Canada’s dairy system has figured prominently in the rhetorical storm surrounding NAFTA renegotiations. The Canadian government has so far remained steadfastly opposed to any significant change.
Two documents that surfaced recently help explain why.
The first, the U.S. Department of Agriculture’s “Regulatory Economic Impact Analysis of the Final Decision to Establish a California Federal Milk Marketing Order,” has nothing to do with NAFTA.
But it does provide a window on the convoluted world of U.S. dairy policy. If Canada’s system of supply management is complicated, the U.S. system is damn complicated.
There are striking similarities, however. Both regulate milk prices, use price pooling, and have an effect on consumer prices; sometimes consumers pay more or less than they might in an unregulated market.
In fact, University of Guelph agricultural economist Al Mussell says the two systems are mirror images of each other — with a few notable exceptions.
Although the U.S. supports prices, it does not control supply, which leads to prolonged periods of overproduction. As one observer noted, the U.S.’s latest dairy crisis isn’t because of Canada’s supply management system, it’s because the U.S. has too much milk.
Canada controls production through quotas. Those quotas have been capitalized into a producer’s cost of being in business, although they are not factored into the cost-of-production formulas used to set milk prices. Quota purchase is an asset, not unlike the purchase of farmland, the cost of which does not affect grain prices.
Both countries limit dairy imports. The difference is, Canadian import tariffs are transparent.
“We may have 300 per cent tariffs (on butter), but they have equivalent protective trade measures that… have the same effect. It is very hard to export to the U.S., I would argue it’s almost equivalent,” Mussell said in an interview.
Canadian dairy exports are deemed subsidized and penalized under world trade rules. U.S. dairy exports haven’t been challenged at the WTO and face no such sanctions.
So for the U.S. to call out Canada in trade talks “is like the pot calling the kettle black,” Mussell says.
That brings us to the second document released recently, an analysis by Export Action Global consultants that challenges the notion that Canadian dairy products are overpriced and that consumers fare better in a deregulated dairy market.
The report “Dairy Systems Around The World: Are Canadian Consumers and Farmers Better Off with the Canadian Model?” is consistent with what Canadian dairy lobbyists have been saying for years.
According to author Adam Taylor, however, the analysis was not commissioned. “We put this out ourselves,” he said in an email.
“We wanted to paint a more fulsome picture of dairy systems around the world especially how both consumers and farmers are affected.
“We conclude there is a valid and evidence-tested argument in favour of supply management…” So much so, that there are now calls from within the U.S. dairy sector to replicate the Canadian system.
Export Action Global found that Canadian dairy prices are similar, and in some cases significantly lower than prices in deregulated milk markets in the U.K., Australia, New Zealand and the European Union.
“Virtually all of these jurisdictions swapped regulation for new and larger subsidies,” it says. “Consumers pay for their products once at the retail level and again through their tax dollars.”
It cited New Zealand as the only country in which a deregulated system has produced some benefits, largely due to the establishment of Fonterra, a quasi-monopoly marketing co-op. In other parts of the world, deregulation has contributed to overproduction, price volatility for farmers and consumers, and frequently, the dumping of excess milk.
Canadians currently pay less on average than Americans for butter, yogurt and cheese, the analysis found.
The U.S. dairy sector is heavily reliant on another subsidy of sorts, undocumented foreign workers.
The U.S. National Milk Producers Federation issued a report in 2015 that said immigrants make up half the workers on U.S. dairy farms. If that source of labour was lost, production costs would rise and retail milk prices would nearly double.
It also notes that simply gaining increased access to the Canadian market, as the Trump administration is demanding, would not solve the U.S. dairy crisis. Ten per cent of the Canadian market equates with only one per cent of U.S. dairy production.
This will not silence the critics, nor does it address the structural issues facing the Canadian dairy sector.
It does, however, suggest that the Canadian system isn’t as impractical or out of touch with the modern world as some would like you to believe.
This article first appeared on Farmtario.