U.S. claims about Canadian dairy protection are simplistic and disingenuous, says ag economists

By Alex Binkley — National Newswatch

Canada should be as critical of American dairy policy as Washington is of the Canadian system.

The U.S. attempt to cast itself as a victim of Canadian dairy tariffs is a smokescreen to hide its highly trade-distorting dairy protections, say two agriculture economists.

In a policy note distributed by Agri-Food Economic Systems (AFES) based in Guelph, Douglas Hedley and Al Mussell outline how the U.S. amply protects its dairy industry.

“The narrative in which the U.S. casts itself in the role of victim to protectionist interests of Canadian dairy is highly simplistic,” said Mussell, AFES Research Lead. “The U.S. has leveraged protection and support of its dairy industry to become a major export player and transmit the associated market distortions globally, while the effects of dairy protection in Canada are contained internally through production quotas. It is plainly disingenuous for the U.S. to suggest that it is a victim of Canadian dairy policy.”

“The U.S. uses import quotas, in-quota tariffs and over quota tariffs as does Canada,” said Hedley, an AEFS Associate. “But, using cheese as an illustration, relative to the size of its market, Canada allows in about twice as much within quota, and charges a much lower tariff within its import quotas.”

Their policy note details the American trade policy governing cheese as an example of the overall protection given to the U.S. dairy industry. “The extent of dairy protection is really similar in both countries- with examples of very high levels of protection in the US buried in the details of its tariff schedule.”

Canada and the U.S. have sparred over trade in dairy products since the 1990s. In the current NAFTA negotiations, the Trump administration has demanded numerous changes to Canadian dairy policy culminating with a call for the elimination of supply management.

Hedley and Mussell said this a serious threat to a system set up in 1970 to cope with chronic low world dairy prices caused by hefty farm subsidies in Europe and the United States.

Trump likes to tweet complaints about 270 per cent Canadian dairy tariffs even though Canada allows far more dairy imports on a per capita basis than the U.S. does. And U.S. cheese tariffs in the case of low-value imports of cheddar cheese or cheese products made from cheddar can exceed 200 percent

“The U.S. concerns reflect its interest as a major dairy exporting country, increasingly dependent upon exports for its growing milk production,” the economists said. “Canada seems to have accepted this narrative in which the U.S. casts itself as a victim of Canadian dairy protectionism, and in so doing finds itself in a defensive posture with the U.S.”

Earlier this year, a study by trade export Peter Clark commissioned by Dairy Farmers of Canada, found the U.S. pours financial support into its dairy sector. Based on data from the USDA and other government organizations, Clark calculated American dairy producers receive support worth $35.02 per hectolitre (US$27.38), an increase of about $4 a hectolitre from 2008. Data from the USDA data says American dairy exports to Canada in 2016 reached 631,551 tonnes in 2016, almost double from 2014.

Hedley and Mussell said, “The U.S. has a highly regulated milk marketing system, with many similarities to Canada’s, and a protected cheese market.” The U.S. is a net exporter of cheese, and Canada is a net importer.

The U.S. allows in about 2 percent of cheese imports under low or zero tariffs while Canada accepts about 4 percent, they said. American cheese tariffs “are broadly higher than comparable Canadian tariffs.

“The most recent OECD estimates of market price support for U.S. dairy are US$4.4 billion; in the case of Canada, estimated market price support is $2.79 billion.”

In addition to the tariffs, “the U.S. employs safeguard measures that Canada does not. These safeguard duties can be quite material, and generally have the impact of raising the domestic prices of lower valued product- thereby narrowing the price spread within the U.S. between fine cheeses and the lower quality cheeses.”

While Canadian and American protections cause market distortions, Canada is not a major cheese exporter and its distortions are contained internally. “However, the U.S. is a large exporter and does not limit its production with quotas, so the distortionary effects have a global impact.”

A recent publication by the Brookings Institution in Washington noted that U.S. dairy exports to Canada fall under low tariff rate quotas, not over-quota “so the US doesn’t really pay the tariff rates President Trump has complained about.”

Over the last ten years, U.S. cheese imports have ranged around 170,000 tonnes a year while Canada, with 10 per cent of the American population, imports about 25,000 tonnes, they said. “Since 2012, the U.S. has imported the equivalent of around 3 percent of cheese production. Over the same period, Canada imported 5 to 6 percent of domestic cheese production.”