American government wants Canada to remove class 7 milk products from supply management system
By Kaitlynn Anderson
The Canadian government is facing another hurdle in the ongoing NAFTA discussions.
In addition to asking Canada to phase out supply management in the dairy sector over the next ten years, the U.S. wants its northern neighbour to immediately remove class 7 milk products from its current system, a recent policy note from Agri-Food Economic Systems said.
Currently, Canada can price products in this class – like skim milk powder – at a competitive level with imports of this type in the domestic market, Al Mussell, research lead and founder of Agri-Food Economic Systems, told Farms.com today.
However, this situation was not always the case.
“Prior to implementing class 7, Canada would export skim milk powder until it hit the cap for subsidized exports,” Mussell said. “As a result, the (quantity) of powder export didn’t change much from year to year.”
So, Americans didn’t face much competition when exporting their milk protein isolates to Canada.
Once Canada created this class, the products no longer fell under the World Trade Organization’s definition of subsidized exports.
Then, the country’s export levels rose due to its increased access to the world market. This shift has created some tension with the U.S.
If Canada accepts the U.S. demands and eliminates class 7, the outcomes could negatively affect domestic dairy farmers.
Producers would face the “challenge of finding a home for the excess skim products in Canada,” Mussel said.
While producers could re-route some skim milk powder through class 4M for animal feed, they would earn a significantly lower price – an estimated 10 per cent of the world market price – for their products, Mussell said.
Alternatively, the country would “have to make major quota cutbacks to try and get the skim market to balance domestically,” he said.
By eliminating the supply management system, Canadian producers may end up in the same situation as farmers facing overproduction in other dairy-exporting countries, like the U.S., Australia, New Zealand and members of the European Union, the note said. These countries adopted alternative policy instruments to stabilize production but they were not successful.
Canadian policies are not the culprit of these countries’ surpluses, the note explained.
“World dairy markets are some of the most distorted markets in agricultural trade,” the note said. “All of the major dairy exporters have been suffering from overproduction. These issues … would have existed regardless of Canada.”
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