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April 4, 2017

Canadian Policy Causes Lost Milk Contracts

 |  By: Anna-Lisa Laca

For the past 10 years, ultra-filtered milk has been a good product for U.S. processors to ship to Canada. That’s changing quickly. In fact, several milk processors in the U.S. recently lost their contracts to sell the product in Canada causing heartburn for dozens of farmers who lost their milk contracts as a result.

Over the past two weeks, Canada has rolled out a new milk pricing system called Class VII. Dairy industry leaders are upset with Canada’s decision, saying it could be a violation of international trade laws.

“We believe it’s potentially designed to make it very difficult to get American products in the country,” said Tom Vilsack, former secretary of agriculture and current CEO of the U.S. Dairy Export Council (USDEC). “We’ve asked for information about this new system to determine for ourselves to see if it’s [World Trade Organization] compliant.”

Unfortunately, even after thorough questioning during the WTO committee on agriculture meeting last week, Canadian officials have not been any more transparent about the new system, according to Shawna Morris from USDEC.

“We have been working together with the companies that make these products for years now to try and do everything we can from the U.S. side to keep the border open,” she says. “Canada has plowed forward and it’s just been in the last month that these programs have been implemented across the country. It’s a direct result of those Canadian actions that companies like Grassland and others are put the position they are at this point and that farmers are suffering as a result of what Canada has done.”

Grassland was one of several companies who lost their contracts with Canadian processors. In their case, they were only given two days’ notice they would no longer be able to sell a product that accounts for 1 million pounds of milk per day, says Goedhart Westers, vice president of business development for the company.

As a result, they sent a letter to several dozen farmer suppliers notifying them they have 30 days to find a new home for their milk. Westers says dropping farmers was the last thing they wanted to do, but they physically can’t run all of the milk they have being delivered daily without ultra-filtered milk, so they were forced with a tough decision.

Some farmers are criticizing Grassland for not giving any indication there could be issues. Westers, however, says trade issues with Canada is something they’ve been talking about with producers and the media for years.

“This has been business we’ve had for 10 years,” he says. “There’s been multiple attempts from Canada to stop this product.” Westers had hoped for a longer transition if this segment of their business was impacted by Class VII. Unfortunately, companies who deal with Canada are used to this.

“Frankly, companies who do business with Canada have dealt with trade issues like this on a moment’s notice for a long time,” Morris says. “These steps are taken in ways that give U.S. processors very little time to find a home for the product.”

Morris and Westers agree these new rules from Canada are likely not in line with WTO standards. While some Canadian sources say Class VII is purely an industry decision, Morris reminds that nothing Canada does in relation to dairy policy is a purely commercial decision.  

While their suppliers were among the first to receive notices of dropped contracts, Westers says this isn’t a Grassland issue.

“This is not just a Grassland issue, this is a U.S. trade issue,” he says. “This affects not only our patrons but a lot of farmers in the U.S.”