Supply management in trouble even if it survives NAFTA

The worst outcome from any North American Free Trade Agreement deal would be a supply management system that survives but is weakened.

Saving free access to the United States, if that happens, will be a blessed relief for all the Canadian crop, livestock and food businesses.

And if dairy supply management manages to survive, even with concessions, it will probably be proclaimed as a defensive victory. Dairy farmers will be saddened but probably relieved if they escape with only minimal losses such as those offered for the revised Trans-Pacific Partnership and Canada-EU deal.

However, that sort of a result, especially if it limits or eliminates the use of Class 7 milk, will just shove the dairy industry back into the path of unsustainability it was treading before Class 7 was invented to fix things.

Debt and profitability pressures were already making dairy farmers’ futures challenging, and a relatively stagnant domestic market offered little chance of long-term growth to avoid cannibalization, so losing any ability to get some value from excess protein products (that are left when the high-value butterfat is removed) would exacerbate those challenges.

Re-engineering supply management is a herculean task, but Ontario dairy farmers had seemed to do it, at least partially with the protein problem, and the approach was making Canada’s industry more sustainable. A loophole that American dairy was exploiting to pour protein products into Canada had been closed.

That quickly angered Wisconsin’s politically influential dairy farmers, who saw an outlet for some of their overproduction disappearing.

However, attempts by Canadian producers to export milk protein products also outraged American dairy folk. After all, Canada was producing milk behind sky-high tariff walls and then dumping overproduction on the world market.

It seemed hypocritical to them.

When I heard Canadian dairy folk talking about boosting exports with Class 7, I remember drawing a breath. Even if technically legal, Canada had pulled itself out of most dairy exporting to keep the peace with countries like Australia, New Zealand and the U.S.

Any attempt to start significantly exporting any dairy product seemed highly likely to provoke.

So it proved, and is part of why this situation exploded when U.S. President Donald Trump jumped on it.

Which brings us back to the bad economics of the industry based on the current system, especially if a renewed NAFTA brings dairy concessions.

Canada’s dairy industry gets forced back into defensiveness with every new trade deal because it’s always a target. There have been so many nearby fights that it has probably been hard to focus on the long term.

Dairy farmers must be sick of it.

However, somebody’s got to come up with a viable long-term strategy that offers a way out of the growing constrictions and gives dairy farmers a pathway that makes them more sustainable, not just sustainable for now.

When these trade deal travails fade, farmers will return to future-gazing, and that future needs to seem positive.

About the author

Markets at a glance


Stories from our other publications