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Canada’s dairy, egg and poultry industries are governed by a supply management system that dates to the 1970s. Fixed prices, production quotas and tariffs are put in place to protect Canadian producers from foreign competition.
This week promises to be a bitter fight over the supply management system which protects the dairy industry in Canada. The US dairy lobby is calling for the outright elimination of the supply management system, which strikes US imports with a tariff of 270%. The Canadian dairy industry claims that this system is essential for its survival and accuses the United States of providing unfair subsidies to its agricultural producers.
The Vice President of the National Dairy Federation of Canada reiterates that US producers have long tolerated supply management, but Canada has gone too far in creating a new category for biofiltered milk recently. Since this is a new product, it is not subject to the current NAFTA tariffs, so American producers started exporting it at a reduced price to Canadian food processors. Canada’s milk producers complained about losing $ 200 million a year. The Canadian dairy industry then reached an agreement with Canada to sell its own low-cost milk protein in exchange for creating a new category in supply management.
One of the first point we saw in this course was how much does the regulatory environment impacts business in North America. It is now something that can highly impact compagnies, which are spending a lot of time and money with regulators and government officials to make sure they are on point. New regulations can be very expensive as compagnies need to update their data, reorganised their structures and do reporting’s to meet new requirements.
The current regulation on Dairy products is the following: “Article 302 of NAFTA provides for the faster elimination of tariffs, subject to consultation and agreement between the three governments. Since the entry into force of NAFTA in 1994, three accelerated tariff elimination cycles have taken place. The first round took place in 1997 for products traded between Canada, the United States and Mexico and the second and third rounds took place in 1998 and 2002 for products traded between Canada and Mexico.”
Trump became interested in dairy products because of events in Wisconsin. The local processor wrote a letter to farmers in Wisconsin saying they would stop buying farmers’ milk because of the new Canadian grading rules for a product used in cheese making. In the months that followed, the Trudeau administration championed the milk sectors in Canada. In the fourth round of NAFTA negotiations, the Trump administration put its demands on the table: phase out all tariffs associated with the management of supply of dairy and poultry products over 10 years. Canada held out for months, but in August, sources told The Globe that the Trudeau government was ready to offer concessions: it would give the United States a percentage of the Canadian dairy market and a policy that would prevent US producers export unfiltered milk. Elimination of customs duties
This means Canada keeps a high tariff for most dairy products. The current duty on milk being 270%, which leaves most US imports out of Canada, while helping to support higher domestic prices. Ultrafiltered milk and other protein-rich dairy ingredients used to make dairy products such as cheese and yoghurt are an exception. The North American Free Trade Rules do not cover these ingredients and are duty-free in Canada. In recent years, American dairies have developed a thriving business that sells these low-cost products to Canadian dairies. About a year ago, Canadian dairy farmers decided to end the tariff violation with a new strategy. They persuaded regulators to create a new class of low-priced industrial milk to encourage dairies to produce in Canada from Canadian milk. The result was predictable: US imports fell in 2016 and have fallen sharply since the beginning of the year. This has led up to the current NAFTA issue between US and Canada on Dairy Products.
In class we have looked up what the Canadian Dairy industry would look like if there wasn’t any NAFTA trade agreement. We saw that in fact imports from other countries would significantly increase. While importation will strike, also will the competition between the Canadian Dairy Farmers, as they will participate in a global context. On the price level, if Canada comes out of NAFTA, milk would be cheaper, but dairy farmers would experience lower revenues. Obviously, the NAFTA agreement was a system that highly protected the dairy farmers in Canada.
The dairy industry has been one of the most sensitive subjects to deal between The United States and Canada for decades. The Agricultural sector is known to be highly protected in each country, each one trying to defend their own trade negotiations.
The United States expressed clearly that they wanted to be able to enter more American products into Canada’s Dairy Industry during the NAFTA renegotiation, making the whole subject very challenging.

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