by Kalynn Sawyer Helmer
AgriNews Staff Writer
ONTARIO – At the beginning of October, news broke about the newly signed trade deal between Canada, Mexico and the U.S. Formally NAFTA, now penned as the United States Mexico Canada Agreement (USMCA). The deal was a hard hit to some of Canada’s agricultural industry – particularly dairy, egg and poultry producers.

For dairy producers, market access of 3.59 per cent was reported, however on closer review, the Dairy Farmers of Ontario (DFO) have shared with producers that it could actually be 3.9 per cent; this due to the agreement basing on tonnage rather than percentage. That is the 10,000 tons of cream that was agreed to, caused the discrepancy between 3.59 and 3.9 per cent. The difference being whether 18 per cent or rather 40 per cent cream is imported. The DFO explained that the understanding is that the government assessed the deal at 18 per cent cream but there is reason to believe that 40 per cent cream is more likely, causing the jump to 3.9 per cent market access.

Dairy producers have been vocal on the subject in the last month, expressing concerns that do not have final answers while the deal goes through a 60 day revision process. The challenge now is the lack of text for industry leaders to examine. Graham Lloyd, general manager and CEO of DFO explained: “The current challenge is that we don’t have an official version of the text. We are aware there is some disagreement of wording that impacts dairy. It is a challenge to interpret the financial impact and how we are required to respond to the requirements to dismantle Class 7.”

In an unofficial version of the text from the Office of the United States Trade Representative, Section C: Dairy Pricing and Exports, paragraph three and four, outline that milk Classes 6 and 7, be “eliminated six months after entry into force of this Agreement. Six months after entry into force of this Agreement, Canada shall ensure that products and ingredients formerly classified under milk classes 6 and 7 shall be reclassified and that their associated milk class prices shall be established appropriately based on end use.”

The dismantling of Class 7 is a hard hit to producers who worked to implement Class 7 as part of Canada’s Ingredient Strategy in the spring of 2017. Chesterville area dairy farmer and Dundas milk board member Willyan De Jong explained: “Under the former government we were told that we had to fix the skim milk problem. That’s where this Class 7 came in. With Class 7 we would be able to make use of the skim milk and remove it from the market so that we could supply the butter market. Otherwise, all you would have is the butter. Processors would not take the milk because we could only use the butter and had nowhere to go with the skim. Canadian dairy farmers want to produce for the Canadian dairy industry so Class 7 looks after that.”

The implementation of the new class brought with it investment from producers and processors alike who saw the abounding opportunities ahead. This has now come to a halt with the USMCA and could impact losses on those investments. In the wake of the deal, the DFO hope to mitigate the situation as best as possible. “We are working with processors to see how to best respond to the requirements and make it effective,” said Lloyd.

Concerns were voiced at local meetings, especially in regards to the Feihe International Baby Formula plant currently under construction in Kingston. The $225-million investment came about due to Ontario’s high-quality standards for their milk production. Despite the cutbacks, at a recent all producer meeting for DFO, producers were told there is enough room in the deal to maintain the new factory set for production beginning in 2020.

Throughout the deal, producers have been flummoxed by the U.S. government’s determination to access more of the Canadian market. However, when the noise has been silenced from the officials, many U.S. dairy farmers have voiced their beliefs that access north of the border will not solve any of their problems.

“They have 15 per cent excess production in the U.S. right now. If we gave them the whole market, we all quit farming in Canada, then they would still have a problem of five per cent more milk than what they actually know what to do with. They know we are not their problem,” explained De Jong. “Our leadership has been down there, there is a lot of interest from regular farmers. They don’t want exactly our system but they know they need something.”

Lloyd reiterated the same sentiment while speaking with AgriNews. “The access the U.S. has been granted will not help the dairy farmers of America. It will be effectively meaningless to their milk production and at the same time have significant impact on the dairy farmers in Ontario. The dairy farmers don’t have a huge margin and when you take another 3.9 per cent of the market away from them, that is an absolute contraction of their ability to grow.”

That 3.9 per cent is only a portion of what Canada has given away over the last five years. With World Trade Organization commitments sitting around eight per cent, CETA amounting to 1.7 per cent and the CPTPP at 3.25 per cent, the total grows to roughly 17 per cent of the market that is out of Canadian hands. This is significantly more than similar trading states like the U.S. or Europe who have under three per cent of their market open for dairy and poultry, respectively.

The market access will also mean lesser quality milk and milk produced with fewer standards than the Canadian product. While it may make it harder for Canadian producers to compete in the marketplace, sacrificing quality is not an option. “We believe that Canada should continue to maintain the highest quality standards. We are proud of those standards and we are able to confidently tell consumers that when they buy Canadian milk, they are buying among the highest, if not the highest quality milk in the world; that certainly cannot be said about U.S. milk in all circumstances,” said Lloyd.

These standards can be maintained and continued in part to the supply management system that is in place. While Canada’s supply management system may be contested by economists or other governments, the system’s value is also in creating a sustainable dairy industry. The Canadian government has promised subsidies to offset the losses from the new market access, but those aids are not what producers would want.

“The strength of our supply management system was the fact that we did not need subsidies or handouts. We are the only jurisdiction where there are no subsidies from government. If you are a consumer that buys milk, then you are directly paying for the cost of that milk. Any other jurisdiction, whether you drink milk or not, you’re paying for part of it because you pay taxes,” said De Jong. “[Supply management] is an absolute success as far as the dairy farmers’ point of view.”

Lloyd added: “One of the sources of pride of Canadian dairy farmers is that they don’t receive income from the government, they only want to receive it from the marketplace, however, given that the marketplace is going to be retracted, that does need to be recognized; but how is it to be done in a realistic and fair manner that actually compensates them from the government?”

For many dairy producers, the market access granted in the last five years means a significant loss in gross farm income. Income that would go back into the local Canadian economy, but without it, means businesses that rely on agriculture, can feel the effects.

“[The trade deals cause] a significant reduction of the growing market. Challenging for farmers to recapture their revenue that they need to justify the investment they’ve made over the last four or five years. Go to any industry and tell them that you have just taken their ability to compete and produce for that much of the market, and then, take away the opportunity to export – that is a significant contraction,” said Lloyd.

All in all, the DFO, producers and stakeholders in the industry are disappointed. Until the final text is approved, it is a waiting game to see what the future will hold.