White knuckle time for Canadian dairy and NAFTA

What will Canadian farmers need to sacrifice to save NAFTA?

It’s white knuckle time on NAFTA and there is a high chance of basic deal being agreed by Friday night.

It’s going to affect Western Canadian farmers in a big way, but exactly how is too fluid for anybody to know, including Canada’s NAFTA lead Chrystia Freeland and the United States’ Robert Lighthizer.

I can’t imagine concessions on dairy supply management won’t be the centre of the deal. U.S. President Donald Trump made it clear on Monday when he announced the Mexico deal that Canada’s extreme obstacles to U.S. dairy products are what he wants dealt with in order to keep Canada in NAFTA. He also connected that to a threat of hitting Canadian automobile imports with a 25 percent tariff.

The nice thing about dairy SM’s extreme protectionism and regulatory controls is that there’s lots to give away. There are many bones that can be thrown to Trump to give him a victory to declare, and allow NAFTA to survive. They’re all significant for Canada’s dairy industry, with farmers already struggling with a mostly stagnant, non-exporting, provincially balkanized industry that is drawing the ire of more and more Canadians.

I’d guess (and my guess is no better than anyone else’s) that the offer will be something like a five percent slice of Canada’s dairy market opened up to U.S. imports in some way, and backing away from the Class 7 trickery that allowed SM protectionism to be maintained while effectively blocking U.S. milk protein ingredient imports (themselves being produced to flood through a loophole in Canadian regulations) and actually allowing Canada’s dairy industry think it could export its own surpluses and dump them on the world market.

In all likelihood Canada’s dairy supply management system will survive, but nobody will be happy. Dairy farmers won’t be happy being further compressed and crushed by the shrinking straitjacket of their system. Farmers have all bought into the system fairly, SM being the legally constituted system in being, and their investment is huge. They’ve done nothing wrong, so why should they see the government dealing away their market, equity and sustainability, they’ll feel.

Taxpayers won’t like seeing billions of dollars being given to dairy farmers to compensate them for giving up a slice of a system some consumer advocates and economists see as a classic case of vested interests hurting the public interest and costing consumers dearly.

Farmers in free market industries will be relieved if a NAFTA deal is made, but will continue to be annoyed and frustrated that one sector of agriculture appears to have special protections and political weight that the more dynamic and bringing-money-into-Canada sectors don’t have. Why does this one anachronistic industry structure get such vociferous protection, perennially imperilling the global market access needed by most other farmers?

If SM mostly survives, which is most likely, American farmers and agriculture groups will continue to be antagonized by its existence, believing they could have all of Canada’s market if SM disappeared. (More likely, methinks, is that Canada would end up with fewer, bigger dairy farmers who would be exporting milk products to the U.S., like we do in most other farming industries.) Other trading partners will feel the same way.

So we’ll probably end up with a smaller, less viable dairy industry in exchange for a NAFTA deal that preserves free market access for most of our economy, including most of Western Canada’s farmers, a truce in the war against SM by the U.S., and some path forwards that everybody can grudgingly tread.

At some point the internal contradictions of dairy supply management will have to be addressed with more than tinkering. But that’s not likely to happen here, in these rushed negotiations, leaving dairy farmers, the rest of agriculture, and Canada to grapple with a system that offers no clear pathway into a viable, sustainable future beyond limping onwards, cannibalizing itself and simply staying alive.

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