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July 7, 2017

America’s Dairy Dispute with Canada Gets More and More Curious

 |  By: Dairy Talk

It’s not often I get an e-mail from another nation’s Department of Agriculture, commenting on a story I wrote on a trade issue and offering a correction. In fact, it has never happened.

But I wasn’t alone. Mike Opperman, editor of MILK, got a similar e-mail. We’re merely editors. The Governors of New York and Wisconsin got a much more formal letter from the Canadian ambassador in mid April, attempting to set the record straight.

The Canadians, usually a jovial and friendly bunch, are taking extreme exception to the allegation that they aren’t playing by the rules and are the cause of the loss of market for more than 75 U.S. dairy farms this spring. It all stemmed from the dust up with the creation of new Class 6 and 7 milk in Canada, which essentially lowers the price for ultra-filtered milk. The price is so low U.S. milk protein concentrates (MPCs) are no longer competitive to buyers to our north, and thus the back-up in milk flow in New York and Wisconsin that had to find a new home.

The exception Agriculture and Agri-Food Canada took with our stories was that we said dairy groups in the United States, the European Union, Argentina, Australia, Mexico and New Zealand were upset with Canada over the new trade policy. The Canadian Ambassador and Agriculture Canada maintain that Canadian dairy trade policy has not changed and it continues to allow duty-free and quota-free access for MPCs and diafiltered milk. If the U.S. and these other countries have a beef, it’s not with the government but with the Canadian dairy industry, which sets Class prices through negotiation between producers and processors.

The thing is, it’s hard to decipher where Canada’s government dairy policy begins and ends. It has a milk classification system similar to the U.S. Federal Milk Marketing Order system. Canada’s federal government provides the overall framework for the classification system, but then each of Canada’s provinces tweaks the system to its own uses and needs.

Ontario probably takes it the farthest, with some 22 product classifications. And once minimum prices are set for each classification, like here, they have the power of law. “There’s no way the provinces could do this without the Federal architecture,” says Andy Novakovic, a dairy economist with Cornell University.

About 10 years ago, he says, Canada made a similar attempt to create an export classification to dump dairy products onto the market at below world prices. The World Trade Organization (WTO) ruled that such pricing and dumping is illegal. Some countries will argue that they are small and the amount of product being dumped is insignificant. But under the Uruguay Round of the WTO, any such dumping is a big no-no.

The Canadians might have gotten away with the new Class 6 and 7 if they had used them for domestic use only, says Mark Stephenson, an economist with the University of Wisconsin’s Center for Dairy Profitability. “If I were in their shoes, I might have tried it too,” he says. Once they start using Class 6 and 7 for exports, however, and once those exports start distorting trade, WTO rules come into play.

But don’t expect overnight results. Such cases take years to resolve. After all, there are governments involved.