October 10, 2017

U.S. Drives Hard Bargain with Canada

 |  By: Mike Opperman

With the fourth round of NAFTA negotiations set to begin in Ottawa, Canada this week, the U.S. dairy industry is taking a hard line to force Canada to drop its supply management pricing structure. The pathway for success in this effort comes by attacking tariffs. "I don't know what the U.S. government is going to do, but we certainly are talking very clearly that we need complete elimination of [Canadian] tariffs," said Jaime Castaneda, senior vice president for strategic initiatives and trade policy at the National Milk Producers Federation in an interview with Politico. "Once you eliminate tariffs, supply management goes."

But Canada certainly won't give up their decades-old pricing system without a fight, mostly because they see their system as providing an adequate market for their dairy farmers. They also see the attack on supply management by the U.S. as a way for the U.S. to solve what they see as overproduction issues. "We have to make sure we solve the right problem," Ontario Premier Kathleen Wynne told Politico. "If the problem is oversupply in the United States, then we need to have that conversation. If the problem is access to markets, then we should have that conservation."

But supply management is only one of the issues. The other issue is the creation of the Class 7 milk pricing system that encourages more butter production, among other things. This increased production has resulted in a dumping of skim milk powder on the world market, affecting the U.S. and other dairy exporters. U.S. chief agriculture negotiator Darci Vetter told Politico that unless this issue is already addressed, any new market openings for U.S. dairy that take the form of an import quota could be meaningless, since Canadian processors already have ample access to skim milk powder and proteins at low prices. Castaneda says if this piece of the negotiating puzzle doesn't get resolved, NAFTA negotiations will be a failure. 

One negotiating piece remaining is the access to U.S. markets by both Mexican and Canadian dairy processors. Providing access to U.S. markets for the sale of products like fresh yogurt and fresh cheeses could be part of negotiations, says Vetter.