SpotlightMay2017

tariff free. It is used to make products that have minimum milk content reg- ulations like cheese. Under compo- sitional standards for Canada, it is required that a minimum percentage of the protein used in cheese making be sourced from milk. Processors can use milk protein substances, such as diafiltered milk, to achieve their required minimum percentage of ‘milk’ versus listing it as an ingredient. Canadian farmers disapproved of this practice. Their argument is you cannot call it an ingredient to get it across the border tariff free thencall itmilk tomeet your minimum standards for products like cheese. The farmers demanded that the Canadian government do something to enforce the rules already in place. According to their associa- tion, this was causing revenue losses estimated at $231 million per year for Canadian dairy farmers. Maurice Doyon, a professor of rural and agricultural economics at Laval University said at the time “It’;s a classic case of the right hand of the government doing one thing, and the left hand doing another. It’s two different government agencies making decisions about the same product. So the farmers are saying, “make it one or the other.” The gov- ernment made the ruling and now the us farmers are extremely angry, and Trump is listening. “We’re also going to stand up for our dairy farmers’ Trump said in Kenosha, Wisconsin “Because in Canada some very unfair things have happened to our dairy farmers and others.” He added “It’s another typical one-sided deal against the United States and it’s not going to be hap- pening for long,” Prime Minister Trudeau vowed to support our dairy farmers saying “The way to do that is to make argu- ments in a respectful fashion, based on facts, and work constructively and collaboratively with our neighbors.”

The next pillar of the system is production discipline which is where the quota aspect of dairy operations become important. Every farmer that wishes to sell milk must have a quota to fill in order to get the product to market. This helps avoid overproduction and ensures price stability for farmers. Quota is a com- modity of sorts that is regulated by the government. It can be adjusted from time to time to ensure the milk quantity is held at a level where supply and demand intersect at a price point that makes producers, dairies, and retailers profitable. Milk quota is a very unique system in that quota is bought and sold between farmers and also temporarily leased or loaned. Farmers are held to a strict production quantity with quota. Going over that amount is essentially producing milk for free. Not producing your full quota can also cost a farmer financially in terms of penalties. This is why farmers strictly monitor their monthly output and borrow, lease, or buy milk quota to avoid these costs. Milk quota is a very unique system in that quota is bought and sold between farmers and also temporarily leased or loaned. The third, and by far most controversial pillar, are the import controls placed on foreign milk entering Canada. Predominantly that milk Is sold in bulk to Canadian manufacturers. The imports are controlled by tariffs. Each month our system allows milk to enter Canada tariff free. After a pre- determined level has entered, tariffs are placed on the milk imports to make it far more expen- sive than purchasing domestic product. There are loopholes for by-products from milk that can come in tariff free for making other products. It is this defi- nition that has the Trump administration screaming. Trump’s argument is simple. In fact, it isn’t new. Former President Barrack Obama made the same comments to Justin Trudeau during their meeting at the White House in 2016. Obama chose the softer more subtle way to state the case about what he felt were unfair trade practices. He also used a second visit to Ottawa to revisit the topic of new tariffs. The former US ambassador to Canada said the Obama and Trump White Houses are “indistinguishable” on the issue of Canadian dairy policy. Obama was diplomatic. Trump used his usually brash, loud and bold manner to drive home the same message but wanted the world to hear it. The US, regard- less of party, finds the Canadian dairy system protectionist and wants changes under NAFTA. It was no coincidence that Trump used Wisconcin as the base for his poorly received comments, a warning shot fired across the bow of dairy farmers coast to coast in Canada. New York’s Chuck Schumer, the Democrats’ leader in the Senate, and Wisconsin’s Paul Ryan, the Republican House Speaker are both from US dairy states and strong advocates for change. At the heart of the matter is a process few have heard of. The diafiltration of milk. A process used to spike the protein content of milk. For most milk products the process of ultrafiltration is the end point. Although because the milk protein concentrate is so thick after undergoing ultrafiltration, it has to be filtered a second time to dilute it to achieve a desired level of protein. This is known as diafiltration.

Dialfiltered milk was being imported into Canada as an ‘ingredient’ and thus

The whole dispute has opened a can

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SPOTLIGHT ON BUSINESS MAGAZINE • MAY 2017

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