Plunging world dairy prices and the re-emergence of European dairy export subsidies mean that Canada’s dairy import tariffs could soon be breached by cheap imports.
Last week, Dairy Farmers of Canada (DFC) demanded that Ottawa be ready to defend the industry and the protected supply management system from this unexpected competition.
Agriculture minister Gerry Ritz promised that it would. Temporary special safeguard measures already in law would kick in to raise tariffs to block any surge in imports that might enter Canada despite a tariff wall that charges about 300 percent on some dairy imports.
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The first line of defence is the Canadian Dairy Commission, Ritz told the DFC annual policy conference Feb. 5.
“Having said that, we have the opportunity to implement the special safeguards,” he said. “I realize we have to be able to prove hurt before we could do that but we would see that happen in the first breach and we would not be shy about implementing that immediately.”
The special safeguard mechanism allows a country to impose short-term tariffs to stop an unexpected surge of imports into import-sensitive product areas.
DFC president Jacques Laforge said later he is not convinced the safeguard would help the industry. It would take some time to prove hurt and during the delay, domestic dairy prices would fall and farmers would be hurt.
“I just don’t think it would be that effective for us,” he said in an interview.
The problem for the Canadian dairy industry is that in the midst of the world financial meltdown, dairy prices are falling outside Canada.
Cheese that recently was worth up to $6,000 US per tonne on world markets now is worth as little as $2,200 and falling.
To dispose of its growing surplus of dairy products that cannot be exported at a profit, the European Union recently reintroduced export subsidies to help sales.
Since Canadian domestic cheese prices are much higher because of cost-based pricing under supply management, the lower world prices and export subsidy mean it could soon be profitable for imports to pay the tariff and still be a low-cost alternative in the Canadian market.
“This is a real threat and we are very close to a breach,” said Laforge. “If there was another $150 drop in the per tonne price, I believe it would be entering the Canadian market and driving our prices down. We never thought we would be in this situation but it has become a real possibility. There would be hurt.”
The DFC president said world prices will not remain low for long but it could last three to five months and that period would do serious damage to the Canadian dairy sector.
Laforge said the threat illustrates the danger to the dairy supply management system of proposals at the World Trade Organization to cut over-quota tariffs that protect the system by at least 23 percent under a new deal.
“If tariffs were 23 percent lower, product would already be flooding in and no amount of special safeguard would stop it,” he said.
Under WTO rules, a country can raise tariffs up to a third to deal with damaging import surges, although the measure has to be dropped at the end of the year.
It would mean that temporarily, the high-end dairy tariffs could be increased to 400 percent from 300 percent.
However, the industry worries that in the time required to prove hurt from imports, the damage would be done.
