Canada conceded to drop its complex “Class 7” quota and pricing system, which limited imports of certain dairy products from the U.S., as part of an agreement reached late Sunday.
The deal should remove uncertainty that has hurt the U.S. dairy industry since the Trump administration began fighting with major trading partners, said Tom Vilsack, former agriculture secretary during the Obama administration.
“That should reassure markets and help to stabilize and strengthen prices certainly,” Mr. Vilsack said.
Industry officials, however, remain cautious about how far Canada will go in revoking all aspects of the Class 7 system and how much of a boost U.S. producers will get.
Canada last year raised tensions in talks to renegotiate the North American Free Trade Agreement by raising tariffs on a class of ingredients known as ultrafiltered milk, used to make cheese and other dairy products. The new rules sapped American exports of ultrafiltered milk and milk protein isolate to Canada—which had reached $102 million in 2016, according to the U.S. Department of Commerce, making Canada the largest foreign market for ultrafiltered milk.
Photo: David Paul Morris/Bloomberg News
U.S. dairy producers say additional support that Canada implemented for its dairy farmers last year has also flooded global markets with cheap powdered milk. Canadian exports of skim milk powder grew more than sevenfold in the past three years, according to financial services firm INTL FCStone Financial.
Mr. Marshall said Ottawa’s moves caused Kansas producers to lose a big powdered-milk contract with China. “They were able to flood the world markets will cheap milk powder,” said the freshman Republican, who faces re-election this year and has drawn support from agricultural groups.”
Canadian officials say the country’s dairy exporters don’t get unfair governmental support.
Dairy is a small piece of overall trade between Canada, the U.S. and Mexico. The U.S. exported $637 million worth of milk, cheese and other dairy products to Canada in 2017, according to the U.S. Department of Agriculture.
But the dairy business is politically charged on both sides of the U.S.-Canada border.
President Trump and U.S. lawmakers from both parties railed against Canada’s restrictions on U.S. dairy. Canadian producers and lawmakers, meanwhile, say the rules prevent the kind of overproduction that has hurt the U.S. dairy industry.
Preliminary details of the pact reached on Sunday indicate that U.S. producers will be allowed to supply up to 3.6% of Canada’s dairy market, similar to the access European Union dairy producers have been granted in Canada. That is slightly higher than the level Canada had agreed to under the 12-nation Trans-Pacific Partnership pact, which the Trump administration abandoned last year.
Industry officials say there’s still much unknown about market access and the broader deal’s implications. The new quotas vary by commodity, and it remains to be seen if Canada will stop exporting so much powdered milk to world markets, said Mr. Vilsack, the former agriculture secretary.
“It will take a while to sort out the details and to see what this actually means for U.S. exporters,” said Mike McCully, president of the McCully Group LLC dairy consulting firm.
Source: Heather Haddon, The Wall Street Journal