World Milk Crisis Could Threaten Dairy Tariffs

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Canada’s milk producers are evading a dairy crisis raging in the rest of the world, but a renewed threat to their protective shield might change that.

A combination of low world milk prices and a strong Canadian dollar could allow cheap foreign dairy products into Canada despite high import tariffs designed to limit them.

That would seriously undermine the supply management system, which depends on import controls to maintain milk prices for producers, industry officials warn.

That nearly happened early this year with skim milk powder, when the price of imports was near a tipping point with the domestic price, said Richard Doyle, Dairy Farmers of Canada executive director.

World prices have strengthened a bit since then and the risk of a tariff breach is not imminent now, he said.

But Doyle warned Canada’s dairy industry could risk a return to 2006 when world prices were also low and tariff walls came close to being breached.

The possibility is real “if the dollar continues to strengthen and there’s a further drop in the world price.”

Most international dairy products are priced in U.S. dollars. The more the Canadian dollar appreciates against its American counterpart, the more affordable dairy imports become, especially if world prices are low. If world milk prices fall far enough, imports become cheaper than domestic products, despite tariffs.

That situation hasn’t arisen lately because the world price took a sharp upward spike in 2007, propelled by the rising price of oil, increased dairy consumption and low world stocks.

But prices collapsed suddenly in 2008 because of overproduction, the world recession and the melamine-contaminated milk scandal in China which scared off consumers.

The world dairy industry today is in crisis because milk prices are far below farmers’ production costs. European dairy farmers recently dumped millions of gallons of milk in fields in a protest against depressed prices. In the U.S., the National Milk Producers Federation is paying farmers to send herds to slaughter.

Producers worry that periodic efforts to restart the stalled World Trade Organization talks will revive proposals to slash import tariffs. A negotiating text at the WTO proposes reducing tariffs by a minimum 23 per cent.

That, combined with current conditions, would release a flood of dairy imports into Canada, Doyle said.

“The stuff would be coming in over the wall. The tariffs would not be sufficient. You would basically have to reduce your domestic price dramatically.” [email protected]

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