LYNDEN, Ont. – Ben Loewith, a successful dairy farmer from Ontario, figures he has seen the writing on the tariff wall that protects his industry from most imports.
The news is not good.
A world trade deal is inevitable – if not this year then some year – and the result will be increased pressure from imports as tariffs decline on products over the import limits, and those limits are increased to allow more foreign access to Canadian markets.
“I do think that is inevitable, although it might not be fully realized for years,” said the 33-year-old.
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“And that means lower prices and less certainty, no doubt.”
Loewith farms 330 milking cows with his father and uncle near the small village of Lynden in the shadow of Hamilton. He said the farm, with as much as $15 million worth of quota and annual revenues of $2.5 million, is well positioned to survive because it has invested in efficiencies and operates with a good business model.
But even he is a bit nervous at the prospect.
“My apprehension comes from the fact that there is so much unknown,” he said.
“We don’t know when it will come, what it will look like, how severe it will be.”
Even as politicians and dairy industry leaders insist they won’t accept a World Trade Organization outcome that weakens supply management, dairy farmers across Canada are quietly adjusting to the notion that the change is inevitable, regardless of the official line.
“Clearly, change is coming and it really depends on how much change there is as to how much it affects us,” said Phillip Armstrong, who operates a 250 milking cow operation at Caledon north of Toronto.
Steve Verheul, Canada’s agricultural trade negotiator, has been blunt about the prospect of reduced protections on sensitive product. Canada is the last country to run a supply managed system and has no allies for its arguments that any change will cause the system to collapse.
He said the minimum cut in over-quota tariffs will be about 25 percent, which would translate into a decline of 70 percentage points in some tariffs that are now close to 300 percent.
“But I think the system could survive that with some adjustments, mainly more flexibility in price setting,” he said.
Industry players and economists presume that Canada would have to react to a lower tariff wall by creating a floating pricing system that would lower Canadian returns to meet low cost competition.
Yet even though a WTO deal could come as early as this summer, there is little indication governments and dairy industry leaders are working behind the scenes to determine the changes needed to preserve Canada’s system of production quotas and price setting behind a new, lower tariff barrier.
Industry leaders continue to insist that the government deliver on its promise of no compromise and no harm.
“As dairy producers, we don’t expect a negative result coming out of these negotiations,” said Barron Blois, a producer from Kennetcook, N.S., and former president of Dairy Farmers of Canada.
“How that is delivered is up to the government. But is there a Plan B in the works? Are there behind the scenes discussions between industry and government on how to accommodate a negative outcome? No.”
Ted Bilyea, a Toronto food industry consultant and former executive vice-president of Maple Leaf Foods, hopes that is not true.
As government appointed chair of a dairy working group that tries to get producers and processors talking about how to reverse the decline in the industry, Bilyea has used meetings with producer groups “to try to stimulate them to think more about what the change is going to be.”
To wait for the outcome of the talks before beginning to plan is short sighted, he said, and he worries producers do not understand change is coming.
He did acknowledge that publicly working on a new supply management model to accommodate lower tariffs would signal Canada’s bottom line and erode its negotiating effectiveness.
“But the key is to begin to think about the fact things will change and begin to do planning now,” he said.
“My take is that the industry in total will have more control over the outcome if they begin to work on a strategy rather than wait until it may be forced on them. There is no value in doing nothing. There is a lot of value in beginning to look at how we design our future rather than letting someone else do it for us.”
Don Jarvis, president of Dairy Processors Association of Canada, said he doubts dairy leaders are seriously considering the “what if” question. Processors have commissioned a study on how the dairy industry will look and function with lower tariffs.
“We come at it from a marketplace point of view, and I don’t think producer organizations have a real understanding of the food product marketplace,” he said.
“What we need is a more flexible system and what we see is a producer focus, with government support, on a few touchstones like compositional standards or tighter rules that actually make the system more rigid.”
However, any change in the rules governing supply management would require complicated negotiations between the signatories of the national agreements – Ottawa, all 10 provinces and their marketing board supervisory bodies, in consultation with industry.
Meanwhile, back on the farm in Caledon, 50-year-old Armstrong said despite the uncertainty, the only real strategy for survival is to continue to expand, invest and improve efficiency.
“The message gets out that maybe we shouldn’t be investing in quota until we see the outcome, but we can’t stand still,” he said.
“We have gone to three milkings a day and increasing production, so in the last few months we have bought another million dollars worth of quota. In your mind, you say, am I nuts? No, to survive, we have to keep improving. Whatever the system, we have to be competitive.”
