Of the $350 million allocated for compensation, $250 million was targeted to on-farm projects that would improve sustainability, and $100 million was geared toward processors who wanted to modernize their operations or expand their product offerings.
Those programs were oversubscribed within hours of the application window opening, said Southwood.
“It was project based, so it wasn’t compensation to all farmers. Some farmers have benefited from it but not all,” he said.
“How do you do that equitably and fairly for all producers who are impacted? That’s the problem with compensation. We’d rather get our dollars out of the marketplace rather than as compensation for giving up our market.
“This compensation is short term. Market access is long term.”
And that market access is slowly dwindling for the Canadian dairy industry.
“Our market share has just eroded,” said Southwood. “We now have a smaller market to fill, so there will be a negative impact on producers and producer revenue.”
Canadian dairy farmers got a nine per cent increase in quota last year, but quota growth slowed after CETA came into effect. Southwood expects it will be the same story once the USMCA is ratified.
“It will slow quota growth, so growth on the farms will be impacted,” he said. “We’ll have to find new ways to convince consumers that they should look for a Canadian product when they go grocery shopping for dairy.”
Once the new trade deal is ratified, the dairy industry will have six months after the start of the agreement to adjust to the new provisions. So any major changes may not hit the industry until 2020, depending on when the agreement is ratified.
In the meantime, Canada’s dairy industry will be doing a full assessment of the new agreement once it receives it in order to determine how to move forward.
“We need to really look at those impacts and what adjustments we’ll need to make to ensure that we continue to maximize the use of all of the milk that comes off farms,” said Southwood.
“We have our work cut out ahead of us.”
The deal got more favourable reviews from farm sectors outside of supply management.
Alberta Wheat and Alberta Barley called it “excellent news,” noting the U.S. and Mexico account for roughly 15 per cent of total Canadian wheat exports and that the U.S. is Canada’s second-largest barley export market.
“About 90 per cent of American wheat imports are grown on Canadian farms, making Canada the dominant supplier,” said Alberta Wheat chair Kevin Bender. “Maintaining access through (the replacement for) NAFTA gives Canada a continued edge over our competitors, which is very good news.”
Cereals Canada said the deal will “modernize the agreement in critical areas, including chapters on biotechnology and new plant-breeding techniques and addressing issues of low-level presence. These updates will help bring the agreement up to date with modern technology.”
The Canadian Cattlemen’s Association also welcomed the agreement, saying it was “pleased that the existing rules of origin and dispute settlement provisions remain intact.”
But poultry organizations were not enthused.
“While we are relieved that no additional access was granted to our own sector, we remain concerned that access was still given away in the other supply management sectors,” said Jack Greydanus, chair of the Canadian Hatching Egg Producers.
Details on the new trade deal, a replacement for NAFTA, were still coming out as our latest edition of the paper went to press. For more coverage, go to the Alberta Farmer Express website and AGCanada.com.
– With staff files