Friday, March 29, 2024

US pressure on Canada welcome

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The dairy industry hopes United States President Donald Trump’s hardball tactics in North American trade talks will spell the end of a Canadian milk pricing system costing New Zealand farmers as much as $100m a year in lost income.
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Trump gave Canada till Saturday (NZ time) to say whether it was in or out of the re-engineered North American Free Trade Area (Nafta) deal.

The ultimatum came after the US did a deal last week with Mexico, the third member of the trading pact.

Trump has made no secret of his antagonism to Canada’s heavily protected dairy industry and has made reform a condition of any new Nafta deal.

It is an enmity shared by the NZ dairy industry, which, for two years, has been pushing the Government to take a World Trade Organisation lawsuit against Canada’s milk class 7.

The milk pricing system allows Canadian milk processors to buy subsidised local milk at low prices.

It is the latest iteration of Canada’s decades-old supply management system that protects its farmers by restricting imported competition with tariffs as high as 300%.

The NZ industry and an alliance of international competitors sent a letter to their respective governments in June last year  that said milk class 7 has the effect of artificially boosting Canadian milk production.

While the fat component of the increased production is being absorbed by rising butter consumption in Canada local demand has not accounted for skim milk powder created as a byproduct at the same time.

That has the effect of releasing a bow-wave of subsidised Canadian SMP onto world markets.

Dairy Companies Association chairman Malcolm Bailey said that contributed to a slump in SMP prices and an historic widening in the gap with whole milk powder prices.

“It continues to be quite a wide difference which we believe reflects those growing volumes of Canadian SMP.”

Taken across NZ’s annual SMP production of 400,000 tonnes the price gap amounts to a significant annual loss to NZ dairy farm incomes.

“You are probably talking about a $100m impact minimum, I would have thought.”

While the international dairy alliance is convinced milk class 7 is illegal under WTO rules prohibiting export subsidies, no country has taken the step of initiating a challenge despite raising it as a problem two years ago.

Bailey said the governments concerned – NZ’s included – are continuing to work on legal preliminaries.

But a WTO lawsuit might not be needed if the US forces a back-down from the Canadians in Nafta talks.

“I don’t know if Donald Trump ever used the words supply management but he said the way they organise everything they do not like.

“And if you really think about the whole overall structure milk class 7 starts to become redundant if you take down the walls of supply management.

“We would love to think that is the outcome.”

While confident of meeting the deadline Canada’s Prime Minister Justin Trudeau said it needs to be the right one for Canada.

He also vowed to defend the supply management system.

Fonterra’s global stakeholder affairs director Simon Tucker is a recent NZ high commissioner to Canada.

He said Trudeau will not want to be seen ahead of elections next year to be caving in to demands on dairy from Trump, who is unpopular in Canada.

But at the same time walking away from a deal would be potentially devastating for the important Canadian auto parts industry.

“Politically, it is very difficult. 

“But 75% of Canadian exports go to the US and the vehicle trade is absolutely existential for provinces like Ontario so it does give the US a lot of leverage in this situation.”

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