Like Mexico and the United States, the Canadian Government has officially begun the process of ratifying the Canada-United States-Mexico Agreement (CUSMA). This Agreement is expected to come into force on the first day of the third month after ratification by the last partner country. As we know, the Canadian dairy sector served as a bargaining chip during the negotiations with the United States and Mexico. The concessions made at that time will have negative impacts on our economic sector. Firstly, the Agreement provides for additional access to the Canadian market of 100,000 tonnes of dairy products (3.9% of Canada’s production) or $190 million in farmgate milk sales per year.
Secondly, CUSMA requires the abolition of the class of ingredients, commonly called Class 7, that enabled us to offer milk ingredients to our processing partners at competitive prices. The products in this class must be reclassified according to their end use and pricing must be based on a U.S. reference price. Now that the ratification process is going ahead, we are obligated to prepare to comply with the requirements of the Agreement. The dairy industry has done its homework, and the requested administrative accommodations will be implemented within the specified time frame.
Lastly, under CUSMA, the quantity of milk protein concentrates (MPC), skim milk powder (SMP) and infant formula that Canada can export to any country is capped at 55,000 tonnes the first year of the Agreement, and 35,000 tonnes the second year. A penalty of $0.54/kg will apply to exports above that threshold. By accepting this requirement, the Government has limited our ability to add value to our solids non-fat (SNF) on international markets. This restriction will result in additional financial impacts for producers that will need to be compensated. The Government has also created a dangerous precedent by accepting that export rules for dairy products apply to all countries, and not only to the Agreement signatories. This amounts to abandoning part of Canada’s sovereignty, something its Government should never have accepted. If Canada allows the United States to limit its freedom of trade for certain dairy products, will it also give up its sovereignty in other economic sectors?
The negative repercussions of CUSMA are in addition to those of the Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which are now in force. Under these three agreements, producers will incur on-going, average annual losses of $450 million in farmgate milk sales. Economists predict that by 2024, 18% of the domestic milk market will have been replaced by foreign production, including the concessions made under the WTO agreements. This is enormous!
“During the federal election campaign, all political parties undertook to compensate farmers for the impacts of CUSMA, including Justin Trudeau’s Liberals.”
The Federal Liberal Party will soon table its first budget as a minority government. It is a good opportunity for them to reiterate their commitments to dairy farmers. We are calling on the Federal Government to continue to pay direct compensation to producers, define the conditions of these payments, announce the amounts for each year, and include the total appropriations for the compensation amounts in the 2020 budget.
This compensation relates only to the first two Agreements. Justin Trudeau’s Government must also undertake to pay full and fair compensation to mitigate the financial impacts of CUSMA, including the additional costs resulting from the elimination of the ingredients class and the capping of exports. Last winter, farmer representatives participated in a working group to estimate the compensation for long-term losses. The report was tabled with the Department of Agriculture in January 2019 and its conclusions on the value of the losses arising from the three Agreements are still relevant.
Without a clear commitment by the Government on the long-term support to be provided to the dairy industry, the negative impacts will be felt not only in the dairy sector, but also across all Canadian economic sectors. With its 221,000 full-time equivalent jobs and its annual contribution of $19.9 billion to the GDP, the dairy industry makes a major contribution to employment and the socioeconomic fabric of the regions and communities across Canada.
We have said it before, and we will say it again: No other concession must be made on the backs of milk producers in future trade agreements. The Government of Canada must participate actively in the defence of its agricultural supply management policy. The Liberal Party, and all other parties present in Parliament, have committed to preserve and protect supply management. During the federal election campaign, all political parties undertook to compensate farmers for the impacts of CUSMA, including Justin Trudeau’s Liberals. We call on the Liberal Government to turn words into action by keeping its commitment in March, when the next budget is tabled.