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Globe editorial: Dear Donald Trump, please milk Canada’s sacred dairy cow

American President Donald Trump's repeated outbursts last week about Canada's "very unfair" treatment of Wisconsin dairy farmers is simple to explain: Someone waved a press release from the U.S. dairy lobby under his nose and gave him a whiff of something he could grandstand on.

Typical Trumpian bombast? Sure. But here's the thing: While Mr. Trump probably has little idea of the details of the case, the issue he raised is legitimate. And on this issue, Mr. Trump is more right than wrong.

Dairy farmers in Wisconsin and New York State sent a letter to the White House earlier this month, complaining that they have been hurt by an unfair price-fixing decision from Canada's all-powerful and highly protected milk cartel.

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They have a case. The cartel's decision, as with all its moves, benefits dairy farmers at the expense of everyone else – Canadian consumers, in particular.

The story goes like this: The Canadian Dairy Commission and provincial marketing boards set prices for milk and milk products based on production costs that aren't grounded in market reality. Milk production is strictly controlled by quotas that guarantee farmers an annual income. At the same time, steep tariffs restrict the import of competing dairy products from outside Canada. This means there is limited market incentive to be as efficient as possible.

The supply-management system is hugely beneficial to a relatively small number of farmers, but it raises costs for millions of consumers. A C.D. Howe Institute study found that, between 2005 and 2011, the price differential between Canada and the U.S. for milk, eggs and cheese ranged from 29 to 77 per cent.

The higher prices also hurt processing companies that produce dairy-based products like cheese, frozen pizza and yogurt. They're saddled with artificially high prices for their basic ingredients.

But then one day these processing companies found a loophole in the North American Free Trade Act that allowed them to import skim-milk solids and ultra-filtered milk "ingredients" from the U.S. at prices below those set by Canadian marketing boards.

Suddenly, New York and Wisconsin farmers had a new market in Canada that today is estimated to be worth as much as $150-million (U.S.) a year.

So what did the marketing boards do? Starting last year, in a move that began in Ontario and has spread across the country, provincial marketing boards are now letting dairy farmers sell these ingredients at the lowest available international market price.

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The upshot for farmers in Mr. Trump's country is that they have seen lucrative contracts with Canadian processing companies disappear overnight.

For Canadians consumers, however, this price-fixing adds insult to the injury already caused by supply management. Now the only people in this country who are allowed to purchase dairy products at actual market prices are those in the dairy industry. The rest of us are stuck with artificially inflated prices for the milk that we put in our coffee before going to work at jobs that aren't conveniently located behind impregnable walls of market protection.

Canada's ambassador to the U.S., David MacNaughton, fired off a letter of protest to the governors of Wisconsin and New York on Wednesday that squarely placed the plight of their farmers on U.S. policies. He accused U.S. farmers of overproduction that has contributed to lower prices, a claim that has some truth in it.

It's also true that New York and Wisconsin's biggest trading partner is Canada. The two states export about $20-billion worth of paper products, plastics, car parts, aluminum and other things to our country every year. The milk ingredients market is a very small part of that; this is not exactly the smartest issue for Mr. Trump to start a trade war over.

But Mr. MacNaughton did not address the fact that Canada has proved to be an undependable NAFTA partner by allowing its dairy marketing boards to adjust prices at a whim in order to stem competition from the U.S.

The U.S. dairy lobby has been calling on Washington to respond. Two other Canadian trading partners also fed up with Canada's milk cartel – Australia and New Zealand – say they will support the U.S. if it takes its complaint to the World Trade Organization.

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Mr. Trump is no free-trader. His only answer to the challenges of a globalized world is to build walls, regulatory and literal. It is very hard to sympathize with him on anything, let alone on trade.

But as anti-liberal and self-serving as he is, he's got nothing on Canada's milk cartel. Were he to imagine his perfect business model, it would no doubt look very much like our dairy industry. If his trade policies in some way help to end supply management, he will be doing Canadians a favour.

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