Sunday, 9 September 2018

Getting a Nafta Deal

I've written a lot over the years about my support for supply management. Canada cannot give up on it because of the mindless bullying of Donald Trump. But I think Canada must be willing to give up something.  There's a complicated part of this story that I first wrote about back in June.  It has to do with Canada exporting milk powder and competing with U.S. farmers. I think Canada should give this up, especially if it means retaining the basic integrity of the system. It gives Trump a win, and apparently it's the bottom line for U.S. agriculture secretary Sonny Perdue.  Here's the background from a column in the Island Farmer.

Looking a Little Deeper

Canada’s national newspapers have been very consistent over the years in their condemnation of supply management. President Trump’s erroneous bombast on dairy has given them fresh material to work with. However there was one editorial in the Globe and Mail that revealed more about the newspaper’s  biases than any problem with the regulated system itself.

Opponents of supply management get one thing right. Canadian consumers do pay more for dairy poultry and eggs than Americans, who enjoy the cheapest food in the world (underpinned of course by $25 Billion a year in taxpayer subsidies to farmers).  Canadian dairy, poultry and egg farmers get no government support. What was revealing is how the Globe characterized the way the farm gate price is determined. Here’s what was written: “Canada’s agricultural supply management system is an outdated, protectionist racket that uses tariffs and quotas to limit the country’s supply of dairy, eggs and poultry, and sets prices for them based on production costs instead of demand.”

That last part is true. What’s shocking is that the Globe thinks there’s something wrong with this.  Think about it for a second. Consider if there is any other industry where a smart editorial writer would argue that recovering the cost of producing a product shows there’s something wrong with the price. We’ve seen how taxpayers had to bail out the auto industry when it wasn’t recovering costs. We’ve seen giant retailers fail for the same reason.  If the Globe had written that there’s excess profit because of protectionism (hello Canadian banks and airlines),  fine, let’s argue about that. But this is saying when farmers can pay their bills it’s wrong.

Even Sonny Perdue, the U.S. agriculture secretary who travelled to Lawrence MacAulay’s farm in Midgell two weeks ago to do a little fence mending after the G7 fiasco, had smarter things to say. Defying his boss he said Canada can keep supply management. What he doesn’t like is a new pricing agreement between Canadian farmers and processors for what’s called “class 7” milk. In simplest terms: northern U.S. dairies had been exporting diafiltered milk (think of protein powder) to Canadian cheese producers. It was a product created after NAFTA was signed, so came into Canada duty free (think cheap). Canadian farmers have now agreed to produce milk at the same price, so the Americans lost the market.  As well, international trade rules prevent Canadian dairies from exporting dairy products at prices below what farmers get in Canada (always higher than the world price until now).  The new class 7 has created a cheaper domestic price for skim-milk powder.  Combine that with the low Canadian dollar, and now small amounts of Canadian powder are competing in traditional American export markets. Perdue put it this way: “You just need to manage it and not overproduce to create a glut of milk solids on the world market that’s being dumped at unfair prices.”   That’s not an unreasonable concern, although the amount of product Canada puts on export markets is tiny and hardly the cause of U.S. dairy farmers problems.  We will probably see complaints to the U.S. International Trade Commission, and the World Trade Organization on this issue.

One more thought on milk. Maybe the U.S. dairy industry should stop using Bovine Growth Hormone (rBGH) to artificially increase milk production in cows (it’s outlawed in Canada). There are well documented health concerns for both consumers and cows from its use.  Banning the product would cut farmers’ costs,  decrease the over production of milk,  and help with the bottom line. And the U.S. would join the many other countries who ban this product.  I know this won’t happen.

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