Canada’s dairy industry faces the complex and politically volatile task this winter of devising a new formula for exporting dairy products.
Its previous export system, which relied on selling milk at less-than-cost prices to processors making products for export, has been ruled an export subsidy by the World Trade Organization, subject to tight controls.
The Canadian government has promised the United States and New Zealand it will be in compliance by the next dairy year, beginning Aug. 1.
Without a new WTO-compliant system, Canada would see cheese, skim milk powder and other dairy product exports sharply curtailed next year, at a loss of tens of millions of dollars in milk sales.
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“This is the greatest crisis to face the industry in a decade or two,” National Dairy Council of Canada president Kempton Matte said last week.
He represents dairy processors and he suggested neither governments nor dairy farmers have appreciated the seriousness of the challenge posed by the negative WTO ruling.
“This hardly is the greatest challenge of the decade,” responded Dairy Farmers of Canada president John Core in an interview.
“There has been a ruling and we have to change the way we do exports but that can be done.”
Core told the DFC policy convention last week the ruling will force farmers to live within their quotas.
It “will lead to a more tightly administered national system. Producers who exceed their quotas will be
penalized.
Typically in an industry where farmer-processor relations are tense, the issue has divided producers and processors.
Dairy processors insist the WTO ruling means exports must be arranged by contract between a processor and a dairy farmer, with no involvement by a provincial marketing board or the Canadian Dairy Commission.
“If there is any involvement by the boards, we’ll be back in Geneva before the WTO and we’ll lose big time,” said a processor representative last week. “And we (processors) will not spend a dime to defend it.”
Dairy farmers have proposed a scheme that would allow milk marketing boards to be “facilitators” of the export trade but not set prices or determine volumes exported.
Instead, the boards would be the middleman, getting farmers and processors together and keeping track of milk committed to export.
“We think this would meet WTO requirements,” said Core.
“We need the boards to monitor to make sure that over-quota production destined for export really is exported and does not get into the domestic system.”
The processor representative said the division between producers and processors means federal and provincial governments will have to indicate what export rules will be accepted as WTO-compatible.
