New trade deal cancelled dairy expansion

Dairy processors cancelled expansion plans in Alberta when the new trade deal with the United States and Mexico was announced.

Tom Kootstra, chair of Alberta Milk, said he thought a major announcement about expansion was imminent earlier this year but the processor in question, which he refused to name, put plans on hold in May and cancelled them outright earlier this month.

“A lot of the focus on (the new) NAFTA (North American Free Trade Agreement) and the market access and the impact has been on producers but I think we need to recognize that it has dampened the optimism of processors as well,” Kootstra said in an Oct. 30 interview.

“We were close to announcing a major investment in Alberta this spring…. Those investments are now cancelled.”

He told producers at a zone meeting in Lethbridge that Dairy Farmers of Canada continues to pursue greater processing capacity in the West but enthusiasm has waned as details of the U.S.-Mexico-Canada Agreement (USMCA) are finalized and communicated.

“This trade deal impacts producers but it also impacts the confidence of the processing sector and without processing capacity, we don’t have a dairy industry in Alberta or in Western Canada,” Kootstra said. “So we’re hopeful that we will find a solution to this NAFTA deal but it’s going to take some more time.”

Major dairy processors in Canada include Parmalat, Saputo and Agropur, at least two of which are continuing with “incremental expansion” in Winnipeg, Abbotsford, B.C., and Saskatoon, said Kootstra.

The USMCA provides U.S. access to 3.59 percent of the Canadian dairy market, although how that will play out remains to be seen. It also eliminated Canada’s Class 7 milk category, which was used to market diafiltered milk protein concentrate.

Kootstra said early estimates indicate the USMCA will result in losses of about $190 million to Canadian dairy farmers, though it could be higher depending on what products are involved. For example, cheese is much more valuable than protein concentrate.

Trade officials continue to finalize exact wording of the deal, a process that was expected to be complete by Nov. 1 so its terms can go into effect in mid-2019. In the meantime, the Canadian dairy industry is basing its assumptions on the U.S. version of the deal, the only one that is available so far.

Kootstra said he has concerns about its stated requirements for transparency.

“As we develop the alternative to Class 7, if the Canadian producers, processors and government agree to how we’re doing it, do we need to go and ask for the Trump administration’s blessing? It’s not clear to us.”

Kootstra speculated that Canadian officials don’t want to release their version of the deal until after the U.S. midterm elections, which could see more Democrats elected.

“There’s some concern that the Democrats don’t want to give the Trump administration a victory so they may alter (the new version of) NAFTA.… They might want to put their own fingerprint on NAFTA,” he said in an interview.

In his speech to milk producers, Kootstra also talked about federal government compensation promised to dairy producers to offset import concessions.

“We don’t want a repeat of the compensation package offered under CETA (Comprehensive Economic and Trade Agreement with Europe),” he said, noting that not all dairy operations received those funds.

“We’re looking for a broader industry program that will allow it to grow our market ahead” of trade deal implementation.

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