The president’s tweet appeared to refer to a Canadian practice known as supply management, which protects domestic dairy, egg and poultry producers through a system of controlled production and high tariffs. The system threatens to become a major obstacle in the renegotiation of NAFTA: U.S. negotiators are calling for reforms, but Canadian politicians vow there “can be no concession.”
U.S. dairy farmers say Canada has cut them out of its market and abused the supply-management system to dump cheap milk products in other markets.
Thus far in the NAFTA negotiations there has been little movement on the issue. “From my vantage point, I don’t even think they’ve had a significant discussion,” said Darci Vetter, who served as chief agricultural negotiator for the U.S. trade representative in the Obama administration. “And you don’t want to leave something that is this important to agriculture until the very end.”
This is not the first time Trump has signaled that supply management would become a major NAFTA issue — at least when negotiators finally take it up. The president’s tweets said Canada could not hope for relief from steel and aluminum tariffs until Canadian treatment of U.S. farmers is addressed in the NAFTA negotiations.
Last April, the president tweeted that Canada “has made business for our dairy farmers in Wisconsin and other border states very difficult,” and added that the United States “will not stand for this.” He told a crowd at an event in Wisconsin that month that Canada’s dairy policy was a “disgrace” and “another typical one-sided deal against the U.S.”
Since then, however, dairy has seen little debate at NAFTA renegotiations, the seventh of which began last week. Canada has resisted taking the issue up, delaying it until later rounds, said Jaime Castaneda, senior vice president for strategic initiatives and trade policy at the National Milk Producers Federation.
Castaneda’s organization, which represents U.S. dairy farmers and cooperatives, is one of the groups pushing for an overhaul of Canada’s system.
“I think the president is correct when he talks about Canada mistreating dairy farmers,” he said. “We need to correct that.”
At issue, experts say, is an almost 50-year-old program that guarantees a stable, minimum income to Canadian farmers — and can disadvantage their competition. While supply management applies to poultry, eggs and dairy in Canada, the dairy system has proved most controversial, in part because of the degree to which it is restricted.
Under the system, the Canadian government limits how much milk Canadian farmers can produce, requiring them to purchase a production “quota.” Simultaneously, the government limits how much foreign milk and dairy products come into the country, slapping excess imports with tariffs of up to 313 percent.
By controlling the milk supply, the Canadian government can guarantee dairy farmers good margins and unusually stable markets. That has made the system enormously popular among Canadian farmers, who argue supply management is no different from the agricultural subsidies and price supports used by other governments.
But the system is less popular with Canadian food manufacturers, who say it has inflated costs for them and Canadian consumers. And it is downright loathed by American producers, who say Canada has abused the supply management system to flood the world market with cheap milk powders.
That latter issue came to a head in early 2017, when Ontario cracked down on a loophole in its supply management system that allowed a cheese-making ingredient, called ultrafiltered milk, to enter the country duty-free. The move caused dozens of Wisconsin farmers to lose milk-processing contracts immediately.
In the long term, dairy insiders say, the change also allowed Canadian farmers to export large quantities of low-cost skim milk powder. That has become a major concern to U.S. dairy producers, who accuse Canada of dumping on the world market.
“We’re all out here in a very competitive market for skim milk powders,” said Michael Dykes, president and chief executive of the International Dairy Foods Association. “And now we have Canada undercutting us, when they’re the highest-cost producers in the world. . . . We'd like to see that addressed.”
Whether that can be done in the context of NAFTA — and without completely dismantling supply management — remains to be seen. Canada has made some concessions to its trading partners in recent years, allowing the European Union to ship more cheese to the country duty-free.
But in public remarks, Canadian politicians have vowed, much like Trump, to protect their farmers’ interests. While the Canadian Embassy declined to comment on Trump’s tweets, Prime Minister Justin Trudeau has previously praised supply management and argued that Canada is not to blame for the problems of U.S. dairy farmers.
That just makes it more important for negotiators to get around the table soon, Vetter said.
“We clearly have unfinished business here,” she said. “It’s a huge opportunity to make NAFTA complete, if we can find a way forward on it.”