Imports of Protein Concentrates Precursor To WTO Capitulation for Canadian Dairy Farmers

One of my favourite grain analysts always refers to an old market axiom.  He says regardless of what happens, “the market is always right.”

That’s a pretty tough call for many of us involved in the North American grain business.  However, we’re used to it.  Not so for others in Canada’s supply managed dairy sector.  With a made in Canada production and pricing system protected with 300% tariff walls, “the market” as grain producers know is a long way away.

Now I know there are many dairy producers in Canada who read this commentary.  I have heard from many of you thru the years.  You never hesitate to write and take me to task for implying that Canada’s dairy economy cannot be sustained as it is under the WTO or NAFTA.  A proud, strong lot you are.  What you’ve built is the envy of the rest of us.

Seeing it threatened like I’m seeing it threatened now is a tough one.  Yes, the chickens are coming home to roost.  How Canada’s dairy industry responds to it will tell me a lot about its future.  As many of you know, I’ve never felt it (supply management in dairy) could be sustained over time.  There were just too many forces lined up against it.  Yes, the market is always right.  It just wants those Canadian dairy farmers to sell their milk like other farmers sell their corn, wheat, soybeans and canola.

Preposterous you say?  Let’s hope so.  However, don’t count against it.  It certainly doesn’t make any difference what political party you have in Ottawa.  Yes, even the BQ.  Past Liberal governments have served the dairy industry up on a plate at WTO while at the same time denying that fact back home.  The Conservatives will surely follow that lead, although they seem to be a bit more forthcoming with the reality of the situation on the ground.

On the ground the supply-managed sector of the agricultural economy is showing cracks at the edges.  The Canadian International Trade Tribunal has ruled that milk protein concentrate imports are not covered by import controls under supply management.  These milk concentrates have been coming in unfettered raising red flags and instigating farm protests across Canadian dairy country.

Last month 175 Quebec dairy farmers rallied in front of the Parmalat plant in Victoriaville and Laverlochere Quebec expressing their angst against these imports.  Read the following direct quote from Jean-Luc Leclair, President of the Syndicate des producteurs de lait del la region du Centre-du-Quebec.

“Parmalat is taking advantage of the government’s inaction, which allows this dumping, to inflate its profits at the producers’ expense.”  The government’s laxity and the major processors’ thirst for profits have already led to $242 million in annual losses for dairy producers.  If the government takes no action, uncontrolled imports of protein concentrates will more than double this shortfall to over half a billion dollars per year, according to conservative estimates.  These ingredients enter Canada at dumping prices, given the hefty subsidies granted by the European Union to its agricultural sector. “Canadian dairy farmers are not subsidized and cannot compete with the European public treasury”.

Pardon the interruption, but doesn’t this sound vaguely familiar?  Could you substitute “corn” for “protein concentrates” and hear the same argument from Canadian corn farmers concerning ethanol.  I think so.  In the future could I surmise 5,000 dairy farmers will turn out to protest the uncontrolled imports of “milk” after an unfavourable WTO agreement on agriculture?  Yes, this is the future.  Or have I lost my agricultural economic mind?

When I meet dairy farmers they usually inform me of the latter.  I always get the feeling that questioning the status quo in the Canadian dairy industry is akin to heresy.  Let’s hope I’m wrong because these imported “protein concentrates” seem to be a precursor to many other imported dairy products in the future.  However, you’ll never hear much of that.  There isn’t a Canadian politician known to man who would say that publicly.

The reason boils down to one word, one place, and one province.  Quebec.  There is something in the collective soul of a Quebec farmer that can’t be measured.  Quebec farmers don’t necessarily look to Canada as their country.  Through the years successive Quebec leaders have positioned the Quebec dairy industry favourably within Canada.  In the Canada of the post 1980’s anybody who changed that would risk political oblivion.

It’s still that way.  If and when Canada capitulates at WTO over access to our supply managed sector, Quebec politics will weight in.  In short, there will be hell to pay.  If Chuck Strahl is still there the Conservatives will be swept out of Quebec.   Quebec farmers don’t fool around.  175 Quebec dairy farmers in Victoriaville will be multiplied exponentially.

Do I think this is right?  No I don’t.  I don’t think it is right about grain and oilseeds either.  WTO is our policing agency of world trade but it is also an American club.  The third world is clamouring for some type of access.  The problem is the market is always right and it wants to work, but not everybody wants to play by the same rules.  Taking down our Canadian supply management sector for this bunch is like saying “I’m hungry pass me another rotten apple”.

The challenge will be for the supply managed dairy sector to change and adapt before it is foisted upon them.  No, don’t aim your guns at me.  Take a page from the old men in the grains and oilseed sector.  However, be vigilant and open to change.  At the end of the day, the market is always right.