By Kim Mackrael and Paul Vieira
OTTAWA -- Tim Keenan is making plans to pass along his
fifth-generation Quebec dairy business to his children, more than
two decades after buying it from his father. There is one
complicating factor: Trade talks between the U.S. and Canada
threaten to upend the industry.
Canadian dairy farmers depend on a nearly 50-year-old system for
protecting domestic production. The protections are viewed as
sacrosanct by the main political parties, which have historically
feared losing rural votes in Quebec and Ontario, the two biggest
provinces and home to nearly all of Canada's 10,500 dairy
farms.
There are signs that is starting to change.
President Trump has called Canada's dairy protections a
"disgrace," and his top aides warn they are now an obstacle in
reaching a deal on a revised North American Free Trade Agreement
before a late September deadline. The president has taken aim at
Canada's high tariffs on some foreign dairy products, ranging from
200% to 300%, which kick in if import volumes surpass quota
thresholds.
Canadian Prime Minister Justin Trudeau has vowed to defend the
dairy protections, known here as supply management. He has also
hinted at concessions, a potentially high-stakes move for a leader
facing a tight election race in just over a year.
"Is there room for flexibility? I mean, we will see and that
depends on the kinds of negotiations that we have," Mr. Trudeau
said earlier this month.
Canadians appear amenable to this approach, with certain
caveats. An Angus Reid Institute poll last year showed most
Canadians are open to discussing changes to dairy policy, and an
August poll indicated Canadians are split on terminating the regime
altogether, but would lean toward this option if farmers are fairly
compensated.
Canada has made concessions before. It agreed to give other
Pacific Rim nations access equal to 3.25% of its annual milk
production in this year's Trans-Pacific Partnership deal. President
Trump pulled the U.S. out of the trade pact in 2017. Separately,
Canada's trade deal with the European Union in 2016 allows for a
doubling of European cheese exports, equal to more than 4% of the
Canadian market, but left intact the supply-management system.
Canada's dairy industry is worth six billion Canadian dollars
($4.62 billion) in farm sales and another C$15 billion at the
food-processing level, according to the Canadian government.
Overall, that is a fraction of Canada's C$1.8 trillion economy.
And the number of dairy farms in Canada has declined sharply
over the past decade, to more than 10,000 from nearly 20,000 at the
turn of the century. For context, the state of Wisconsin has almost
as many dairy farms as all of Canada.
Yet dairy tends to get a disproportionate focus from
politicians. The protections tend to pit a well-organized dairy
lobby in Ottawa and provincial capitals versus think tanks and
maverick politicians who believe the system has outlived its
usefulness.
"There are very few dairy farmers left, but the image, for
politicians, is one of big numbers still," said Martha Hall
Findlay, a former Canadian Liberal lawmaker and now head of the
Canada West Foundation think tank. She has become an outspoken
critic of the dairy system, arguing it stifles competition and
forces consumers to pay higher prices for staples like milk and
butter.
Under the regime, the country limits the production of dairy
products by distributing quotas, which dictate how much farmers are
allowed to sell domestically and sets fixed prices for farm sales.
The goal, proponents say, is to avoid overproduction and the wild
price fluctuations that often hit other commodities. The system
also imposes tariffs on dairy imports above specific thresholds to
limit foreign competition.
Bruce Muirhead, an expert on Canada's supply-management system
and a history professor at the University of Waterloo, said the
limits have helped stabilize the market and kept farmers here from
contributing to a global dairy glut.
"We are not part of the problem, in fact we are part of the
solution to the whole issue of oversupply," Mr. Muirhead said. U.S.
farmers are struggling, he said, because they produce too much
dairy, not because their access to Canada's market is limited.
A price difference can be seen at retailers on either side of
the Niagara River. Big Baspa Mini Mart in Buffalo, New York, sells
milk at $1.99 a quart. Stanley Variety in Niagara Falls, Ontario,
sells a liter of milk -- which is slightly larger than a quart --
for C$2.99, or $2.30.
A spokeswoman for the Dairy Farmers of Canada, a lobby group,
said it is unclear what concessions Canada is considering in the
Nafta talks. The group contends concessions made in recent trade
deals threaten to cost the industry up to C$350 million in lost
sales.
Mr. Keenan, the dairy farmer, said he is watching Nafta talks
closely, with an eye toward what they might mean for the family
farm. Canada's dairy system, he said, has allowed his family to
plan for the future because they know what their incomes will be
each year.
"It depends how much borders are opened up" in the talks, he
said. "Certainly it will impact our bottom line, and the future of
the dairy industry."
Write to Kim Mackrael at kim.mackrael@wsj.com and Paul Vieira at
paul.vieira@wsj.com
(END) Dow Jones Newswires
September 14, 2018 11:10 ET (15:10 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.