To state the obvious, much of the news this past week -- the trade news anyway -- has focused on flashpoints in the U.S.-Canada relationship. The principal topics have been the announcement of new, U.S. countervailing duties on Canadian softwood lumber and the President's avowed determination to do something about new threats to U.S. milk exports to Canada. As for the tariffs on lumbers, they were inevitable after the expiration of the Softwood Lumber Agreement last year. We'll deal with that issue another time.
Today our subject is milk, specifically a new milk product known as
ultrafiltered milk. Recent Canadian actions have undercut America's market for the product in Canada, and U.S. dairy farmers are understandably upset, some of them up against the wall. Congress is unhappy. And so is
President Trump. He raised the issue last week in Kenosha, Wisconsin.
"We're going to stand up for our dairy farmers," he said.
"Because in Canada, some very unfair things have been happening to our dairy farmers and others... ."
And what are those unfair things. Here it is important to separate out America's long standing complaint over Canada's supply management system for eggs, poultry, and dairy from the relatively new shock that has been generated by that system. Essentially, Canada was able to hold on to its supply management system and the high tariffs associated with it through the negotiations of the Canada-U.S. Free Trade Agreement (1989) and NAFTA (1994). But back then they didn't know about ultrafiltered milk.
At this point, we are going to pass the baton of explanation to
Barrie Mckenna of The Globe and Mail, who has laid it all out quite clearly. Earlier this week he wrote:
Canada has long maintained a high tariff wall on most dairy products. The duty on milk is 270 per cent. That keeps most imports from the United States and elsewhere out of Canada, while helping to prop up higher domestic prices. One notable exception is ultrafiltered milk and other protein-rich dairy ingredients used to make dairy products such as cheese and yogurt. North American free-trade rules do not cover these ingredients, so they enter Canada duty-free. And in recent years, U.S. dairies have developed a booming business selling these low-cost products to dairies in Canada ($133-million last year). That all changed about a year ago, when Canadian dairy farmers and producers moved to close the breach in the tariff wall with a new "ingredients strategy." They persuaded regulators to create a new lower-priced class of industrial milk as an incentive to get dairies to produce protein substances in Canada, using Canadian milk. The result was predictable: U.S. imports fell in 2016, and are declining sharply so far this year.
While their language was a little more technical, we assume it was just that "new lower-priced class of industrial milk" that the heads of the major dairy associations were talking about when they wrote to President Trump on April 13. Their letter explained that:
Earlier this year, Canada implemented a new Class 7 pricing program as part of its National Ingredients Strategy. This program was specifically designed to stop an important U.S. dairy export to Canada and facilitate significant dumping of Canadian dairy products onto world markets. Canada's Class 7 pricing program poses serious negative consequences to U.S. dairy farmers and processors, as well as the many workers they employ in manufacturing and other related sectors across rural America.
The letter went on to complain about Canada's "disregard of its dairy commitments to the United States" and to highlight the plight of U.S. dairy farmers who will need to find new buyers for their milk by May 1.
The letter was signed by
Jim Mulhern, President and CEO of the National Milk Producers Federation; former Secretary of Agriculture
Tom Vilsack, now the President and CEO of the U.S. Dairy Export Council;
Michael Dykes, President and CEO of the International Dairy Foods Association; and
Barbara Glenn, Chief Executive Office of the National Association of State Departments of Agriculture.
