Is there a loophole for dairy exports?

U.S. Secretary of Agriculture Sonny Perdue’s concern about Canada possibly trying to export dairy products under the Class 7 designation isn’t necessarily far-fetched, says a dairy industry analyst.

“If we have non-subsidized exports, (then) those non-subsidized exports are not bound by that cap,” said Al Mussell of Agri Food Economic Systems, referring to a 2003 World Trade Organization decision by which Canada agreed to export only a tiny amount of dairy products capped by a strict limit.

“Based on the details of the WTO decision, we believe that (Class 7) complies with a non-subsidized export, and we’re claiming it as such.”

Class 7 is a new national class of milk created to counter imports of imported American milk protein products by offering equivalent Canadian material at a world price. Ontario began offering this sort of milk product to processors a year ago, and Manitoba quickly followed suit.

The initial purpose has been to close a loophole that allows American milk protein products to come into Canada regardless of the supply management import control system because that sort of milk didn’t exist at the time of the WTO deal.

Perdue’s concern about Canada exporting dairy products was expressed in an interview with The Western Producer June 5. He said the U.S. does not object to Canada operating a domestic supply management system but would object to dairy products produced within supply management ending up on the world market.

“It’s incumbent that … we don’t use supply management to create an overproduction that dumps milk solids on the world market and underprices,” said Perdue.

“You can’t use those kinds of supply management schemes to overproduce where it creates a glut on the world market.”

Mussell said the WTO limits that Canada agreed to apply to anything that gives dairy producers a benefit, is the result of government action and where the price is contingent upon exports.

However, the Class 7 situation does not make prices contingent upon exports. Instead, it is based on world prices regardless of whether the product is used in the domestic or export markets.

Canada has an ongoing problem with booming butter fat demand creating an excess of dairy protein production because of lower demand for protein. Being able to export dairy protein would improve that “balance,” Mussell said.

Dairy Farmers of Manitoba said it could not address the concern about export use of Class 7 milk products. 

“Class 7 is new, so we can’t speculate on anything regarding it,” said communications manager Teresa Ciccarelli.

“The Canadian dairy industry is confident that Class 7 respects our trade obligations.”

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