The Dairy Direct Payment Program (DDPP), which issued $1.75 billion over four payments from 2019 to 2023 to compensate for the Canada-European Union (CETA) and Trans-Pacific Partnership (CPTPP) trade pacts, this year begins to roll out $1.2 billion over 2023 to 2029 to compensate for the Canada-U.S.-Mexico Agreement (CUSMA).

The plan for CUSMA compensation for supply-managed sectors was first laid out in broad strokes last November.

One significant difference announced Tuesday for this segment of the DDPP is that dairy producers must hold a valid dairy quota licence registered with a provincial milk marketing board or agency on Aug. 31 to be eligible for a payment in a given year.

Previous DDPP program years had used an Oct. 31 calculation date. The government noted Tuesday that this change has been made “in consultation with industry.”

Since the calculation date affects the opening of the program registration period, setting the date earlier in the year “will ensure producers have more time to sign up before the deadline and may receive their payment sooner.”

The registration period for the fifth payment is expected to open this fall of 2023. Eligible producers must register before March 31, 2024, the government said.

Those producers can expect letters from Agriculture and Agri-Food Canada in the fall with registration details. Payments would follow once a producer completes the registration, AAFC said Tuesday.

Setting the new quota reference date for the DDPP will ensure producers “have the necessary information further in advance to be able to plan and evaluate their farm situation,” federal Agriculture Minister Marie-Claude Bibeau said in Tuesday’s release.

Sustainability research

Bibeau on Tuesday also announced an unrelated funding envelope of over $7.5 million for Dairy Farmers of Canada (DFC) from the federal AgriScience Program – Clusters Component.

AgriScience — a federally funded program under the Sustainable Canadian Agricultural Partnership (S-CAP) — will back DFC for research into “solutions to improve the environmental and economic sustainability, and resilience of the Canadian dairy industry.”

To that end, the government said, DFC is to develop and implement plans to reduce greenhouse gas (GHG) emissions and sequester carbon, and to improve the health and welfare of cows and the quality of milk produced.

Outcomes in the former area are expected to help the industry hit DFC’s previously stated goal of reaching net-zero GHG emissions from dairy production by 2050. Research in the latter areas, meanwhile, will include antimicrobial use and antimicrobial resistance in dairy cattle, genetic improvements in cattle, and “eco-efficient” dairy processing.

DFC president Pierre Lampron said in a separate release that the funding is “essential to enable strong, robust and evidenced-based research material that ultimately helps dairy farmers increase the efficiency of their farms.” — Glacier FarmMedia Network

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The result could be a brawl that sours efforts to modernize the North American Free Trade Agreement, under which Canada sends most of its exports to the U.S. Mexico is the pact’s third member.

U.S. farmers have long chafed about supply management, the term for Canada’s system of tariffs and quotas to keep domestic prices high and imports low. A 2016 deal that allowed Canadian farmers to sell milk proteins to domestic processors at a discount, curbing the flow of U.S. imports, further raised their ire.

Jaime Castaneda, senior vice-president for the U.S. Dairy Export Council, said the influential lobby group will pursue fresh challenges through the World Trade Organization unless Canada stops the proteins sale.

“If we can’t resolve this through negotiations, I believe my members will be very clear that everything is on the table,” he said in a phone interview.

A WTO panel ruled in 2002 that Canada breached its trade obligations through illegal subsidies to its dairy industry, siding with the United States. The U.S. and Canada reached a settlement in 2003.

Castaneda said challenges against the protein sales could eventually result in rulings that force Canada to ditch supply management.

In June, U.S. Agriculture Secretary Sonny Perdue said he would prefer to address dairy irritants before NAFTA talks begin and said supply management was fine as long as though it did not harm the U.S. industry.

But on Friday he appeared to toughen his stance, saying through a spokeswoman he felt “all options should be on the table” in the NAFTA talks and that dairy remained a concern.

Although dairy was originally excluded from the original 1994 deal, the U.S. may push for it to be part of the talks on a new pact.

“I don’t see why it wouldn’t be, when you’re looking at an overall trading relationship… there is no doubt in my mind that it would be on the table,” said one person familiar with Washington’s approach.

Despite the more strident U.S. line, Prime Minister Justin Trudeau’s government has little interest in compromise.

“We are fully trade compliant and trade in dairy products massively favours the United States,” said a Canadian government source.

Canada’s dairy sector includes $6 billion in annual farmer milk sales.

Fearing the domestic industry’s lobbying muscle, Canadian politicians of all stripes mostly treat dairy as a sacred cow.

In May, dairy farmers helped ensure the defeat of a Conservative party leader candidate who advocated eliminating supply management.

“Dairy farmers are a force to be reckoned with. I think (politicians) will do well to listen to our concerns,” said Manitoba dairy farmer David Wiens, an executive of the influential Dairy Farmers of Canada (DFC).

Dairy is one of several commodities, including lumber and wine, that have sparked complaints by the Trump administration leading into NAFTA talks. U.S. President Donald Trump said in April he would stand up for domestic dairy farmers against what he called unfair Canadian practices.

The U.S. side also wants Canada to start cutting tariffs to allow more imports. As part of the talks on a proposed 12-nation Pacific trade treaty in 2015, Canada agreed to open up 3.25 per cent annually of its dairy supply.

That treaty was stillborn and any talk of concessions is now off the table.

“The industry is not prepared to give any additional access to the Canadian market,” said Yves Leduc, DFC’s head of government relations.

— Reporting for Reuters by David Ljunggren in Ottawa and Rod Nickel in Winnipeg.

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The study, prepared for the federal government by its Office of the Chief Economist and released Friday, notes Canada has offered expanded access for imports of dairy, egg and poultry products from TPP member nations, over and above its commitments through the North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO).

Among the TPP member nations, Canada already has free trade deals with the U.S. and Mexico under NAFTA and separate trade pacts with Chile and Peru.

A TPP deal, which Canada has already committed to bring back to Ottawa for review, including all 12 partners would also give Canada free trade agreements (FTAs) with Japan, Australia, Malaysia, New Zealand, Singapore, Vietnam and Brunei Darussalam.

The impact study looks at projected economic impact for Canada if it chooses to be a party to the TPP — and the impact if it opts out of the deal — on the assumption that all of the 11 other member countries remain in the pact.

In the case of Canada’s dairy sector, assuming its current supply management system is “strictly preserved” — that is, if market prices stay the same in Canada after a TPP deal takes effect — “the net effect of an increase in dairy import quotas on the Canadian dairy sector would be neutral,” the impact report said.

Canadian imports of dairy products from TPP countries, mainly from the U.S., would increase by US$500 million, the report said.

A net increase in imports of international dairy products would be about US$358 million after a TPP deal, the report said, after deducting the “displacing effect” for imports from the rest of the world, mainly dairy imports from the European Union.

“There could be some losses in Canadian dairy production” from the TPP, the study said, “and subsequently losses in economic welfare from producers’ perspective, but these losses could be offset by gains elsewhere in the sector benefiting from imported dairy products.”

That assumption, the study said, is based on the “majority” of the additional TPP-related milk and butter import quotas going into value-added processing.

“Room for liberalization”

For export sectors overall, the TPP’s “central benefits” to Canada include “a guarantee of preferential market access to the seven new FTA partner countries.”

A TPP deal would give $428 million per year in tariff savings to Canadian exporters shipping to those seven countries, mainly from Japan, Vietnam and Australia. The resulting boost in exports to those countries would be US$2.2 billion per year, the study said.

The “most significant new export opportunities” would be in Japan, with an expected increase of US$1.1 billion per year in exports led by pork, beef, and wood products, the study said. Other gains would come in food and automotive products to Vietnam and machinery and equipment exports to Australia and Malaysia.

Canada has “overall lower levels of tariff protection” than most TPP countries, the study said, so “holding other conditions constant, liberalization under the TPP should provide a net advantage for Canada.”

Most TPP countries have low tariffs on average, the study added, but “there is still considerable room for liberalization for Canada’s trade with the seven new FTA countries and for liberalization of some sensitive agricultural products in all TPP countries.”

For example, the study noted, Vietnam’s simple averaged applied tariff is 10.6 per cent, and Japan’s tariffs on fresh/chilled and frozen beef are 38.5 per cent.

Not joining TPP, meanwhile, “would put Canada in a disadvantaged position relative to other TPP competitors in these markets,” the study said. “In particular, the cost of losing export opportunities for agricultural products to Japan would be substantial.”

For example, the study said, if Canada opts out of the TPP, Canadian beef exports to Japan could drop by more than 66 per cent and pork exports by 13 per cent.

Also, the report warned of an “erosion of Canada’s NAFTA preferences in the U.S. and Mexican markets” as those countries favour trade with other TPP nations. That erosion, the report said, “will occur regardless of whether or not Canada chooses to be a party to the TPP agreement.”

However, the study also expects Canada to see “positive export gains in the U.S. market driven by TPP-induced income growth in the U.S.”

For example, Canadian exports of “some agricultural products to the U.S. are projected to grow even though there are no new additional market commitments from the U.S. in these sectors.”

Across all sectors, the study found, opting out of the TPP would “present several risks to Canada’s economic well-being, which could lead to total (gross domestic product) losses of approximately $5.3 billion.” Joining a TPP deal, meanwhile, would “boost Canada’s GDP by a permanent 0.127 per cent above baseline, generating GDP gains of $4.3 billion” by 2040.

“Little good news”

The federal New Democrats’ trade critic, Essex MP Tracey Ramsey, said Saturday the impact study offers “little good news to reassure Canadians that this deal will benefit them.”

A TPP deal, she said, “will damage important industries while driving down wages and putting corporate interests ahead of citizens’.” Canada’s auto sector, she said, “has already been penalized by bad trade deals” and would see “a decline in investment and production” under TPP.

“Despite this, the Liberals are pushing ahead (on a TPP deal) and have also made no clear commitment to supply management.” The government, Ramsey said, “needs to provide more evidence that this deal can benefit Canadian workers before the deal is ratified.” — AGCanada.com Network

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Ag economist Andrew Novakovic of New York’s Cornell University said in a release that the TPP, for U.S. producers, marks a major opportunity in Canada’s supply-managed dairy market.

“The breakthrough for the dairy chapter was a Canadian agreement, under heavy U.S. lobbying, to expose their closed system to slightly greater imports, which (Canada) cleverly will do within their production quota system,” he said Wednesday.

Canada said Monday that despite “significant and broad demands from several of our TPP negotiating partners,” it offered “only limited” new access for supply-managed products such as dairy.

Access to the Canadian dairy market, granted through quotas to be phased in over five years, amounts to 3.25 per cent of Canada’s current annual dairy production, with a “significant majority” of that additional milk and butter to be directed to value-added processing, the federal government said Monday.

Dairy farm profitability in Canada is “more stable than the U.S., but not dramatically higher,” Novakovic said. “The implication is that (Canada’s) supply-managed system has, over time, allowed increased costs to be rewarded with increased prices.”

From 1991 through 2000, he said, Canadian farm milk prices averaged 18 per cent higher than those in the U.S., but since 2000, they have averaged 62 per cent higher.

“Eliminating the protection of the Canadian cocoon is a frightful prospect for Canadian farmers and an alluring opportunity for world exporters, including New Zealand and the U.S.”

Provincial dairy associations this week estimated 3.25 per cent of Canada’s 2016 dairy production will amount to about 250 million litres of milk. The British Columbia and Alberta boards estimated the deal would displace about 23 million and 22 million litres of milk respectively from their provinces’ producers.

Canada’s concession, Novakovic said, “represents a brand new opportunity for the U.S. to develop marketing relationships with Canadian processing and marketing companies and the confidence of Canadian consumers.”

That opportunity, he said, “will be available to any dairy firm in the U.S., but it will be especially enticing to border states, like New York. As a beginning, it is assuredly modest, but what is terribly important is that it is a beginning.”

Denis Richard, president of Quebec agrifood co-operative La Coop federee, said the “breach” to Canada’s tariff barriers for dairy is “of great concern” and it adds to the “laxity of border protection that has arisen in recent years through the uncontrolled importation of milk proteins and poultry.”

Ottawa, he said in a separate release Monday, “needs to put a lock on all new dairy and poultry imports. The future of supply management itself, and that of thousands of dairy farms across Canada, depends on it.”

Measures announced Monday to strengthen border controls against unauthorized dairy imports “will not stop the flow of milk protein entering the country,” he added. “It is urgent that a solution to this issue be found.”

Ottawa’s further plans for a $1.5 billion compensation package for loss of quota value over 10 years, and $2.4 billion for lost income over 15 years, seem “unnecessarily high, if we are only talking about a 3.25 per cent dairy quota cut,” Jan Slomp, president of Canada’s National Farmers Union, said in a separate release.

Those dollar amounts, he said, suggest “the intent is to completely dismantle dairy supply management over the next 10 years.”

Canada’s supply-managed sectors, he said, instead “should have been kept right out of TPP negotiations.” — AGCanada.com Network

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Canada is one of 12 Pacific Rim countries trying to nail down a trade deal in Atlanta this week. The U.S., New Zealand and Australia want Canada to start dismantling a system of tariffs that keep domestic prices high and imports expensive.

Farmers said they would be flooded by cheap foreign milk if the so-called supply management system were to end. The issue could cost the ruling Conservatives crucial rural votes in what looks set to be a hotly contested election on Oct. 19.

“If they bring in so much milk from the States our Canadian market will be flooded pretty easily… it’s stressful to think that the government will sell us out to the Americans,” said Chris Ryan as he struggled to control his cow Ninja.

“I’m usually a Conservative voter but this year I don’t think I’ll be going for them,” said Ryan, who comes from St. Isidore, about 70 km east of Ottawa. The area is currently represented by the Conservatives.

Prime Minister Stephen Harper, who has said Canada must sign onto the proposed Trans-Pacific Partnership (TPP) free trade pact, said Tuesday that Ottawa would defend supply management but gave no details of what concessions Canada might make.

The TPP seeks to cut trade barriers and set common standards for 40 per cent of the world economy and will be a legacy-defining achievement for U.S. President Barack Obama.

“They don’t see how it affects the farmers, they just see the big picture,” said farmer Travis McFadden from Navan, about 20 km east of Ottawa and also represented by a Conservative legislator.

This week the federal farm, fisheries and natural resources ministers released statements from industry groups saying it was crucial for Canada to be part of TPP.

— David Ljunggren is Reuters’ national political correspondent in Ottawa.

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