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  • It's not a good time to be a dairy farmer in the United States.

  • It hasn't been for a while. Milk prices have dropped below

  • the cost of production for four years in a row

  • and thousands of dairy farms close every year.

  • Advances in technology and genetics

  • mean that smaller numbers of cows

  • can produce greater amounts of milk. Too much milk.

  • Tidal waves of milk in the American market lower prices,

  • leaving some farmers to just dump thousands and thousands of

  • unprofitable gallons. Similar stories have played out

  • in Australia and around the European Union. But

  • it's by no means universal. Dairy farmers struggling in

  • Wisconsin and Michigan just have the peak across the northern border to

  • see how different their lives could be.

  • Dairy production ramped up during World War II and the subsequent

  • reconstruction of Europe. But that demand dried up by the mid to late

  • 1950s. By the 1960s, many countries were

  • overwhelmed with excess dairy products. Some countries started

  • subsidizing their dairy farmers directly. Even today, one study

  • estimates that dairy subsidies cost American tax payers about

  • $20 Billion dollars every year.

  • Often in Canada we say, "you know Americans pay twice for their

  • milk; once at the supermarket and another time through their taxes."

  • But not Canada. Instead, Canada implemented a

  • three part supply management system that empowered their

  • dairy farmers. Here's how it works: the first

  • part controls production. To sell their products, Canadian dairy

  • farmers must have a quota, or a license to produce a

  • set amount of milk. Basically, provincial marketing agencies

  • predict how much dairy products Canadian consumers will buy

  • that year. And it uses those numbers to set the quotas. Farmers buy

  • more quotas or sell off their existing quotas, depending on how

  • much they expect to produce. So these quotas prevent overproduction

  • of dairy. Which in turn prevents prices from

  • spiraling downwards.

  • The second part guarantees minimum prices for Canadian dairy farmers.

  • Imagine that: from one year to the next, the price of cow feed jumped by 20 percent.

  • Normally, that would cut into a dairy farmer's profits. In Canada

  • however, milk marketing boards in each province negotiate

  • with milk processors to set a minimum price

  • that takes into account these price fluctuations. So farmers are compensated

  • relative to their costs each year.

  • The third and final part of the supply management system takes aim at

  • foreign dairy. Every year Canada imports an allotted

  • amount of foreign dairy. Typically,

  • around 10 percent of its total domestic market, with

  • low or no tariffs. After that, tariffs shoot up

  • Sometimes up to 300 percent. This prevents foreign dairy

  • from flooding the market and encourages Canadians to buy Canadian

  • products. So this is how Canada tries to keep its

  • dairy farmers in business. It has a vested interest in

  • doing so, as the industry is the backbone of many rural communities.

  • Providing more than 220,000 jobs and

  • nearly $20 Billion to Canada's GDP in 2015.

  • Some Canadians dislike this system, arguing that consumers pay

  • more for dairy products than elsewhere. Whats more,

  • some critics of the program in Canada argue that the government props up

  • dairy farmers more than it should, resulting in an average income for

  • dairy farmers of exceeding $160,000 dollars,

  • and what one agricultural experts calls, "a sense of entitlement by

  • the sector", which has a powerful lobby at both the Federal and

  • Provincial level. However,

  • a 2017 Neilson study showed Canada's milk prices are on

  • par with prices from similarly developed nations. And

  • at least one public opinion poll puts Canadian support for the system

  • at about 75%. "If you value the

  • qualitative as opposed to mere the quantitative I

  • think you'd opt for the Canadian system over the

  • American one, because the lifestyle

  • that rural people in Canada lead is much, much, much more

  • robust, than the rural lifestyle of people in the US".

  • Internationally though, Canada's system has fewer fans.

  • Since the 1980s, Canada's trading partners have repeatedly demanded

  • they lower their dairy

  • defenses, with some calling into question the legality of the

  • quota system under World Trade Organization laws.

  • The fight over milk between the US and Canada has played out

  • in free trade agreements from the mid 1990s onward.

  • It revolves around how much of Canada's domestic dairy market

  • will be filled by tariff free imports from the US.

  • Under NAFTA, the figure is disputed. One USDA official

  • told CNBC, "that no US dairy

  • exports to Canada were tariff free under NAFTA".

  • But other experts cite the figure at around 1% - 3%.

  • During negotiations for the Trans-Pacific Partnership, the Obama

  • administration secured 3.25% of the Canadian market

  • without tariffs. However,

  • President Trump pulled out of that agreement in January 2017. The President

  • sees Canada's system as deeply unfair to American dairy

  • farmers in Wisconsin, and other border states.

  • So during the talks the renegotiate NAFTA, he threatened

  • to leave Canada out of the agreement, and impose steep tariffs on

  • cars if they didn't offer dairy concessions.

  • Those threats worked. Under the USMCA:

  • NAFTA's replacement, 3.59% of Canada's

  • total domestic dairy market will be comprised of imports from the US,

  • without tariffs. After that, the

  • tariffs kick in once again.

  • "We think it's a great deal, obviously US, Mexico,

  • Canadian deal, its good for agriculture. I think its

  • good for the US economy. I think President Trump, achieved

  • most if not all the objectives that we had to begin with".

  • This agreement has infuriated some Canadians, with farmers worried

  • for their future, and some consumers calling for a boycott of American

  • dairy products. For all the fanfare around the deal though,

  • some American dairy experts argue that the effects will be modest.

  • The US already had 3.25% access

  • under the TPP before they pulled out. And the difference between that and the

  • USMCA amounts to only an estimated $70 Million dollars

  • more for the American dairy industry. And besides,

  • it's unclear if

  • access to Canada's relatively small market

  • can make a dent in the US's massive milk surpluses.

  • The US has a huge dairy trade surplus with Canada,

  • which was already increasing prior to

  • USMCA negotiations. To put the

  • size of the problem in perspective; Wisconsin

  • alone produces more milk than all of Canada.

  • "I think for any country, to actually put their faith

  • in dairy exports is a panacea to,

  • you know, huge oversupply of dairy production,

  • as the Americans have done, I

  • think its a really, really rum game. I think it's a tsunami

  • washing across the US, with no home.

  • So, what are you gonna do?"

It's not a good time to be a dairy farmer in the United States.

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How Canada Helps Its Dairy Farmers (And Why Trump Hates It)

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    joey joey posted on 2021/04/20
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