Milk Money:
Breaking Down U.S.-Canada Dairy Dispute

Trade talks between the U.S. and Canada concluded Friday without a deal. Talks resume today.

U.S. Trade Representative Robert Lighthizer issued a statement saying Canada had yet to offer any concessions on agriculture, a U.S. priority.

Central to agriculture negotiations is dairy, an issue that demonstrates the ambiguities of fair trade.

The USDA says the U.S. exported $637 million worth of milk, cheese and other dairy to Canada in 2017, enough to run a $418 million trade surplus in the category.

But the Trump administration says U.S. farmers are treated unfairly by the complex “supply management” system that governs Canada’s dairy market, under which the government sets milk prices and imposes quotas on domestic producers to keep supplies in check. As part of this system, Canada limits dairy imports and imposes tariffs of more than 200 percent on products that exceed those limits.

Trump has called Canada’s dairy protectionism a disgrace. Critics say Canada’s system unfairly limits market access and distorts prices.

The U.S., Australia, Europe and other countries with large dairy sectors have long wanted greater access to Canada’s robust consumer sector. The U.S. dairy industry is trying to cultivate global markets as domestic milk consumption falls and more efficient production methods contribute to persistent oversupply. Last year, U.S. farmers exported around 2 million tons of product, much of it to Mexico and China.

However, Canada’s 11,000 commercial farms hold substantial political sway. The bulk of them are in vote-rich pockets of rural central Canada, especially Quebec.

Supporters of Canada’s supply management system say it helps keep prices stable and has limited Canada’s contribution to a dairy glut now plaguing world markets.

Dairy farming “is a motherhood issue here,” said Jon Johnson, senior fellow at Toronto-based C.D. Howe Institute and former government trade negotiator.

If Canada agreed to abandon its regime of supports and restrictions, “our dairy industry would probably be wiped out,” he said. “The state of Wisconsin could easily supply all of Canada’s needs.”

Canadian Prime Minister Justin Trudeau said Friday that Canada’s dairy regime works for farmers and consumers. “We know the Americans would love for us to eliminate supply management. We will not do that. We will not give in.”  Source: Wall Street Journal