Once the dust has settled on the ratifications of the Canada-United States-Mexico trade agreement (CUSMA), access to U.S. markets for certain Canadian dairy ingredients could meet or even exceed what previously existed.
At least that was the assertion made by Al Mussell, research lead at Guelph-based Agri-Food Economic Systems, during a recent dairy producer information session hosted by Wallenstein Feed and Supply.
Why it matters: Under a system that pays different rates for different components of milk, Canadian dairy farmers can see drops in their overall “blend” price if their marketing boards end up with surpluses of certain components.
Mussell stressed during the event that the current dairy trade regime, including the presence of Class 7 milk, which placed lower-value milk ingredients into the U.S. markets at world prices, will remain in force until six months after CUSMA is ratified.
Mussell said in an interview following his presentation that the most optimistic view of when full ratification will happen is at the end of 2019, and he suggested a more realistic timeline might be February 2020.
Until full ratification happens, many behind-the-scenes adjustments will continue to be made. As just one example of what could lead to alterations in the current text, Mussell cited a requirement under U.S. law for the nation’s International Trade Commission to study and report on the deal’s implications.
“In some ways, we’re left with more questions than we had as we went into the negotiations,” he said.
Mussell aimed to ease concerns about what has been viewed in the dairy sector as an opening of access for American products into Canada. He said the concessions, with one exception, are largely the same as what would have been granted to the U.S. if it had remained in what was then referred to as the Trans-Pacific Partnership (now renamed CPTPP, minus U.S. participation). That exception is what he referred to as “a big allowance in CUSMA for bulk cream.”
Mussell said he believes this was intentional on the part of Canadian negotiators. Canada’s domestic marketplace has been plagued over the past several years with a surplus of non-fat components including solids-not-fat and especially skim milk. Repercussions of this surplus — leading up to the creation of Class 7, which eased the surplus — included more milk sold into lower-price classes destined for animal feed, milk dumped, and a reluctance among processors to invest in processing facilities for certain classes of milk.
Managing non-fat surpluses
With Class 7 on the way out, the prospect of a return to non-fat surpluses loomed, and one possible way to ease that would be to balance the volume by bringing in butterfat. So, he argued, “it’s really in our own interest to allow the densest butterfat products to come in.”
In addition, Mussell said, a separate section of the deal allows for what he called “non-subsidized exports” in two or perhaps more of the milk components covered in the Class 7 strategy.
Pending any yet-to-be-finalized reviews on the U.S. side, there is the potential for some Canadian skim milk powder and milk protein concentrates to continue trading at world prices. And there may be additional allowances under a new category aimed at components used in infant formula.
“We don’t know yet how much it will be but, clearly, we’re going to be allowed in excess of the (World Trade Organization) limits,” Mussell said.
Mussell told audience members that CUSMA’s dairy provisions are so fluid that what he says today might not hold true tomorrow. He added that farmers shouldn’t be too hopeful that an era of international trade-related disruptions would come to a close once CUSMA is ratified.
“I don’t think it’s going to work that way,” he warned, adding that 2021 marks the coming into force of the WTO’s Nairobi Declaration.
“That’s an agreement that bans subsidized imports… (and) that will put a lot of pressure on marketing boards to look at the way we manage milk supply.”