Canada under pressure to reach new NAFTA dairy deal

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  • Bilateral US and Mexico deal piles on pressure
  • Canadian dairy farms fear concessions
  • US demands end of Class 7 deal

The US and Mexico bilateral deal announced on Monday has put severe pressure on Canada to agree new terms with its NAFTA trading partners by the end of this week.

President Donald Trump wants to rework the existing NAFTA arrangements so that dairy tariffs of up to 300% that affect American exports to Canada are thrown out. Trump says that the current situation hurts US farmers, who make up a political base for Republicans. 

Canadian Prime Minister Justin Trudeau’s own federal Liberal government leans heavily on support from Ontario and Quebec, where most of the country’s dairy farmers live. Trudeau has said that he will defend the Canadian dairy industry, and if he does do a U-turn to make concessions, then he might well jeopardize his re-election chances in 2019.

However, it does seem that Ottawa is ready to make concessions to save a dispute-settlement system that has been dropped from the US-Mexico agreement reached earlier this week, according to the Globe and Mail. The possible effects on Canada’s sheltered C$21bn ($16.3 bn) dairy market are not yet clear, and a Canadian government spokesman declined to comment. 

Meanwhile, on Wednesday, Quebec Premier Philippe Couillard warned Ottawa that any weakening of Canada’s supply management policies would lead to “serious political consequences”. 

A fourth-generation Quebec dairy farmer, Marie-Pier Vincent, told Reuters.com that it will be even harder to make ends meet if more tariff-free US milk product imports are allowed into the country under a new agreement.

Vincent has a 35-cow farm 60 miles southeast of Montreal and is one of Canada’s 11,000 dairy farmers who put their trust in price controls and import restrictions that have been operating since the 1970s. She voiced the concerns of many in her industry when she said: “It’s a huge deal as I have a lot of debts. We really hope there will be no concessions.” 

US Agriculture Secretary Sonny Perdue has demanded that Canada ends its Class 7 deal, which allows Canadian dairy farmers to compete with cheap US supplies, after they stuck to the agreement to sell to the country’s processors at a lower price last year.

Class 7 allows farmers to sell “skim” to Canadian dairies at a competitive price. This is the protein-rich part of milk that is used in the production of cheese and yogurt. Before the deal came into effect, Canadian dairies had imported large quantities of a similar product from northeastern US processors and avoided Canadian tariffs. 

Dairy Farmers of Ontario Chairman Ralph Dietrich said that ending the deal would force farmers such as his own son and son-in-law to reduce production. 

“The two young people in the next generation would have a lifetime ahead of them of doom and gloom,” Dietrich said. “It would be the beginning of the end of supply management.” 

Brian Ducey

Brian graduated from Chaminade High School and the University Of Vermont Kalkin School Of Business with a concentration in Finance. He began his career with Knight Capital Markets, working his way to market maker. Brian later expanded his market repertoire, working with various sell-side research brokerage firms, such as Sidoti & Co., and William O’Neill & Co., as an Account Executive. With over 20 years-experience in the financial industry, Brian has built a unique perspective into “market intelligence” understanding an ability to read the tape and apply second level thinking in a fast paced environment. Brian also carried several market licenses, including the series 7, 24, 55, 65, and 63 licenses as well as previously passing The Connecticut Life and Health Insurance Exam