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NAFTA, CETA, TPP and Canadian Dairy

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Scenario:

Re-negotiating the North American Free Trade Agreement further disadvantages Canadian Dairy Farmers. This creates an increasingly disadvantaged position in the Dairy industry in Canadian-American trade, alongside a lessening demand for dairy products overall. 

BACKGROUND

ACTORS & EXPERTISE

CURRENT RESOURCES

The United States has repeatedly indicated that a key tension in NAFTA renegotiations is Canada’s continued protection of dairy, poultry and egg producers. These protectionist policies, known as supply management, were also an irritant in the Trans-Pacific free trade negotiations.  The U.S. dairy lobby says it wants the elimination of Canada's supply management system which slaps imports with a 270 per cent duty — and it says it has the support of its government as NAFTA talks begin in earnest.  Jaime Castaneda, senior vice-president with the National Milk Producers Federation, said American dairy producers had tolerated the existence of supply management, but Canada went too far when it a created a new class of milk. Castaneda said, the U.S. industry has formed an alliance with Mexico and their goal is nothing short of the full-scale destruction of supply management to solve their problem with that. Canada’s new class of dia-filters or ultra-filtered milk cut Canadian revenue at 200 million a year.  

Leadership:

  • Federal government of Canada

  • Trump Administration

  • Dairy farmers lobby (both US and CAN)

  • TPP nations

*Supply Management is a government-provided mechanism to raise agricultural prices and farm incomes. Supply management is incomplete/ ineffective without government involvement to enforce licensing and quotas and to restrict imports. Supply management has more control than marketing boards (more price negotiation and facilitation of trade and most marketing boards are under provincial jurisdiction and federal government has jurisdiction between provinces)  ** Characteristics key to it include: exemption from the Competition Act – against coordinated supply restriction as outlawed in other industries, very high tariffs to imports of dairy and poultry products from other countries, all producers must be part of the marketing board, and demands for agricultural products are “price inelastic” (small changes in production can have large effects on prices and incomes**).

[3]

[4]

COMPARATIVE MILK PRICE 
US-CAN

From the Canadian side, the tariff information provided by the United States of America (USA) for the 2017 tariff regime where the US is the Most Favoured Nation (MFN) shows the US has preferential tariffs under the NAFTA agreement that apply to goods imported from Canada that meet the rules of origin under this agreement. Most of these tariffs do not exceed 4 cents a kilogram and many were under the .5 cent mark in regards to liquid dairy per litre. The Dairy trade between Canada and the U.S. massively favours the U.S., by a ratio of five-to-one, said Guy Gallant, MacAulay's spokesman as Canada is the second-largest export market for U.S. dairy products, surpassed only by Mexico.

The Canadian retail price of milk was 38% higher than the US and 42 % higher than Australia and 26 % higher than the US for butter and 57 percent higher for Australia. The price of milk in Canada is determined with a “fair” return for the producers based on supply management, but the average salary of Canadian farmer with supply management is just $51,000 in Canada (dairy farmers specifically making 26% profit.) [5] Supply management protects these 13,500 Canadian dairy, poultry, and egg producers from foreign competition, but this represents just 8% of all farms in the countr. This system potentially hurts the 35 million Canadian consumers who have to pay more for these products, with a disproportionate effect on the poorest Canadian families by forcing them to pay $339 more per year for food (lower income families spend up to a ¼ of income on food). [6] Overall Consumers are not the only losers in the current situation. Supply management also deprives Canadian farmers of access to billions of consumers around the world. Moreover, the expenditures required to purchase quotas limits their ability to invest to increase the productivity of their farms, and makes it difficult for young farmers to enter the market.

SUFFICIENCY AND LIKELY OBJECTIVES

SCENARIO

International trade agreements entered into by Canada should not threaten the producers and consumers of the Canadian dairy industry. Yet, CETA, the TPP and, most notably as stated, NAFTA, have been a consistent and growing problem facing Canadian domestic dairy interests. Canada’s dairy farmers and consumers have long been bound by many implications on production and distribution set forth in NAFTA, that consequently benefit the United States, while a continued push for further access by American Dairy happens. [7] Using the scenario of an increasingly disadvantaged position in the Dairy industry in Canadian-American trade, alongside a lessening demand for dairy products overall, the re-negotiated North American Free Trade Agreement might further disadvantage Canadian Dairy Farmers and should therefore incorporate a 5-year and 10-year plan for Canada regarding supply management protectionism of the Dairy industry. [8] What is relevant to solve this issue is to focus on the parties involved and the interests of the parties involved, in order to determine where a cooperative agreement can be drawn. The overall foreign policy objective in this scenario for Canada is to keep a certain level of protective supply management so the dairy industry remains robust, while also looking at solutions to our American trade tensions by phasing in reductions in protective supply management up to a reasonable and agreed upon point.

POST-SCENARIO

Canada will re-negotiate NAFTA to include both a workable Supply Management for our Dairy industry, yet open our markets enough to reduce consumer cost and bring in trade with the US that is friendly to their interests as well in the industry. In a 5-year and 10-year framework, parties to the discussion will be advised by direct oversight and analysis initiatives throughout these time frame. [9] Specific directives that should be taken when formulating plans and negotiating with various parties should include:

DIRECTIVES

  • Attempt to use the new class of milk in Canada (dia-filtered Class 5) as a bargaining chip.

  • Negotiate subsidies to the farmers, but not to the industry that would drive up the price and create further strain on low socio-economic Canadian consumers.

  • Set-up a standard for TPP, as this would be an adequate baseline for how to work with the TPP nations who care greatly about this industry issue and have the power of diplomatic pressure within it to sway and alter the American position against Canada in re-negotiations. [10]

  • Take measures to appease Quebec as this will be a regional issue due to many Dairy Farms residing in this region. Supply management reduction must respond to their needs and not drastically effect farming incomes therefore, as a 5-year and 10-year plan must account for.

  • If a transitional temporary tax was introduced, prices would not be changed for a specific time – compensate producers for the loss of quotas.

  • TPP as super- NAFTA and this as is an opportunity for its framework. [11]

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