"Time and again, Canada has demonstrated its disregard of its dairy commitments to the United States — hampering America's exports to Canada — while pursuing ways to use its government-controlled system to unfairly dump greater Canadian exports in global markets.''
— April 13 letter to U.S. President Donald Trump from the National Milk Producers Federation, the U.S. Dairy Export Council, the International Dairy Foods Association and the National Association of State Departments of Agriculture.
The rhetoric Donald Trump directed at Canada's dairy industry this week has its roots in a new Canadian agriculture policy that predates his time in office, one that was the subject of a pointed letter from the U.S. dairy lobby.
"I've been reading about it,'' Trump said this week in Wisconsin, which along with New York, is a state with a lot of hurting dairy farmers. They're blaming Canada for their woes — and Trump took up their cause: "Because in Canada, some very unfair things have happened to our dairy farmers.''
Trump was reflecting a broad, long-standing criticism, levelled by many others before him: that the Canadian dairy industry is unfairly protected against foreign competition. Critics often point to Canada's supply management system, which they decry as nothing more than a protectionist barrier.
The latest instalment in that debate, and the one that landed Canada squarely in Trump's crosshairs for the first time, is a new classification for a certain Canadian dairy product: ultra-filtered or diafiltered milk, essentially a protein-heavy concentrate used to make cheese. Canada created a new class of milk — Class 7 — to cover it.
Photo: Getty Images
Several provinces then lowered the price to make it more competitive, which led to fewer buyers for the American version in Canada. The U.S. industry told Trump that was a "direct violation'' of Canada's trade commitments to the U.S.
Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of "no baloney'' to "full of baloney'' (complete methodology below).
This one earns a rating of "a lot of baloney.'' Here's why.
In their April 13 letter, the four U.S. dairy organizations urged Trump to call Prime Minister Justin Trudeau to halt the Class 7 program, saying it was "specifically designed to stop an important U.S. dairy export to Canada.''
After Trump publicly took up their cause on Tuesday, David MacNaughton, Canada's ambassador to the U.S., released a letter he sent to the governors of Wisconsin and New York rebutting that claim.
U.S. President Donald Trump speaks at the world headquarters of Snap-On Inc, a tool manufacturer, in Kenosha, Wisconsin, U.S., April 18, 2017. (Photo: Reuters/Kevin Lamarque)
He attached a Feb. 17 report from the U.S. Department of Agriculture that he said showed the American industry's woes were the result of "U.S. and global overproduction'' of milk.
MacNaughton also said the trade balance on dairy "massively'' favours the U.S. by a five-to-one margin.
The latest report by the United States Trade Representative on the trade barriers faced by the U.S. singled out the Class 7 changes as a potential problem. It said the U.S. has "raised serious concerns with Class 7.''
WHAT THE EXPERTS SAY
Michael von Massow, a food economics expert at University of Guelph, says it is the market forces of the international dairy industry, not Canadian policy, that are driving hard-working U.S. farmers out of business.
That's because in recent years there been an increasing demand for high-fat products, such as butter, so more milk is needed to produce it. But that leaves farmers with excess protein, which is where ultra-filtered milk comes in.
Forces in the international dairy industry are also at play, says von Massow. Russia is buying less milk from the Europe because of sanctions, and China is buying less milk, which affects everybody.
Meanwhile, Canadian dairy farmers had a lot of leftover, unused high-protein milk product that it could not sell. A big part of their problem, says von Massow, was that Canada was being flooded with duty-free American ultra-filtered milk because it was invented after the North American Free Trade Agreement, and therefore wasn't subject to duties.
Canada doesn't export any ultra-filtered milk to the U.S. and simply wants to find a domestic market for a product that is in too great a supply relative to consumer demand, he said.
"We're not dumping products. Canadian processors and producers are adjusting the relative price of ingredients to maintain a domestic market for those ingredients. So they're displacing the U.S. product that's coming into Canada,'' said von Massow.
"To me, fundamentally, that's the market working.''
Photo: The Canadian Press
Trade lawyer Lawrence Herman is no fan of supply management.
But in this particular case, he said the U.S. dairy industry is off base because ultra-filtered milk is not part of Canada's supply management regime, and was created after NAFTA, which has allowed it to flow into Canada from the U.S. duty free.
That prompted Canadian farmers from a variety of provinces to lobby for the creation of a new classification of milk product that could be priced competitively with American imports.
"We're not putting up any tariffs; we're not subsidizing ultra-filtered (milk) to be exported to the United States,'' said Herman.
"What the Americans have been railing against for years is the entire supply management system, and what they're saying to Trump (is) it's because of this distorted, manipulative, regressive Soviet-style system that Canada can manipulate the market and create these new classes to allow Canadian producers to compete.''
Herman said that raises the likelihood that supply management will be on the table in future trade negotiations during which the U.S. will try to win an increase for its dairy imports into Canada.
"In this particular case, it's not contrary to the trade agreements. We're not doing anything illegal, but the Americans just have an axe to grind,'' said Herman.
Luis Ribera, an agriculture economics expert at Texas A&M University, said that while the ultra-filtered milk issue may technically fall outside the scope of NAFTA, it is a sign of U.S. anger towards Canada's supply management system. And that means it will likely be on the table of any future NAFTA renegotiation.
"There are a lot of milk producers in the U.S. that are complaining about it. I think it will be on the table.''
The U.S. dairy industry has won over a president who is predisposed to fighting against any trading partner with a perceived advantage over American workers.
While the U.S. claim of Canada dumping subsidized milk into its market is unfounded, the underlying sentiment reflects an ongoing anger towards a Canadian system that is seen to be blocking fair trade in the dairy sector.
For that reason, the U.S. industry statement in the letter to Trump earns a rating of "a lot of baloney.''
The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:
No baloney — the statement is completely accurate.
A little baloney — the statement is mostly accurate but more information is required.
Some baloney — the statement is partly accurate but important details are missing.
A lot of baloney — the statement is mostly inaccurate but contains elements of truth.
Full of baloney — the statement is completely inaccurate.