The Future of the Canadian Dairy Industry by Sue May Yen AGEC 630 McGill University April 4, 2006

Research Question How will trade liberalisation between Canada and the U.S. impact the Canadian dairy industry?

Outline Quick Facts of the Canada and U.S. Dairy Industries/Programs Factors Influencing Change Trade Agreements Impacts of Freer Trade Conclusion Future Research

Quick Facts CANADA $4.6 billion revenues 16,224 producers (75.9 million hectolitres) $323.8 million dairy trade deficit 84% of domestic support U.S. $24 billion revenues 81,000 producers (77 billion kilos) ~$800 million dairy trade deficit 55% of domestic support Sources: DFC (2005), CDC (2006), AAFC (2005), USDA-ERS (2006), OTA (2006), NASS (2004)

Dairy Program Overview CANADA Tariff-Rate Quotas Price Supports Supply Management Milk Classification Pooling Agreements Export Programs U.S. Tariff-Rate Quotas Price Supports Federal Milk Marketing Orders Market Loss Payments Export Programs

Factors Influencing Change Consumer Demand Health, environment, safety concerns Technology Agribusiness Government Fiscal pressures, rent-seeking Sustainable land & resource use Trade Agreements

CUSTA (1989) Tariffs eliminated except on dairy products NAFTA (1994) No tariffs on prepared foods with dairy products Uruguay Round, GATT (1994) Tariffication (Import Quotas => Tariff-Rate Quotas) WTO-DOHA Round Product-specific spending limit FTAA Open all dairy markets beyond WTO agreements

Tariff Reduction: Challenges Decrease in producer and consumer price to keep imports at a minimum Producers lose, consumers win Canada currently has access to less % of market share in U.S. Canadian processors have worked around import barriers

Tariff Reduction: Opportunities Canadian producers are relatively efficient No evidence that U.S. producers have an advantage Access to a large U.S. market Prices paid by U.S. consumers are often higher Able to supply U.S. during shortages

Minimal Short-Term Impacts From More Relaxed Trade Dairy industries will continue to be protected Industry change reflection of consumer demand and technological innovation Policy change is driven by fiscal pressures, rent-seeking Little evidence of inability for Canadian dairy producers to compete Harmonisation of trade

Conclusion Little evidence of negative impact overall on dairy producers Trade agreements have had less direct impact than consumers and agribusiness Government support of the industry during transition Compensation Consumer confidence, safety Fostering niche market development, such as organic production

Future Research Empirical analysis of trade liberalisation, focused on organic dairy industry Investigate trade relationship with E.U. for dairy products (represents ~40% of imports)