Volatile fluid milk prices in the United States show the need for a national all-milk pool in Canada, Manitoba dairy farmers were told last week.
A combination of low U.S. prices and a strong loonie could allow fluid milk to enter Canada despite high import tariffs, according to the head of the Canadian Dairy Commission.
That would seriously undermine supply management, which depends on import controls to support the system, CEO John Core told the Dairy Farmers of Manitoba annual meeting.
Canada can’t stop imports from coming in over the tariff wall if economic conditions allow it to happen, said Core.
But a national all-milk pool would soften the impact on producer prices by spreading the damage across the country instead of just regionally, he said.
“There’s no problem right now,” Core said after speaking to the DFM meeting.
“But if this volatility continues and if the United States does not find a way to stabilize their market… if their prices fall dramatically again, we really have to be careful of the tariff wall.”
TARIFF WALL VULNERABLE
The CDC and Dairy Farmers of Canada will meet with provinces to discuss the idea of pooling milk revenues and markets nationally. A report will go to the Canadian Milk Supply Management Committee in April.
The CMSMC earl ier this year asked the CDC to develop a possible road map for a national pool. Currently, there are two regional milk pools: the P5 eastern pool and the P4 western one.
Canada’s supply management system for dairy, eggs and poultry is based on three pillars: price supports, production quotas and import controls. Tariffs as high as 300
per cent or more discourage cheap imports and help support domestic prices.
Some non-tariff imports are permitted. But the industry says it needs to predict import volumes accurately to support the three pillars.
Core said Canada came close to a tariff wall breach in 2006 and 2009 when low world dairy prices and a strong Canadian dollar almost made imports financially worthwhile.
World prices have since recovered and the risk of a tariff break has receded.
But Core said the danger now lies in volatile U.S. fluid milk prices, which regularly range from extreme highs to extreme lows and may currently be on the downswing.
“Could it, at some point, if the U.S. price collapsed, reach the point where somebody was prepared to pay the tariff, transport it to Canada and process it?” he asked.
“I’m just pointing out that, be cautious. Don’t just worry about butter. Don’t just worry about cheese. Think about milk.”
Core said U.S. fluid milk exporters would likely target high-priced consolidated Canadian markets such as Toronto, Montreal or Vancouver. If imports drove down local fluid markets, producers’ incomes would fall. But a national pool would spread the risk across Canada and ease the blow.
“So that, if one market gets targeted, all producers share in the loss of that market and not one group of producers gets targeted more heavily than another.”
Canada’s dairy industry formed its two regional fluid milk pools in the mid-1990s following the Uruguay round of world trade negotiations. Provinces pool markets and returns for special industrial milk classes. But a national all-milk pool has always eluded them, even though task forces recommended it.
Jacques Laforge, Dairy Farmers of Canada president, warned supply management’s future could be tenuous without national pooling.
“If we don’t, I’m not saying we’re going to lose supply management. But we’re going to get a bit of erosion here, a bit of erosion there,” Laforge told the DFM meeting.
“If we’re going to maintain markets, this is one extremely important thing that we need to achieve.”
Laforge suggested a 12-month timeline for developing a national pool model.
David Wiens, DFM chairman, said now is a good time to discuss national pooling because “we’re not at a crisis point.”
Regional differences are often cited as a reason for having two regional pools instead of one national one.
But Wiens said a national pool may not be as hard to achieve as it once was because the regional pools provide a beachhead for it. [email protected]
“Wereallyhave tobecarefulof thetariffwall.”
– JOHN CORE, CDC