You Just Knew This Woudn't End Well

For all the bombast of Donald Trump on the evils of Canada's supply management system, it was refreshing to hear U.S. Agriculture Secretary Sonny Perdue defy his boss and speak a little truth about what's going on. Perdue came to Lawrence MacAulay's farm in Midgell, PEI to do a little fence mending after the G7 fiasco a couple of weeks ago.  Perdue said Canada can keep supply management, it's the pricing of a new class of milk in Canada (class 7) that has him worried.  It's a cheaper product that allows Canadian farmers to compete with low cost U.S. diafiltered milk imports used to make cheese. In effect dairy farmers here makes it unnecessary for Canadian dairies to import the U.S. product because they can get it for the same price here in Canada. And today Saputo boss (a large Montreal based dairy with processing interests around the world) Lino Saputo Jr. essentially agreed with Perdue.  Saputo has some history with this problem, and it's not surprising that he would break ranks, because his company started the problem in the first place. 

I had first written about this almost 2 years ago, and you could sense it wouldn't end well.

December 2015

A Shortage of Butter: Not Good News for Dairy Farmers

This is a classic case of a loophole, big business capitalizing on any chance to improve the bottom line, and serious unintended consequences.  The impact of what appeared to be a minor bureaucratic decision  is being felt in Canadian kitchens, food processing plants,  and disturbingly, could do serious economic damage to Canada’s dairy farmers.

A few years ago Federal officials were trying to decide where so called “protein isolates” would fit into the stiff tariff schedule that limits imports of cheaper dairy products like yogurt and cheese. These high tariffs maintain the integrity of Canada’s supply management system that tailors milk supply to Canadian demand using quotas, while assuring farmers a fair price.  Protein isolates are essentially raw protein, like the whey protein used as a dietary supplement. Think of whole milk with the fat and minerals stripped out.  The bureaucrats decided the isolates are a protein “substitute”, not necessarily a dairy product, so they come into Canada tariff-free.  No one paid too much attention then,  but  slowly, over time, a trickle of cheaper protein isolates, almost all from the United States,  has become a tidal wave.  Now Canada’s largest dairy processors like  Parmalat, Saputo,  and Agropur, are helping their bottom line by using the cheaper protein in their cheeses and other dairy products. But there’s a  wrinkle, the processors still need the fat from whole milk to mix with the raw imported protein to produce their cheeses.   This is happening at the same time that dieticians and doctors are telling Canadians it’s OK to eat butter again.  So over the last year  butter, and butterfat, are again in big demand, and for some, short supply.  Farmers nationally have stepped up production by more than 7% on a butterfat basis to meet the shortfall, but because there’s no additional demand for the protein in the whole milk  (usually made into skim milk powder), farmers aren’t paid the full cost of production price for this additional milk, and a lot of the surplus skim milk is being dumped or fed to livestock.

That’s unfortunate, but the more serious impact I think is that it’s given the business media a fresh opportunity to attack supply management.  “Supply management falls butter-side down”  in the Globe and Mail,  and  “Supply management is expensive, irrational — and doomed” in i-Politics amongst others.   What especially irritates me about these articles is that they blame dairy farmers (and always the articles are  accompanied by shots of Holsteins) for lobbying to protect a “broken” system, when it’s large multi-national dairy processors that have created the problem. There’s no benefit flowing back to dairy farmers from  the importation of this cheap protein (other than Quebec farmer-owned Agropur, shame on it.  Parmalat is owned by a large Italian dairy, and Saputo by a Montreal family).

Here’s some better news. As Islanders, we can celebrate the fact that PEI’s dairies, ADL and Purity, do not use this imported protein.  And let’s also enjoy the world recognition ADL cheeses have received recently:  ADL, using a recipe from Cows, produces the Avonlea Clothbound Cheddar that won SuperGold at the World Cheese Awards in England  in late November. And ADL’s own labeled cheddars won several awards at the British Empire Cheese Show in Ontario in mid-November.  I’m not an expert, but maybe the fact that only PEI whole milk, rather than a tasteless imported protein isolate, is used to make these cheeses had something to do with these successes.  

One more thing for consumers to watch for. There is a symbol:

 that says 100% Canadian milk.  That’s your guarantee too that there’s no imported protein in the dairy products. 

Unfortunately for farmers  the trade in protein isolates won’t end quickly. The U.S. dairy industry would launch a trade investigation before the ink was dry on any new government regulation trying to control it.  The big multi-national dairies themselves are playing a game of economic chicken saying they’ll stop only if the others do.  As well they’re getting ready for more competition from cheaper European cheeses if the big EU trade agreement is ever ratified.   So consumers will have to step up if there’s going to be any solution. On PEI at least that’s easily done.