Supply management and trade agreements
Supply management and trade agreements
The Canada-United States-Mexico Agreement (CUSMA)
Canada granted an additional 3.9% of access to its dairy market in the new agreement with the United States and Mexico (CUSMA) announced on October 1, 2018. This is the 3rd trade agreement concluded by Canada that has harmed Canadian milk producers.
At the same time, Canada also relinquished some of its sovereignty over its dairy policy to the U.S. by agreeing to:
- eliminate a dairy ingredient class (Class 7) that allowed producers to offer processors a competitive alternative to imported ingredients;
- place a ceiling on exports of solids non-fat from its dairy industrie and apply a surcharge on exports that exceed this threshold;
- submit to a U.S. review of all changes to the classification and prices of milk sold by producers to Canadian processors.
This interference from the U.S. may not only violate Canadian and provincial laws and international trade rules, but also have other major economic impacts on milk producers.
Highlights of the concessions in the dairy sector:
- 100,000 tonnes of dairy products were conceded, which is equal to around 3.9% of its market and corresponds to a permanent loss of $190 million per year.
- Class 7 (ingredients) will be eliminated six months after the agreement comes into force.
- The agreement allows the U.S. price to be used for the sale of milk protein concentrates (MPC), skim milk powder (SMP) and baby formula.
- A surcharge will be applied to MPC and SMP exports in excess of 55,000 tonnes in the first year, and 35,000 tonnes in the second. Canada currently exports 75,000 tonnes of these products per year.
- It could limit the volume of SMP that Canada is able to export and increase the cost of exported dairy products, which would result in yet another impact ranging from $50 to $350 million per year in addition to those already caused by the newly granted access.
- The CUSMA comes into force three months after its ratification by the three countries.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
On January 23, the government announced the conclusion of the CPTPP. This agreement will come into force on December 30, 2018. Les Producteurs de lait du Québec denounced the fact that Canada ratified the CPTPP without even considering the withdrawal of the United States from the initial agreement or a downward revision of the market concessions demanded by the United States, since the United States alone accounted for over 60% of the GDP of the TPP with 12 parties.
Highlights of the concessions in the dairy sector:
- The access agreements were kept from the original TPP.
- Canada conceded just under 100,000 tonnes of dairy product equivalents, based on imported products, which is 3.1% of the Canadian market and will cause permanent market losses in the amount of $160 million per year.
- This agreement comes into force on December 30, 2018.
The Comprehensive and Economic Trade Agreement (CETA)
On October 18, 2013, the Canadian government signed an agreement in principle with the European Union (EU) in the negotiations for CETA. This agreement came into force in September 2017.
Highlights of the concessions in the dairy sector:
- A major concession was granted to the European Union for cheese, i.e. 17,000 tonnes of cheese, including 16,000 tonnes of specialty cheese, which will cause permanent market losses in the amount of $100 million per year.
- This agreement has come into force gradually since September 21, 2017. At the end of 2018, 5,333 tonnes of cheese will enter into Canada, which is 1.4% of its market. In 2019, this volume will rise to 8,000 tonnes.
Three agreements on the dairy sector
Milk producers have never been opposed to the general principle of free trade agreements. However, in the last three free trade agreements signed by Canada (CETA, CPTPP and CUSMA1), our country has conceded nearly 8.4% of its dairy production and processing. This means that nearly 800 million litres of milk will permanently no be longer produced by Canadian producers, which is the equivalent of the annual production of 1,200 average-sized dairy farms in Quebec.
Highlights of the three agreements on the dairy sector:
- Concessions will ultimately total about 8.4% of the dairy product market.
- Income losses total over $450 million owing to market access alone ($100M CETA, $160M CPTPP, and $190M CUSMA), i.e. around $41,000 per farm.
- Additional costs ranging from $50 to $350 million caused by the export surcharge could limit the volume of milk Canada is able to export.
- Once CETA (+1.4% access), the CPTPP (+3.1%) and the CUSMA (+3.9%) are fully implemented in 2024, Canada will import around 18% of its milk production, which equals $1.3 billion in annual lost sales for producers alone.
