[T]he Trump administration reportedly will not budge on its demand that Canada allow the United States more access to the Canadian dairy market, but Canada’s politically strong dairy industry says the demand is unlikely to happen as negotiations on the new North American Free Trade Agreement (NAFTA) rumble toward an Oct. 1 deadline.
Vermont dairy leaders say that the outcome of the negotiations on dairy trade could impact the state’s industry in many different ways.
President Donald Trump already struck a deal with Mexico, the third member of NAFTA, earlier this month and threatened via Twitter that “there is no political necessity to keep Canada in the new NAFTA deal.”
Canadian Foreign Minister Chrystia Freeland joined U.S. Trade Representative Robert Lighthizer on Tuesday to discuss NAFTA further, but no agreement is imminent, in spite of a Reuters report that Canada could be ready to offer the U.S. limited access to the Canadian dairy market.
So far, Canada had resisted pressure from Washington to weaken its foreign dairy trade policy and maintain its domestic dairy program.
Canada uses a supply management system to control how much domestic dairy is produced. It also uses a quota system to control how much foreign dairy is coming into the country and places high tariffs on products that exceed those government set limits.
In the previous NAFTA, this system had the effect of stabilizing the price of dairy in Canada, while prices in the United States are volatile. American dairy producers felt they were being taxed at too high a rate after the fixed quota for U.S. exports to Canada was reached. Tariffs included 241 percent on fluid milk and almost 300 percent on butter.
Frustration from U.S. dairy producers was magnified when Canada changed its milk price classification in the last two years that have undercut the price of U.S. exported non-tariffed dairy products like protein concentrates, skim milk and whole milk powder.
Last year, in response to Canada’s new pricing classifications, Rep. Peter Welch, D-Vt., joined a bipartisan group of House members to send a letter to President Trump advocating “swift action to ensure Canada upholds dairy trade agreements.”
The letter accused Canada of “discouraging U.S. dairy exports to Canada” and said states that rely on the dairy industry “cannot afford further protectionist policies from our northern neighbors.”
In response, Leon Berthiaume, CEO of the St. Albans Cooperative Creamery, said in a statement that “being able to compete in global markets is imperative to the success of our Cooperative and the U.S. dairy sector,” and that “given our close proximity to Canada, where so many goods easily move back and forth between our countries, the focus on assuring that we can maintain our market access is critical.”
Welch said the new NAFTA negotiations are an example that “President Trump’s ill-advised and unnecessary trade war with Canada and Mexico has dealt yet another blow to Vermont’s struggling dairy farmers.”
Welch is a supporter of the supply management system in Canada but is concerned Canada has restricted American imports while also exporting surplus dairy products into the United States.
A successful trade agreement “should also ensure our dairy farmers have access to Canadian and Mexican markets and stop the practice of dumping Canadian dairy products in the United States,” he said.
Welch believes there is a way to support the supply management system while also allowing the American dairy industry to access to the Canadian market, according to an aide.
Berthiaume said the U.S. dairy industry’s dependence on exports is greater now than it ever has been and this means greater dependence on global market milk prices, which affect all dairy farmers.
“Canada and Mexico are two very important markets for the U.S. dairy industry. So coming to some resolution on access to these markets is very important to the industry and Vermont is no different. The price of milk is affected by any market changes and that could bring added value to our dairy farmers here in Vermont,” Berthiaume said in an interview.
While dairy farms only make up roughly 12 percent of the 7,338 farms in Vermont, 80 percent of agricultural land is devoted to supporting milk production and 63 percent of milk produced in New England comes from the state, according to the Agency of Agriculture’s 2015 Milk Matters report. Agricultural sales in Vermont are also heavily dependent on the industry, with around 70 percent of sales coming from the dairy sector.
Bill Moore, president of Central Vermont Chamber of Commerce, said there will be impacts from whatever trade agreement is decided on between the two countries.
“We export $1.5 billion in agricultural goods to Canada every year, not just dairy. So Canada is a major market for Vermont and it is our number one trading partner and as such it really needs to be part of whatever the new NAFTA agreement is, and Washington seems to be trying to force their hand by saying ‘we can go it alone,’” Moore said.
Bob Wellington, senior vice president of Agri-Mark and Cabot Creamery Cooperative, said if a trade deal is not reached, large dairy producers across the country could try to enter the Northeast market.
“For us in the dairy industry in Vermont, there wouldn’t be a lot of direct impact,” Wellington said.
Competitors in the industry do sell to Canada and Mexico, though, he said. “If they can’t go into those markets they will come into our market,” Wellington said.
For a business like Cabot, Wellington said that the major issue with Canada is that it undercut the milk powder market, but he said most Vermont cooperative members he has talked to don’t want Canada’s quota system to go away.
“If they want to use their quota system, let them keep it, but we don’t want them to come into our markets and depress prices,” Wellington said.
Art Woolf, an economics professor at the University of Vermont, said that if Canada concedes on opening up its market to the United States, it could potentially destroy the supply management system over the long term, while benefiting American and Vermont dairy farms in the short term.
“Anytime you have a larger market for your product it benefits you because you can sell more. If Canada was to do that, our milk prices are a lot lower than Canada’s so we could sell more there. So it would be positive, but every farmer in the big dairy states, they would all be thinking the same thing,” Woolf said.
The U.S., which produces more than 10 times the amount of milk Canada produces in a year, could potentially swallow up the Canadian market, flooding it with dairy in no time at all.
“It would be flooded in the sense that milk prices in the U.S. and Canada would match, they would come down a lot in Canada and thousands of dairy farms would go out of business, including many in Quebec,” Woolf said.
Bill Rowell, who runs Green Mountain Dairy in Sheldon and supplies St. Albans Cooperative Creamery, said U.S. dairy farmers are not asking for the entire Canadian dairy market but are asking Canada to participate in fair policy across the continent.
“We’re not asking for everything. Even if we had their entire market we would lap that up in no time. Their market is valuable of course, but we would like to have them participate. We want to participate with you, you participate with us and negotiate instead of having the agreement all lopsided,” Rowell said.
But Rowell said there’s room for improvement in how the U.S. government has treated dairy farmers and that trying to get a better trade agreement for them is not a bad thing.
“America’s dairy farmers need better than what they’ve gotten from the American government and the trade deals can be improved, you can’t take a lopsided deal and live with it for years and then say ‘no I don’t want to talk with you about it,’” Rowell said.
