Martha Hall Findlay is the president and CEO and Eric Dalke is a policy analyst at the Canada West Foundation.
U.S. President Donald Trump placed the Canadian dairy industry in his sights when he sounded off about the "very unfair" supply management system. With a further tweet about Canada making life "difficult" for Wisconsin and border-state dairy farmers, our dairy industry finds itself at the top of the President's trade hit list after an unprecedented several days in U.S.-Canada relations.
While his comments have unsettled a few politicians and dairy lobbyists north of the border, the better message for Mr. Trump is this – be careful what you wish for. Despite the trade bluster, the irony that should become apparent to any forward-thinking Canadian dairy farmer or food processor is that an opportunity to open the U.S. and global market is actually a big opportunity to compete and win in global dairy trade.
Consider the potential. With a global middle-income population that is expected to grow to 4.9 billion people by 2030, the world market for dairy is exploding. The problem is that most of this increased demand will happen outside of our borders. Hamstrung by our made-in-Canada cartel, Canadian farmers can't access developing markets to compete with the Australians, New Zealanders and Americans.
The opportunity is significant. Those with global middle incomes consume more than 4 per cent more yogurt, butter and cheese a week compared with those in a lower income tier. In China alone, the market for dairy products grew almost 60 per cent between 2006 and 2010. Demand continues to surge for fluid and fresh dairy, cheese and infant formula, with estimated compounded annual growth rates between 3 and 5 per cent a year. One only needs to read stories about the run on baby formula in Hong Kong to see the mammoth appetite for dairy products in China.
Increased trade results in real gains for producers. According to a 2014 Conference Board report, liberalizing Canada's dairy sector to serve global demand would result in a more than doubling of national milk production, an increase in the number of farms by 2.1 per cent and growth in average herd size to 187 cows. Not to mention, 8,500 new Canadian full-time jobs – 5,000 in primary production and 3,000 in processing.
More cows, more farmers, more processing jobs: Who can argue with that?
Certainly not Canadian trade negotiators, at a time when all trade irritants are on the table with the United States. The recent decision in the United States to levy countervailing duties on Canadian softwood, and the standoff over NAFTA, are just the latest opportunities for Mr. Trump to hammer Canada on trade. Negotiation is all about leverage, yet Canada's stubbornness on protecting our milk and cheese industry will hobble our position when it comes to dealing with the United States on softwood lumber, border taxes, "Buy American" and, most importantly, looming NAFTA renegotiation.
Indeed, while we stand flat-footed on supply management, our competitors are taking advantage. U.S. dairy exports have continued to grow over the past decade and nearly doubled between 2008 and 2014 to $7.2-billion. With about one-tenth our population, New Zealand managed to export $10.6-billion in dairy products in 2012, beating numbers achieved by our major agricultural-related exports such as potash or canola seed and oil. What's more, New Zealand is ahead of the pack in Asian markets, having entered into a China free-trade deal in 2008.
Canada can draw on international examples of how to design a transition plan that is good for farmers. Australia successfully liberalized dairy trade in the early 2000s – based on a plan designed by producers themselves. The eight-year transition plan put an 11-cents-a-litre levy on milk products to allow producers the chance to tool-up and prepare for the new market reality. Now Australia is leading the world in dairy exports as a top-five producer.
Our governments and farm lobby should act now. With the confluence of NAFTA renegotiation, free-trade negotiations with China, and exploding demand for agricultural products worldwide, the stars could not be better aligned for Canada to compete – and win – in dairy, poultry and egg markets.
So in forthcoming talks with Mr. Trump, Canada should be willing to discuss supply management. We should come prepared with a transition plan that makes sense for producers and consumers. And we should be prepared to take our products to the world.
Mr. Trump thinks trade is a one-way street. He might find when it comes to this Canadian sacred cow, opening the farm gates might be the best thing he could have done for Canadian producers.
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