The New Zealand Government is still considering the matter seven months after the dairy industry in this country first raised the possibility of a WTO case.
In September last year the NZ, American, European, Mexican and Australian industries wrote to their respective trade ministers raising concerns about proposed changes to Canadian milk pricing classifications, which they said had the potential to lead to increases in subsidised dairy products making their way on to world markets.
Dairy Companies Association of NZ executive director Kimberly Crewther said the letter’s concerns had been confirmed as more detail emerged about how the classifications will work.
Of most concern is a new milk class – Milk Class 7 – that determines how much Canadian farmers are paid for their milk according to its final product uses.
By reducing the payment for the skim milk component below the world price, Canada was attempting to remove an obstacle to exporting the product that previously its farmers had been paid above the world price for, and that the industry consequently had struggled to argue was not subsidised.
Crewther said the new classification was nothing more than a sleight of hand by the Canadians and did nothing to alter the fact that its farmers received overall prices substantially higher than the international benchmark by virtue of a system that saw milk supply on the local market restricted and the country’s consumers effectively subsidise them through high retail prices.
If it’s not challenged, the NZ dairy industry believes the measure could result in an extra 100,000 tonnes of skim milk powder – previously unwanted by Canadian consumers and mostly dumped on paddocks by the country’s farmers ‑ finding its way on to the global market this year.
Seen in the context of the 130,000t traded annually through Fonterra’s GlobalDairyTrade platform, such a surge in supply had the potential to hit prices already suffering from an overhang of European intervention stocks.
“Based on the information that we have, we see no way that Canada can proceed with this policy while still adhering to its WTO commitments, and we are engaging with the Government to seek support because we are concerned that the policy, if it is not challenged, will result in significant disruption to the international market,” Crewther said.
The new milk pricing system is also hurting United States farmers. Last week, they got the backing of President Donald Trump who said he would “stand up for our dairy farmers”, adding that “in Canada some very unfair things have happened to our dairy farmers and others”.
Trump’s intervention came after the US National Milk Producers Federation a fortnight ago wrote to the administration calling on it to “fight back against protectionist Canadian trade policies that are slamming the door to American dairy exports in violation of existing trade commitments between the two nations”.
Fonterra’s director of global stakeholder affairs, Philip Turner, said the industry in NZ was comfortable with the approach being taken by the Government so far.
“We think this is a very serious issue for NZ, and the world dairy market.
“We are trying to line up the industries of the US, Australia and Europe and their governments to try and work on the Canadians.
“We would certainly like to see all of those countries take very seriously the prospect of dispute settlement at the WTO, and I think NZ is looking at that very seriously.”
Sources said the Government was giving “active” and “serious” consideration to taking a case but had still to make a decision.
The dairy industry, as well as bureaucrats at the Ministry for Primary Industries, are understood to be keen to push ahead with a case as soon as possible but officials at the Ministry of Foreign Affairs and Trade ‑ who would lead any case ‑ were mindful of the wider relationship with Canada and were treading more carefully.
One Wellington insider said Trade Minister Todd McClay was likely to tack on a trip to Ottawa to discuss the matter following a trip to Washington DC, expected in the next couple of months once his US counterpart is confirmed by Congress.
The insider said the Government was possibly wary of upsetting the Canadians, which it hoped could still play a part in reviving the stalled Trans-Pacific Partnership trade agreement.
“The NZ way is to use all bilateral channels before going to dispute settlement because there is still a view that it would be a hostile act, whereas it is not ‑ it is actually a way of resolving a problem that has been going on for some time, and you take it out of the bilateral equation.”
If it does proceed it wouldn’t be the first time NZ has challenged the Canadians at the WTO over their milk pricing system.
In 1997, NZ and the US challenged new milk classes enabling Canadian processors to buy milk for export below the domestic milk price.
The WTO appellate body ruled in favour of NZ and the US in 2003 but not before Canadian exporters released nearly 50,000t of highly-subsidised skim milk powder on to the world market the year before.
