By Lisa B. Pot
Trade. It’s the one topic all commodity groups are discussing during this winter’s meeting season. From dairy farmers worried about the glut of milk U.S. dairy farmers would love to unload on Canada, to egg farmers needing U.S. eggs to meet demand to grain farmers worried about being able to compete on a level playing field, trade issues have all farmers a little tense.
For years, Donald Trump has ranted that Americans are getting stiffed on trade. Now, as president, Trump has begun making changes. In March, he announced tariffs of 25 per cent on imported steel and 10 per cent on imported aluminum. He’s put the North American Free Trade Agreement (NAFTA) on the examination table and pulled out of the Trans-Pacific Partnership deal. What’s next? Should farmers be afraid?
The Rural Voice has tried to find answers to that question via the trade experts sharing their knowledge and predictions at meetings across southwestern Ontario. Ranging in a historical context of trade to specifics on supply management and dairy in particular, there was a lot to learn.
Having a basic understanding of trade deals helps, said Kathleen Sullivan, a Strategic Planning and Government Affairs specialist based in Ottawa who spoke to dairy farmers at the Woodstock Dairy Symposium held February 22.
“You can’t look at any trade deal in isolation,” explained Sullivan. “You have to look at it cumulatively to understand NAFTA.”
Sullivan said first of all, no one can make a country do anything. There is no global set of rules for all counties. If countries agree to do a trade deal, it is voluntary. Trade rules are actually contracts and they set out what one country agrees to do versus what the partnering country will do. “They also set out consequences if one country does not do what it said it would do.”
The granddaddy of all trade deals is The World Trade Organization (WTO), the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world's trading nations and ratified in their parliaments.
It blankets everything. So the first sigh of relief for Canadian farmers might be that if NAFTA dissolves, the WTO is a base underneath it.
Next came the Canada-U.S. Free Trade Agreement. Then NAFTA. So if Trump did pull out NAFTA, the old agreement still stands though re-implementing it would not be an uncomplicated task, to say the least.
The original free trade agreement and NAFTA both excluded supply management products in the agreements.
Looking at trade patterns, Sullivan said “we are heavily, heavily dependent on the U.S. If the U.S. market were completely closed down to us, we would have to find markets for 75 per cent of our products. The U.S. is less dependent on us.”
Trump had been quoted as saying “NAFTA is the worst trade deal maybe ever signed anywhere.”
Both imports and exports have gone up since the trade deal, said Sullivan. The problem is that imports have exceeded exports and the U.S. is now in a trade deficit. However, there is an ongoing debate whether there is an actual trade deficit or not.
If Trump forces a NAFTA negotiation should Canada and Mexico agree? Sullivan suggests it is important to open NAFTA because the trade deal is old.
NAFTA should be modernized to address issues raised by the technology revolution. NAFTA would be more progressive, states Sullivan, if it:
• Added labour safeguards, environmental protections, and protected gender rights
• Improved the ease of business travel and movement of professionals
• Upheld dispute resolutions of anti-dumping and countervailing
• Preserved Canadian culture exemptions and supply management
This last one is of particular importance to the Canadian farm scene. It’s particularly contentious and a potential deal breaker because the Americans want access to Canadian markets (among other things).
Sullivan said it’s important to remember that just because the U.S. asks for something, it doesn’t mean the country will get it. Also, renegotiating the old NAFTA could bring positive changes. Moreover, Trump says a lot of things that just don’t happen. Originally, he said NAFTA negotiations would be wrapped up in 2017. Now he says they might be finished after the next Mexican election. Currently, negotiations are on hold.
“This happens all the time. Trade negotiations stop all the time,” said Sullivan.
If the worst happened and the U.S. did pull out of NAFTA, Sullivan reminded dairy farmers at the Woodstock Symposium that older trade agreements are still in place. Plus, there is a process. No country can withdraw without six months’ notice. After the original six months, a letter would be written to confirm the withdrawal. There would be time for the Canadian government to react to the changes.
Sullivan predicts NAFTA will be renegotiated and the U.S. will be granted more access to the Canadian dairy market. That could hurt the Canadian dairy industry but, ultimately, Canada really needs access to the whole North American market. Sullivan said 65 per cent of our food comes from the U.S. and Mexico.
Whatever happens, we need to protect supply management said another trade expert.
Bruce Muirhead, Associated Vice-President of External Research and a Professor of History at the University of Waterloo has written extensively on Canadian trade negotiations since the Second World War. He is now the Egg Farmers of Canada Chair in Public Policy at the University of Waterloo where his research focuses on the relevance and usefulness of supply management.
In his opinion, supply management “creates lots and lots of jobs” and “contributes to rural stability like no other system can.”
Muirhead said he has been examining the dairy and egg systems across the U.S., Europe, Australia and New Zealand. He sees havoc. “Europeans have destroyed their own dairy market. They have massive overhangs of stock and can’t get rid of it. They are flogging it around the world at cut-rate prices,” said Muirhead.
New Zealand and its grass-fed approach to dairy had an ideal situation until the country encouraged massive growth in cow numbers and a belief in the profitability of the export market. They are currently the largest exporters of dairy products, controlling about 32 per cent of the international market.
However, a NZ dairy observer was quoted in 2016 as saying “our dairy industry is under serious stress. This is the third year in which less cash is coming in than going out.”
“Anyone who tells you to get into exports has no idea,” said Muirhead. All the forementioned countries are facing incredibly tough competition from each other as each pursues a smaller and smaller export market.
In Australia, another country without supply management, the market is controlled by supermarkets which have driven the price so low, “dairy farmers are leaving the industry in droves.”
The same is happening in Wisconsin. Muirhead said millions of gallons of milk are being dumped and the state is “losing a farmer a day.”
“It’s a horrendous mess in the U.S.” said Muirhead.
Given these examples from around the world, Muirhead concludes that supply management equals stability for the agriculture sector. Plus, it protects Canada from a “huge tsunami of milk flooding the Canadian border.” Milk, he notes, that would not have the same health and safety regulations as Canadian products.
Ultimately, said Muirhead, supply management protects family farms from “rapacious and unfair competition.”
At a more local level Henry Wydeveen of the Dairy Farmers of Ontario spoke to dairy farmers at the Huron-Perth Dairy Seminar in Mitchell late last year saying “pancaking access” is the biggest issue for Canadian dairy farmers.
When negotiating the Comprehensive Economic Trade Agreement (CETA) with Europe, Canada agreed to give up 3.25 per cent of its dairy market access.
“We were willing to give that up but we aren’t willing to give up 3.25 per cent to CETA, then another 3.25 per cent to the TPP and then another 3.25 per cent to NAFTA,” said Wyde-veen.
Building on Wyde-veen’s talk, Graham Lloyd, the new General Manager of DFO said when talks are ongoing, there are up to 20 Canadian representatives negotiating for the protection of supply management.
“We are the only dairy industry thriving in the world,” said Lloyd.
He said it’s important that all dairy farmers be ready to share why the supply management system is so valuable because consumer opinion matters.
While the CETA agreement presented a loss to dairy farmers, the TPP opens up the Japanese market which is an export jewel, said Lloyd.
NAFTA? Well, that remains to be seen because the U.S. doesn’t have a political administration that seems to give any direction on agriculture for its country.
Being a lawyer, his opinion was that if Trump did pull out of NAFTA, along with the six-month-notice (mentioned by Sullivan) the action would result in “massive lawsuits” which may deter any sudden decisions.
Focusing on a broader overview of the current status of trade agreements was Doug Forsyth, Executive Director of Trade Agreements and Negotiations Directorate for Agriculture and Agri-Food Canada. He spoke in January at the BDO Agricultural Roadshow.
There was much background presented during this presentation that required more trade expertise than most people in the room had. However, Forsyth did outline the specific challenges Canada faces in trade, as well as highlighting Canada’s potential.
In regards to challenges, Forsyth outlines three main ones: the shift in U.S. policies; the confusion of European Union politics and the sheer volume of business in dealing with the Chinese.
All countries will be required to meet world food demand in a way that honours the social licence and the environment.
Canada is well-positioned because of all its natural resources, said Forsyth. Canada also has a strong economy. Plus, Canada itself is respected as an inter-nationally recognized brand.
Furthermore, the Federal Budget for 2017 recognized agriculture and agri-food sector as a key driver in the Canadian economy. Measures included in the budget were:
• $950 million in superclusters with a focus on innovative industries, including agri-food
• $1.26 billion Strategic Innovation Fund which includes improving access to support for agri-food value-added processors.
In order to stay competitive within current and future trade deals, Forsyth suggested Canadian food growers and processors really focus on being innovative and developing new processed food products. This is what the Canadian goverment is promoting and funding.
“It’s your business and your life,” said Forsyth. “We’re the government and it’s our job to do our best to help you out.”
As to the future of NAFTA, Forsyth said NAFTA is 23 years old. “At the end of the day, it’s old. It does need to be changed. Some things just do not apply anymore.”
He said, though, it will be a long process that requires patience because no matter what a president might say, he has to listen to his people.
Just as the Canadian government is listening to farmers and agreeing to support supply management.
“We won’t budge on supply management. We are throwing our support behind it,” said Forsyth. ◊