However, rather than stagnating, perhaps Canada can seize the initiative at the Trans Pacific Partnership negotiations and open more space for the industry to breath, says economist Al Mussell.
“We worry about … allowing greater access …but in the immediate term it provides us an avenue in which to address some of these issues,” said Mussell of Agri-Food Economic System, who with two co-authors recently published a worrying analysis that paints a dire picture for the industry’s future.
“What do you call it when you have unlimited imports coming in, potentially, and no ability to expand your exports to offset it?”
The squeeze on Canada’s industry comes from surging imports of milk protein isolates (MPIs) from the United States, which are mostly dried, non-fat milk components, and from restrictions on Canada’s dairy exports.
MPIs aren’t covered by the high tariffs that stop other foreign milk and dairy fats from entering Canada, which allows them to undercut Canadian domestic prices.
Dairy farmers derive most of their revenue from fresh milk and fat, so MPIs haven’t traditionally been a focus of industry development.
However, processors are now using MPIs much more than they did in the past. As a result, they have become an important part of the market, and maximizing their value is essential.
The problem is that the Canadian industry can’t respond to surging imports of MPIs from the U.S. by aggressively marketing them to other regions because of previous trade agreements, Mussell said.
Canada settled a World Trade Organization dispute in the early 2000s by agreeing to cap the amount of supply management-related dairy products that could be exported. The system survived the U.S.-New Zealand WTO complaint by essentially pulling itself out of the market.
That worked until MPIs became a big element of processing, Farmers now find the value of their MPIs declining under the U.S. imports and face the prospect of increasing European Union cheese imports and maybe more from the upcoming TPP negotiations.
Mussell said the export caps also hurt Canadian attempts to boost MPI production and processing.
“Without some prospect for growth, there’s not a lot of economic incentive for processors to make big, new investments in processing capacity,” said Mussell.
The worsening squeeze is well-understood by the industry, which has attempted to deal with it through the Dairy Ingredient Strategy. However, Mussell said fixing the underlying structural problem in the TPP talks might be the best approach.
New Zealand and the U.S., which were the complainants in the WTO dispute that capped Canada’s dairy exports, are both part of TPP, so perhaps they will be willing to make an updated deal that will work for both sides.
“It would help,” Mussell said about getting the U.S. and New Zealand to agree to a restructuring of the old deal.
“I think it’s pretty important if you can get the original complainants on side.”
More European cheese will be allowed into Canada when the Canada-EU free trade deal comes into force, which will exacerbate the Canadian squeeze.
The squeeze could start becoming intolerable if TPP does nothing more than increase other countries’ space in Canada’s domestic market.
Increasing imports will impose a bigger cost on Canadian farmers without some way to allow Canadian dairy producers to clear excess dairy products as exports.
“We’re in a pretty tough spot here,” said Mussell.
Source: TheWesternProducer