Cheaper milk for Canadians could come at the cost of thousands of farms

Photo from CP.

Experts say Canadian milk is among the most expensive in the advanced world, so when U.S. President Donald Trump set his sights on Canadian dairy, many Canadians saw an opportunity to finally open up their country’s market and get cheaper milk.

But liberalizing the dairy industry’s protections may come at a price.

“I’ve seen estimates — robust, credible estimates — that maybe a third of Canadian farms would basically go out of business,” Daniel Schwanen, vice-president of research at the C.D. Howe Institute, told Yahoo Canada News. Those projections may be hard for some Canadians to stomach, even if they do want cheaper milk. Today, Canada has 13,000 dairy farms and a 33 per cent reduction would drop that total below 10,000.

“Revenues would go down, but the question is would that make farms unprofitable? Well, not if they invest in new machinery, more modern facilities,” Schwanen explained, adding that Canada can learn from others. “When Australia liberalized its milk market, it had a major program to modernize the farms.” 

The dairy industry has also been in decline for decades and opening up the market to outside imports could trim the fat off of dairy farms, keeping only the most profitable operations in business.

Even if the Canadian and U.S. governments are unable to reach an agreement on the dairy industry, Schwanen said Ottawa should still consider liberalization, and much can be learned from Australia and New Zealand. Following deregulation, New Zealand became the world’s largest exporter of milk, supplying 32 per cent of the globally-traded milk market.

Canada could do the same, although it should be noted that milk prices in New Zealand became the highest among major dairy producing nations once it shifted to export-oriented dairy production, leading to a parliamentary inquiry and a review of regulations there.

‘No such thing as a free market’

Polling by Canadian Business magazine in 2013 suggests 81 per cent of Canadians agree the domestic dairy and poultry industries are worth protecting, and 58 per cent of respondents said they were willing to pay more for those products to protect Canadian industries.

Canadians concerned about protecting their country’s economic sovereignty see the U.S. attempt to sell their milk in Canada as furthering the erosion of economic independence. And owing to the vastly different scales of their economies, U.S. dairy farmers vastly outproduce Canadian dairy farmers, part of the reason why U.S. farmers have had to dump 162 million litres (43 million gallons) of milk in the first eight months of 2016, according to the Wisconsin Farmers Union.

“There is no such thing as a free market, somebody controls the market,” said Bruce Muirhead, a professor and associate vice-president of external research at the University of Waterloo, echoing remarks made last week by Prime Minister Justin Trudeau. “In the U.S., it’s the supermarkets or the big food processing companies. So somebody is always regulating the market.”

The advantage of a farmer-regulated supply management system is that it neutralizes the risk of price fluctuations, allowing them to plan for the long term in a tough industry, Muirhead explained. “Our system is regulated by Canadian farmers, not for their own benefit, but rather it’s regulated to allow them to survive in a really cut-throat agricultural world,” he said.

“I would have my doubts about letting us ditch supply management because it’s somehow going to automatically equate to lower prices for consumers,” said Brent Patterson, political director at the Council of Canadians think tank. “It’s ultimately about how business can profit from a new arrangement.”

Potential to sell milk overseas

The supply management system helps mitigate some of the market fluctuations, but the decline still continued in line with global trends. When the supply management system was set up in 1970, there were around 145,000 dairy farms in Canada, according to The Globe and Mail. Today, there are 13,000 farms receiving support, but the system ensures stability missing in other dairy markets, according to Muirhead. 

Dropping the supply management system would allow Canadian dairy farmers to export their product overseas, particularly to countries such as China, where demand for milk has shot up in recent years. Canada’s current dairy policy prevents it from exporting to the rest of the world. Under World Trade Organization guidelines, countries that subsidize their dairy industry are effectively barred from selling its products outside its borders, according to Schwanen.

Support for Canadian milk is representative of an under-reported aspect of Canadians’ attitudes towards NAFTA, said Patterson. “What we’ve seen in polls as well is that, generally speaking, people like the idea of free trade as a concept, but when you begin to unpack the specifics of the deal, you agree that transnational corporations should have the right to sue democratically-elected governments for lost profits as a result of public interest legislation,” he said. “People don’t like that idea and then support for particular free trade agreements drops.”

But any revisions to NAFTA would provide the Canadian government with unprecedented opportunities to access previously forbidden sectors of the U.S. economy, Schwanen acknowledged.

“Canadians I think would expect something in exchange, and the government, I think in a normal course of trade negotiations, can get something in exchange,” he said.

Currently, dairy is not a part of the free trade agreement between Canada, the U.S. and Mexico. And for those keeping score, neither is lumber.