Now that the details of the revised North American Free Trade Agreement are known, the dairy industry can move forward and deal with it, right?
Not really, say some economists.
“We need to understand what ‘it’ is,” said Al Mussell, an agricultural economist who has intensively studied Canada’s dairy industry.
“The first thing is to try to understand it.”
Beyond the news conferences, news releases and tweets about the United States-Mexico-Canada Agreement lie the nitty gritty details, and those are not only unclear right now but might not have even been finalized.
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“I would be surprised if the two countries aren’t still working on it,” said Mussell.
That’s a vexing situation for dairy farmers, dairy processors, consumers and governments because restructuring Canada’s dairy industry can’t be done well before the actual implications of the deal are known.
Most economists and analysts believe Canada’s dairy industry will need significant changes if the export channel has been mostly shut down and the domestic milk protein surplus starts growing again.
“Ultimately they will have to change their pricing mechanisms,” said James Rude of the University of Alberta.
“They have to be more flexible over time.”
While critics of supply management often see it as a structure that provides steady profitability at the expense of both higher costs for consumers and inefficient production of milk, defenders laud it for the stability it provides farmers and the predictability it promises to farmers, processors and consumers.
But under the surface, dairy farming has faced growing problems with sustainability in recent years, as analyst Bertrand Montel has detailed in his research. Many existing dairy operations have been slipping toward trouble.
“Almost 25 percent of Canadian dairy farms faced a high level of financial stress (in 2015),” said Montel about research he completed last year.
“More than a third of dairy farms may have a very limited capacity to invest significantly in their operations in the near future.”
Bruno Larue of Laval University said the dairy industry’s current structures around quota hamstring farmers’ ability to adapt to economic changes and price pressures even if they want to adapt, especially in Eastern Canada.
“Herd expansion cannot be done quickly,” he said.
“It would take years to jump from 75 to 200 cows.”
The Canadian dairy industry breathed a giant sigh of relief in 2016 and 2017 when first Ontario and then all of Canada adopted a new class of milk products that appeared to be able to mostly block U.S. milk protein products from entering Canada and that also offered the ability to export Canada’s excess milk protein.
However, U.S. anger at this development quickly became central to the fraught negotiations toward a new NAFTA, and most of that new milk classification has apparently been eliminated in the deal.
Along with another slice of the protected Canadian dairy market being offered up to U.S. producers, the protein compromise pushes Canada’s dairy industry back into its increasing problems with an unbalanced production system.
“It’s the little Dutch boy sticking his finger in a dike. It pops out somewhere else,” Rude said about the industry’s apparently failed attempt to produce milk behind high tariff walls to block protein imports and also export protein surpluses.
However, Rude doesn’t believe most in the industry should have expected that system to continue for long because it appears clear to him that it would have been thrown out eventually by the World Trade Organization.
