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Canada concedes dairy market access in new U.S. trade deal

Economists predict that conceding dairy market access in Canada to American companies will minimally effect the U.S. dairy industry, while seriously impacting Canadian farmers.

By Jessie Higgins
Canada conceded a major sticking point in the negotiations by agreeing to open its dairy market to U.S. milk exports. Photo by Scott Bauer/Agricultural Research Service
Canada conceded a major sticking point in the negotiations by agreeing to open its dairy market to U.S. milk exports. Photo by Scott Bauer/Agricultural Research Service

EVANSVILLE, Ind., Oct. 1 (UPI) -- In a new trade deal, Canada conceded a major sticking point in the negotiations with the United States by agreeing to open its dairy market to U.S. milk exports.

Canada uses high tariffs to keep foreign milk out of its market. This enables the government to control national milk prices, and protects its small dairy farms from international competition. The U.S. dairy industry, which has no such protection, has long sought free trade. President Donald Trump took up that cause during negotiations, often tweeting that the tariffs were unfair and hurt American farmers.

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While this makes Canada's concession in the new United States-Mexico-Canada trade deal a political win for Trump, the economic impact in the United States will likely be minimal, said Andrew Novakovic, an agricultural economist with Cornell University.

"This will be fairly imperceptible to the U.S. dairy industry," Novakovic said. "You'll have some companies pick up some sales they didn't have before, and that will be a positive thing. But in terms of creating a big change in the number of exports, it's not going to be a big enough volume to create much of a ripple effect."

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On the other side of the border, it's a different story.

"The implications seem pretty serious for the Canadian dairy industry," said Al Mussel, the lead researcher for Agri-Food Economic Systems, an independent research firm based in Canada.

The agreement reached Sunday, he said, opens a little less than 4 percent of Canada's dairy market to U.S. products -- that means 4 percent of all the dairy sold in Canada may come tariff-free from the United States. It caps the amount of milk Canada is allowed export. And it eliminates a controversial -- and complicated -- Canadian program milk pricing called "Class 7."

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The Class 7 program created a special price class for certain Canadian milk products left over once the cream needed for butters and cheese was removed -- that is, milk powder, skim milk and milk protein concentrates. The price class spurred investment in processing facilities, which priced out similar milk products from other countries.

Altogether, the concessions could have major impacts on Canada's dairy industry, said Mussel, who was still digesting the complex trade agreement when he spoke with UPI on Monday morning.

"The access the U.S. has to the Canadian market will happen quite rapidly," he said. "The quota will need to be cut to accommodate that access. It could threaten some of the recent investments made in dairy processing, and I wonder if it will impact the incentive to invest in dairy processing at all."

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Canada's concessions with its milk market came among other perceived wins for the country. In the new agreement, car and truck parts made in North America may be traded between the three countries tariff-free. Trade disputes will be heard by a panel of representatives from each country. The United States had pushed to eliminate this mechanism and instead have such disputes heard in U.S. courts.

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