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Canada's Dairy Cartel Isn't Going Anywhere Thanks to Trade Deal

The new Trans-Pacific Partnership lets Canadian dairy producers keep in place a complex system of trade barriers, price floors and supply controls.

by Jake Bleiberg and Justin Ling
Oct 5 2015, 9:19pm

Image via Flickr Creative Commons

In the midst of a tight three-way race, Canada's Conservative prime minister eked out a huge victory in the Trans-Pacific Partnership agreement on Monday — managing to safeguard the country's highly protected dairy industry.

In the wee hours of the morning, Canadian negotiators finally hammered out an agreement that let their dairy producers keep in place a complex system of trade barriers, price floors and supply controls, and managed to receive the endorsement of Canada's politically influential dairy sector. The historic free-trade trade agreement, reached between Canada, the United States, and ten other Pacific-rim countries, will otherwise lower and eliminate trade barriers and set common labor practices across industries in 40 percent of the world's economy. 

But while the intricacies of the deal may not get many Canadians excited, the importance of protections for the dairy and automotive industries in key ridings have seen politicians making hay of the issue even before details on the deal were released. Over this past week, as negotiations with New Zealand over access to Canada's highly protected dairy market appeared to stall the massive trade deal, New Democratic Party leader Thomas Mulcair hit the hustings in the cow-country of Quebec and southwestern Ontario, urging voters to cast their ballots for his party and oppose the TPP, which he claimed will hurt Canadian manufacturers and farmer. 

But in announcing the deal earlier today, Prime Minister Stephen Harper touted TPP as a "once-in-a-lifetime agreement" that will be a long-term boon to the Canadian economy, and took special care to emphasize that his party had defended the protectionist policies that keep most foreign dairy off Canadian shelves. "We made a firm commitment to defend and preserve Canada's system of supply management, and we have accomplished that," said Harper. "In our dairy sector for example, we have limited access [to foreign goods] in just three-and-a-quarter percent of our market."

The supply management system keeps barriers to entry, by requiring any would-be milk or cheese producer to purchase 'quota' — essentially, a permit allowing them to produce a certain quantity of product — and sell their product to a single, government-regulated, marketing board.

Any imported cheese or milk products face tariffs of up to 245 percent, thereby keeping dairy prices and domestic industry profits high. This system has also allowed Canada's dairy producers to run a massive trade surplus, with the country's net export of milk products averaging $406-million per year between 2005 and 2014.

On Monday, Dairy Farmers of Canada, an industry advocacy group, expressed guarded approval of the TPP deal. "We obviously would have preferred that no additional market access be conceded in the dairy sector," said DFC president, Wally Smith, in a statement. "However, we recognize that our government fought hard against other countries' demands, and have lessened the burden by announcing mitigation measures and what seems to be a fair compensation package." The compensation for the slice of Canada's dairy, chicken and egg market that will be opened duty-free to foreign goods comes in the form of a $4.3-billion government fund to be paid out over 15 years to farmers hurt by the deal. On average, each farmer will get $165,600 over the period.

Related: The US Is Threatening Canada Over Some Cheese and Milk, and Canada Thinks That's Mean

Although the system receives copious criticism from economists who liken it to a cartel, all three political parties vigorously support supply management, which has won it the moniker, 'Canada's sacred cow.' Indeed, former politicians have described a system whereby the considerably money and influence behind Canada's supply managed industries have threatened sitting politicians, warning that any effort to tear down the system would lead to serious political fallout.Adam Taylor, director of lobbying firm ENsight and former advisor to the minister of international trade, said that negotiators were able to preserve the protections for Canada's dairy industry because — as talks over the issue teetered on the brink of dissolving this weekend — all parties realized that it was not worth endangering the far-reaching deal over a narrow agricultural issue.

Taylor said that maintaining most of Canada's supply management is likely to comfort Canadian farmers and makes it unlikely that the NDP will be able to turn the deal into a driver of votes.

"If there'd been a very bad outcome on dairy, that might have been a ballot box question for people," Taylor told VICE News. "But I don't think people are going to be going into the voting booth saying, 'I'm voting conservative because I'm pro-TPP.' or 'I'm voting NDP because I'm against TPP.' But the deal has also received heavy criticism from environmental and labor groups, both abroad and in Canada.

Today, Unifor, Canada's largest private-sector union, pilloried the trade accord, alleging in a statement that it would kill 20,000 auto-sector jobs, by lowering requirements for the percentage of Canadian car components produced domestically from 62 to 45. The labor group also claimed that the "caretaker" Conservative government lacked the democratic mandate to negotiate for Canadians during an election.This criticism was echoed in a tweet from Thomas Mulcair on Monday, while the Liberals have said that they are waiting to see the details of the agreement. Harper himself cautioned last week that Canada's $20-billion auto-sector may not be happy with parts of the deal.

Although the terms of the TPP have been agreed upon, it must still be approved by the member countries' legislatures—and in Canada that means whichever party forms government on Oct. 19 will have the chance to vote up or down on the deal.  

Follow Jake Bleiberg on Twitter@JZBleiberg

Image via Flickr user Marc Dalmulder