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Trans-Pacific trade deal unlikely to mean a price break on dairy products for Canadians

Trans-Pacific trade deal unlikely to mean a price break on dairy products for Canadians

If you’re one of the thousands of Canadians who dashes regularly across the border to buy cheap American milk and cheese, you might be hoping the Trans-Pacific Partnership (TPP) will eventually save you the trip.

The humongous trade deal involving Canada and 11 other countries includes a provision that opens our country’s supply-managed dairy industry ever so slightly to foreign imports.

But will that mean lower prices for milk and other dairy products on Canadian store shelves, and more choice?

The answer so far seems to be a qualified probably not.

Anyone Yahoo Canada talked to about it pointed out that specific details of how the TPP will work for each signatory have not been released yet and the deal will still have to be ratified by each country.

The Conservative government crowed that its negotiators beat back attempts to fracture Canada’s supply-management system, which allocates dairy production via quotas to each farmer to maintain milk prices and keep the industry economically viable.

The agreement gives foreign dairy producers access equivalent to 3.25 per cent share of the Canadian milk production. The Dairy Farmers of Canada (DFC) estimates the value of that lost Canadian production at about $200 million.

Dairy farmers hailed it as a victory, saying they worried as much as 10 per cent would be up for grabs. The government quickly announced a list of compensation initiatives to soften the already soft blow.

They, along with poultry and egg producers, whose closed industries also were opened slightly to imports, will share $2.4 billion in compensation over 15 years. Ottawa is also promising a $450-million fund to encourage upgrading dairy processing facilities. Total compensation is worth more than $4 billion.


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It seemed a better result from their standpoint than last year’s Canada-Europe free-trade deal, known as CETA, which will almost double the amount of European cheese imports. Dairy producers estimated it could cost them $110 million in lost production with a less attractive compensation package than the TPP provides.

“Let me be clear,” DFC president Wally Smith said in a statement on the group’s website Tuesday. “The way I see it, those who were watching and expecting the end of supply management are now being forced to admit that supply management is here to stay.”

Consumers unlikely to see benefit, advocate says

But are consumers going to benefit from this incremental increase in competition?

“At this point in time I would say no, they’re not,” said Bruce Cran, president of the Consumers Association of Canada.

“We’ve got no easy understanding of what’s going on but at this point there doesn’t seem to be that there’s going to be much of a reduction in the supply-management system that we have for milk or eggs. Therefore the probability here is there isn’t going to be much difference.”

Pricing of milk and dairy products remains with the industry, Cran explained. It controls access to the dairy business, something that won’t change under the agreement. Valuable production quota will continue to trade for the next 15 years.

Also, the lion’s share of imported milk won’t go straight to store shelves but instead head for Canadian processing plants, thus protecting the domestic dairy manufacturing sector.

It’s unclear whether that may translate into lower costs for dairy products.

“It’s hard to say and, speaking personally, not necessarily,” Trevor Hargreaves, director of producer relations and communications for the B.C. Dairy Association, told Yahoo Canada.

“What it means is you’ll get a more sizable profit margin for processors. But that doesn’t necessarily mean that those savings will be passed along to the consumer.”

Dan Wong, executive director for the B.C. Dairy Council, which speaks for processors, said it’s premature to talk about the impact on consumers.

But if history’s anything to go by, shoppers shouldn’t expect to see much difference at the supermarket checkout. There’s little evidence free-trade deal benefits trickle down to them, said Ken Whitehurst, executive director of the Consumers Council of Canada.

“We haven’t seen any really solid, comprehensive microeconomic report that says that consumers will actually benefit on the price side,” he said in an interview.

“Most of the assumptions on the price side are a belief in principle that that should happen. Everyone needs to understand that prices are not costs. Just because costs might be reduced somewhere in the supply chain does not mean that necessarily translates into a price break for consumers.”

Reduced costs don’t always mean price breaks

When it comes to dairy specifically, the evidence is also pretty skimpy, Whitehurst said. When California unwound its supply-management system, the few studies done showed no appreciable impact on retail prices, he said.

“There’ve been very few reports where liberalization around supply management has been causally shown to reduce retail prices,” said Whitehurst.

Again, it’s an assumption that lower costs will be passed on to the consumer.

“But costs and prices should not be confused,” said Whitehurst.

But there is a cost attached to this dairy deal for consumers, he added. They will be paying tax dollars for Ottawa’s 15-year compensation program to dairy producers and the fund to upgrade processing. They might eventually see a little price drop in processed foods using milk products.

“But how will you ever know if that represents a savings against what you had to pay to provide subsidies for the transition of the dairy industry?” Whitehurst asked.

Part of the problem, consumer advocates say, is that consumers are never at the table when these trade deals are negotiated. The dairy industry claimed to represent consumers, arguing they were fighting for a reliable supply of pure milk, unadulterated by things like hormones.

“That’s absolute hypocrisy,” said Cran, noting when Canadian processors run short of butter and eggs they’re quite happy to import hormone-laced American products.

“We’ve never been consulted on any of this in the last decade,” Cran said of recent free-trade deals. “They don’t even regard us as a stakeholder, the ones that pay the bills.”