Canada
April 17, 2018

What should we do with Canada?

 |  By: Mike Opperman

Since the War of 1812, the relationship between the U.S. and Canada has been as good as any neighborly relationship could be, given it’s lasted a couple of centuries, give or take. We haven’t tried to invade our brethren to the north for more than 200 years, and save for Stanley Cup domination and that curling defeat in the Winter Olympics earlier this year, we’ve gotten along pretty well.

So why can’t we get along with Canada on trade issues?

Our respective dairy markets couldn’t be more different. Canada is carefully controlled under supply management. Ours is a free market system that gives producers the freedom to produce as much as they want (although some coops and processors have implemented their own supply management programs). The Canadian supply management system has kept herd sizes low while dairies in the U.S. continue to grow, with large herds soaking up the cows from smaller dairies as they go out of business.

My parents told me never to do business with family members, and maybe that’s the problem. Those kinds of partnerships always look good on paper and start out swimmingly, then inevitably go south as time goes by. There is always that moment in time when one brother says or does something to make the other brother mad. What starts as a crack grows to a canyon.

The canyon of discontent between our two countries started last February when Canada put the Class 7 pricing system in place. Suddenly, the market for a few U.S. processors dried up, and with it the milk supply contracts for about 100 producers. As a result Canadian imports of milk protein solids dropped 37% in 2017, or about $50 million in value. Meanwhile Canadian cheese production, which is a heavy user of milk protein solids, grew by 7%.

My friend Stan Van Keulen, who dairies near Vancouver, says Class 7 was just a “business transaction” Canada put in place to become competitive.

“Our processors decided to buy from Canada and not the U.S,” he says. “If U.S. processors wanted to continue to ship product to Canada, they could have dropped their price.”

Tensions between Canada and the U.S. grew when President Trump decided to open negotiations around the North American Free Trade Agreement (NAFTA). Class 7 has been a burning ember of debate in these negotiations. The U.S. wants Class 7 thrown in the dumpster along with the Canadian supply management system. Doing so would break down the fence and allow greater market access for U.S. dairy products.

But as Van Keulen says, “be careful what you ask for.” Breaking down trade barriers would also create greater market access for our competitors. It would also allow Canadian dairy producers the chance to expand. Canada would instantly become a larger player on the world market, and a bigger U.S. competitor. Usually in business you want less competition, not more.

Dairy producers on both sides of the border are waiting to see what NAFTA 2.0 holds. While an “agreement in principle” is due any day now, there’s nothing in the agreement pertaining to dairy. It’s like negotiators decided to focus on what both sides could agree on before tackling something neither could come to a consensus around. Don’t look for a NAFTA resolution anytime soon. Shaun Haney of realagriculture.com in Canada says years passed between when Canada and the EU had an agreement in principle on the Comprehensive Economic and Trade Agreement (CETA) and when the agreement was actually signed. The same would probably hold true for NAFTA.

While negotiators and politicians on both sides of the border continue to debate, producers go on producing milk. After all, Van Keulen’s dairy in Vancouver is not much different than say, John Jacobs’ dairy north of Green Bay, Wis. They’re both milking cows and relying on the resulting income to help their business survive and thrive.  Perhaps a group of Canadian producers should sit down with U.S. producers over a few beers and get the whole thing hashed out.

Because in the end, it really comes down to creating a viable economy for both Canadian and U.S. dairy producers. So let’s let Canada have their system and we’ll have ours. Sure Canada is a significant trading partner for U.S. dairy products—No. 3 on the list—and we should keep that relationship and grow it if we can. But as we try to knock out another brick in the wall and gain greater access, let’s not forget the other burgeoning and untapped markets. After all, it’s always better to do business with members of someone else’s family.

What do you think? What should we do with Canada? Leave them alone or break down trade barriers? Let me know at mopperman@farmjournal.com

 

 

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