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OPINION: USMCA and cash cows

If government wants to support dairy, think beyond compensating for losses that don’t exist



They may not know it yet, but the United States–Mexico–Canada Agreement (USMCA), or NAFTA 2.0, could become the watershed moment Canadian dairy farmers have been waiting for. The Trudeau government has committed to compensating the dairy sector for either lost sales, higher per-unit costs or the loss in value of quotas.

What we can be sure of, however, is that the amount the feds will come up with won’t be to farmers’ liking. But giving billions away in compensation would be more damaging to farmers than the effects of the trade deal itself. If the Trudeau government really wants to support the sector, it should think beyond simply compensating for losses that do not actually exist.

First, the quota system itself has artificially created wealth for a small group of farmers. By restricting production and suppressing competition at the border, dairy farmers have accumulated assets worth above $5 million. That’s per farm. For every litre produced, dairy farmers in Canada receive 72 per cent more than the world average. As a result, the average family income for dairy farmers exceeds $160,000.

Farmers do work punishing hours and should be much-admired for the work they do for all of us, but many other Canadians put in the same amount of work to and contribute equally to the economy.

A sense of entitlement and the belief that the system is real is so entrenched in the sector that it makes it impossible to have challenging conversations about the sector’s future and how it could move forward without quotas.

With supply management, the thinking has always been based on our own domestic needs. Obviously, allowing more imports can only be perceived as losses for the industry instead of an opportunity to expand and look for market openings. The new United States Mexico Canada Agreement adds to the pressure generated by two other trade agreements signed in the last few years. According to Dairy Farmers of Canada, market-share losses from recent trade deals with Asia, Europe, and now North America, total 18 per cent, an amount worth $1.8-billion to milk producers. That would equate to almost 1,800 dairy farms we no longer need.

Our sector has convinced itself that it is innovative and forward-looking, but it simply is not. Anyone who travels to the U.S., Europe, Australia or Asia would see how limited our dairy offering is in Canada -- high quality but uniquely homogenous, a mirror image of our dairy sector.

Dairy farmers desperately need to become more market-focused and in sync with an increasingly fragmented market. Consumers are looking for different food products. Imagine blue moon, banana cream or black cherry low-fat, lactose-free milk. These exist, but not in Canada. Vodka made from milk is also a product whose popularity is increasing, but other countries have beaten us to the punch.

The Canadian economy needed this deal, as supply management only represents 1 per cent, so signing with the Americans and Mexico was critical. The Canadian Dairy Commission will need to entice our dairy farms to become more competitive by changing the pricing formula which has been used to compensate farmers. Instead of going with averages, it should create high-performance benchmarks. Secondly, a quota system for export markets should be put in place which would allow new entrepreneurs, and new ways of thinking to enter the market. And finally, as other countries have done before us, an exit program should be created to encourage farmers who don’t see themselves participating in an open economy.

All of this can be achieved with minimal subsidies. At present, Canadian farmers are in fact less subsidized than American farmers, but just barely. In Canada, 9.6 per cent of all farm revenues are subsidized compared to 9.9 per cent in the U.S., according to the OECD. Subsidies can help, only for a while, and should be considered as a stop-gap for farmers, not an industry norm.

Without these measures, any compensation given to dairy farmers can only be considered agricultural welfare, and our dairy farmers deserve better. This is the only way we can keep some of our Canadian dairy farms.

- Sylvain Charlebois, Professor in Food Distribution and Policy, Faculties of Management and Agriculture, Dalhousie University

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