November 2, 2018

Dairy sector faces mounting challenges from federal government actions

It’s not easy being in the dairy sector these days. In just the past two years, the Canadian government has given Canada’s trading partners significant access to the country’s domestic dairy market through the Canada-EU Comprehensive Economic and Trade Agreement (CETA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and now the United States-Mexico-Canada Agreement (USMCA). These agreements will allow this access through the allocation of tariff rate quotas (TRQs).

With CETA, the government opted not to follow what would have been a reasoned decision to allocate these TRQs to dairy processors who thoroughly understand the Canadian dairy market and have the experience to import a wide variety of dairy products in a balanced way. For dairy processors, the TRQs, which essentially allow for the importation of products duty-free, would have been a way to help offset losses from the trade deal and recoup some of the $7.5 billion in investments they have made since 2008.

Instead, the federal government chose to allocate less than half of the 17.7 million kilograms of CETA dairy TRQs to dairy processors. The great majority of the remaining TRQs went to retailers and distributors. The decision effectively took the profits of one sector and handed them over to other sectors that are not negatively affected by CETA.

After a year, CETA’s first-year’s quotas remain so far unfulfilled and there is a chance they may remain unfulfilled by year-end. More disconcerting is a potential destabilizing flood of the Canadian dairy marketplace with European products as retailers and distributors rush to meet their quota obligations.

As the federal government is now witnessing, most imports from Europe have been easy-to-manage cheeses, like Parmesan, Cheddar and Feta, that have a long shelf life and serve only to displace current similar varieties widely available in the Canadian marketplace. European cheese makers, meanwhile, are expressing disappointment their soft cheeses, which have a shorter shelf-life and require more care, are not more available to Canadian consumers. As for Canadian consumers, the benefits promised either in reduced prices or variety of offerings remain just that, empty promises.

Now, as CETA commemorates its anniversary, the dairy industry faces a new trade agreement, CPTPP, and a similar TRQ scenario, with the USMCA TRQ to follow shortly. It is time for the federal government to chart a new course. The Canadian Government must use what information it gains through its dairy sector working groups to implement meaningful change.

It is imperative that TRQs related to the CPTPP and USMCA trade agreements be allocated to the dairy processing industry to compensate for losses it will suffer because of the increased access granted to the Canadian dairy market. They should not be allocated to those sectors that will not experience losses under the agreement and view TRQs as simply an ‘opportunity’ to economically increase profits without having to make significant investments.

In addition, the federal government should reallocate CETA TRQs currently held by other stakeholders to the dairy processing industry which has the experience necessary to ensure these quotas are fully, and correctly, fulfilled in a managed way to protect Canadian dairy offerings and provide greater consumer choice.

To paraphrase some sage advice from years past, ‘Those who do not learn from the past are doomed to repeat it.’ If the unsettling experiences with CETA’s application on the dairy sector are any guide, the federal government cannot continue to compensate business sectors not hurt by a trade deal and unfairly treat a key sector of the economy that has helped strengthen and grow Canada’s domestic dairy market over the last 10 years.

Simply put, Canada’s dairy processors are businesses and their continued contribution to the economy hinges on a few key conditions for growth: Predictability. Stability. And, a fair return on investment.

The federal government predicts that CPTPP will increase dairy imports by 13% while export opportunities will only increase by a bleak 0.5%. This will result in $700 million in losses for Canada’s dairy processors. This picture will likely only become more bleak when we have a better sense of the losses associated with USMCA.

So, is it unreasonable to expect the federal government to take action that will compensate a sector that has made significant investments and seeks only a fair return on these investments? We think not, but this will only be achieved with the allocation of all TRQs to dairy processors.

The country’s domestic dairy sector as a whole — the 24,500 Canadians dairy processors employ and the 12,000 dairy farms it supports — will benefit, as will Canadian consumers.

Want to know more about CPTPP and its impact on dairy?

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

As government considers its decision on CPTPP compensation, it needs to remember that Canadian dairy families are worth fighting for.