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As the U.S., Canada and Mexico renegotiate the North American Free Trade Agreement, the dairy industry has become a major point of contention. The U.S. wants Canada to get rid of high taxes on dairy imports, but dairy farmers in Canada worry that cheaper foreign supplies could destroy their livelihoods. NewsHour Weekend’s Christopher Booker reports from both sides of the border.
The cows are a lot bigger and there are more of them, but for the most part, the work here is as it was when Neil Rejman's grandparents started this dairy farm almost 80 years ago.
Three times a day, seven days a week, 365 days a year, cows get milked at Sunnyside Farms in Scipio Center, New York.
Unlike his grandparents, Neil runs a high tech operation, the cows cycle through this giant milking merry-go-round. The milking cups are automated, and they pull themselves off when the milking is done.
But the biggest change is the amount of milk each cow produces.
In 1939 when Neil's grandparents started, the average american cow produced 12 pounds of a milk a day. Today, Neil's cows make 90.
And people are drinking that milk far beyond New York's borders – as liquid, as powder, and protein.
We belong to a cooperative and that milk gets marketed to various customers and then it gets shipped all over the country and the world.
Neil's milk is part of america's multi-billion dollar annual dairy export market – estimated at $5.4 Billion in 2017. An export explosion that started in large part with the 1994 North American Free Trade Agreement.
Prior to that, the dairy industry had been primarily focused on the domestic consumption of milk.
Former Secretary of Agriculture Tom Vilsack is the president of the U.S. Dairy Export Council.
We went into Mexico and we said, "Look, you've got a dairy industry, we have a dairy industry. Is there a way in which we can work together to increase consumption so that your producers can do well and our producers can do well?" And that's exactly what's happened in Mexico.
Last year Mexico purchased over one billion dollars worth of U.S dairy products.
In 1996, just under 4% of all us dairy was exported. Last year, it was just over 14%
U.S. PRESIDENT BILL CLINTON:
"We are ready to compete and we can win."
: NAFTA opened markets for goods and services to travel between Mexico, Canada and the United States. There were, however, exceptions. Until 2008, imports of Mexican sugar into the U.S. was restricted.
And then there is Canada's heavily protected dairy industry, which remains outside of the NAFTA agreement.
To this day, Canada imposes heavy tariffs on imported dairy products.
They have a very closed system and that's one of the problems. They have high tariffs. They have barriers that are constructed from time to time in order to preserve market opportunities for their own producers, in order to make it a little bit easier for their producers to be well-compensated for their product.
Unlike in the U.S., where the price of milk is subject to the free market, Canadian the price is negotiated before hand. The government sets the rules of the negotiation and then farmers and processors determine the price.
Not only that, a quota system, set up in 1971, known as supply management, controls the amount of milk each farmer may produce. What this all means is that while Canadian consumers pay more for their milk, Canadian dairy farmers are sheltered from the wild swings in price suffered by american farmers.
They also get a higher rate of return for the milk they produce.
In New York, Neil Rejman gets about $15 for 100 lbs of milk. A dairy farmer in Quebec gets about $23 – a farmer like Peter Strebel.
So how many cows do you have on your farm?
Milking 125 cows. Total 140, 145 cows.
Strebel's father moved from Switzerland to Quebec in 1976, purchasing the dairy farm, Peter now runs with his two sons.
Obviously the price kinda regulated to have decent income for the producer. I mean, it's only a matter of decent work for decent pay.
We just try to balance offer and demand.
Alain Bourbeau is general manager of the Quebec Dairy Farmers, the group that helps negotiate the price peter will get for his milk.
With supply management, it's helped to stabilize the domestic production and domestic consumption. What about exports?
As producers I would say that we're not looking to export markets. This policy is mainly due to domestic supply because when you produce more than you can sell, there's a spoiling situation. There's no valuation. So you waste water. You waste space, you waste land, you waste everything.
While American dairy farmers are frustrated by the lack of free access to Canada, some say the real problem is how Canadian dairy is impacting the global market.
You see, even though the Canadian dairy system is designed to produce only as much as Canada needs for itself – it does, at times produce extra. For instance, a worldwide increase in butter consumption led Canada to increase its butter quota. That led to an increase in the production of a butter byproduct, skim milk powder. Canada didn't need that extra powder for itself, so it sold it – cheap – on the world market.
The Canadians calls this a structural surplus and this it what makes it very difficult for the company that processes Neil Rejman's milk to compete.
We compete in the skim milk powder market worldwide and Canada is undercutting everyone and really driving the market lower.
Cayuga Milk Ingredients was opened in large part as an export facility. About half of the milk they process is sold outside of the United States.
If you're using a manipulated system in a free market society, you shouldn't have the ability to compete, so that's what makes me angry. It's not the loss of the U.S. sales into Canada. I'd say, good on them. But now you can't export. Keep your milk in Canada. They can do what they want inside Canada, but they can't export and dump it. They're dumping it.
It's these structural surpluses that seem to be causing the greatest amount of anxiety amongst U.S. processors.
The U.S. in the last three, four, five years, they increase a lot their production, but by doing this, they are catch with a problem of surplus and that's why they are looking to our market.
They called it dumping. Is Canada dumping its skim milk powder on the world market?
No. For sure. There's no basis for us to do that.
So Canada blames the U.S. for creating its own problem – producing way too much product – with no plan in place as to how to sell it. And the U.S. blames Canada for its high tariffs on imports and selling its surplus as exports. So, where do they go from here?
Well, as part of the NAFTA renegotiations, it's been reported that the United States has proposed that Canada "fully eliminate tarrifs on supply-managed products over 10 years."
That's the end of supply management. In ten years, they're giving us absolutely nothing in exchange. I mean, if that's supposed to be a win-win partnership, I don't get it. I don't know.
But Canadian dairy tariffs seem safe for now. In August, the Canadian representative working on the NAFTA negotiations, Chyrstia Freeland said Canada would protect its supply management system.
After November's round, Freeland seemed to reiterate her point.
While we hope for the best, we look for win-win outcomes. We also need to be very clear that we will defend our national interest – and we will and we are.
Dairy looms large in the Canadian consciousness, that's for sure.
Maryscott Freenwood is the CEO of the Canadian-American Business Council, a cross border trade association based in Washington and Ottawa that works with multi-national corporations like Coca Cola and Pfizer to navigate the ins and outs of doing business under NAFTA.
It legitimately bothers the United States. I mean, Canada doesn't have free trade in dairy. So the U.S. is looking to take down protectionist barriers when it renegotiates a deal.
Do you see a future where dairy may well be the dismantling piece of NAFTA?
Look, any one element of this negotiation could cause the whole thing to go sideways. So it could be dairy, it could be intellectual property, it could be the dispute resolution mechanisms. So does dairy have that potential? Yes, it does. Am I predicting that? No.
You can't expect us to give up 100% of our market totally tariff-free, the demands are just too high. I mean, it's unreasonable.
Strebel points out that the us also supports its farmers. The most recent farm bill in 2014, provided $489 billion in support to American agriculture.
I mean, which part of that goes to the dairy farmer. So, I mean, sure, probably U.S. tax payers should be frustrated that they're subsidizing cheap milk.
The Canadian farmers support comes through the price control system of supply management.
What would it mean for you if supply management were to end?
The big farms will get so much bigger, I mean, you're gonna lose small farms, but there's gonna be overproduction in Canada. We've seen that in Europe, we've seen that in Australia and New Zealand where supply management has been dismantled – half the farms went out of business.
Do you think it's a fair ask of the United States to go after the supply management system?
Maybe not, but Canada can't be a participant in a free market society and protect supply management. It doesn't work in the same context. You can't have your cake and eat it too.
Just how far America is willing to push Canada on the dairy issue remains to be seen. NAFTA negotiators just finished their sixth round of talks. It's anticipated negotiations will most likely continue well into 2018.
Watch the Full Episode
Christopher Booker is a correspondent and producer for PBS NewsHour Weekend covering music, culture, our changing economy and news of the cool and weird. He also teaches at Columbia University’s School of International and Public Affairs, following his work with Northwestern's Medill School of Journalism in Chicago and Doha, Qatar.
Melanie Saltzman reports, shoots and produces stories for PBS NewsHour Weekend on a wide range of issues including public health, the environment and international affairs. In 2017 she produced two stories for NewsHour’s “America Addicted” series on the opioid epidemic, traveled to the Marshall Islands to report on climate change, and went to Kenya and Tanzania to focus on solutions-based reporting. Melanie holds a BA from New York University and an MA in Journalism from Northwestern University, where she was a McCormick National Security Fellow. In 2010, she was awarded a Fulbright scholarship in Berlin, Germany.
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