Canada and the TPP

By Eric Crampton 28/09/2015

Canada, you make me sad.

Late last week, the Liberals said they won’t support any TPP deal that makes concessions on supply management in dairy. This is no longer the party of Martha Hall Findlay, who was about the lone voice of sanity on Canadian dairy. Here’s how the Liberals’ ag critic is now pitching it:

“If they (the Conservatives) have opened the borders to the United States milk in here, we are not going to be supporting this deal,” Eyking said in a interview. “Our position (is) that it [supply management] should not be on the table. Period.”
“Any agreements that we worked on before as Liberals, supply management was never on the table,” Eyking added. “So, our position is, if the Americans are even pitching this, they must be talking. So who else is pitching it? New Zealand has a a glut of milk … the world has a glut of milk.
“They’re all over-producing. We’re not overproducing. They’re all over-producing and they want to dump it here.”

There are nasty Canadian dairy political realities.

Several protests have already happened in Quebec, including one in Montreal this week attended by some 1,500 farmers from Quebec, Ontario and the Maritimes.
In August, 1,000 farmers protested outside Conservative cabinet minister Maxime Bernier’s office in la Beauce. Bernier is the Minister of State for small business, tourism and agriculture. Beauce is also home to one of the highest concentration of dairy farms in Canada.
Bernier, Fast and Agriculture Minister Gerry Ritz have stated that the federal government, and TPP negotiators, will protect the ‘three pillars’ of supply management — price, import control and production management — at the negotiating table.

Why do Canadian dairy farmers fight it?

“It makes me hot,” dairy farmer Ron Churchill said Friday during a farm visit. Churchill is the manager for Rocky Mountain Holsteins, which specializes in dairy genomics. “I hope it [TPP] doesn’t go through.”
If supply management is dismantled, or concessions are made, he said, it will be a “free for all” in Canada’s dairy sector.
While Churchill said his farm’s revenue come primarily from exports and sales of dairy genetics, he still milks 30 cows. His quota, he said, is worth $1 million, while his cows are some of the most expensive in the country. He recently sold a cow to a B.C. buyer for $197,000.

Emphasis added. If a trade deal threatened to wipe out a million dollar regulatory asset you owned, you’d fight it too. Just like the mafia didn’t want the end of prohibition.

Canada could have avoided this. Set TPP as a reason for buying out the farmers’ quota at a price matching what quota was running a couple months’ prior to the deal. Put a tax on dairy product a bit shy of the quota rents embodied in current Canadian dairy products, and have it apply across the board for imported and domestic goods. Retire the tax when the bonds used to cover the dairy buy-out are paid off. Not wiping out the retirement savings of a bunch of politically attractive dairy farmers could make things a bit easier.

Meanwhile, here’s how one Canadian source is characterising the negotiations:

Frictions over agriculture have been overshadowed by autos since Maui, but still bubbling below the surface.
Battered and bruised Kiwi Trade Minister Tim Groser is not at all optimistic about the prospects for success. Could we see New Zealand walk because there are no net benefits? I would normally say no – New Zealand too understands the importance of being inside the tent. But this is a no net benefits deal for New Zealand which is being asked to take on very unpopular obligations.New Zealand is between a rock and a hard place – capacity was built to benefit from Kiwi free trade with China – and it worked for a while, but even China says enough is enough from their largest dairy supplier.
New Zealand is all about dairy. It has done well by its specialization – but it is in a position much like a company which has relied on a single customer – or product. Minister Groser will dig in his heels in Atlanta – he has no choice. Groser is facing the realities of negotiating for a small market. He needs to be bought off. At the end of the day, New Zealand is in a position similar to Canada. It cannot stay outside the tent. It is not going to get what it wants, so it must hope that it wants what it gets. Disappointment seems inevitable.

I’m really pretty sure that New Zealand would be pushing for free trade in agriculture regardless of current market conditions. New Zealand supports free trade.

The piece does note a few other ag problems – American dairy is far from free, as are Japanese rice markets.

And remember how I figured that TPP access to North American markets could prove illusory?

Fonterra, an effective monopsony – enjoying a degree of buying power which could not exist under competition rules in the US, EU or Canada – has cut its payments to Kiwi dairy farmers from $8.40/kg milk solids in 2014 to a current $3.75. Fonterra is practicing its own form of supply management, holding back supply to try to increase prices. [EC note: this has increased to $4.60]
Fonterra is being criticized by its farmer members for mismanagement. NZ dairy farmers call it a failed experiment. The TPP is seen as a way to keep NZ dairy farmers from going out of business.

Fonterra is a big part of the New Zealand market, but there are alternatives and no particular regulatory barriers to anybody who thinks they can do a better job. Farmers can switch over to Synlait, or Tatua, or Westland, or small local plants like Miraka or Oceania. It’s amazing that folks in a country where it is illegal to milk a cow and sell the product without a quota permit and where they get mad if you call it a cartel can claim with straight face that Fonterra’s a monopsonist.

Expect more of such talk to set a public case for using antitrust action as trade barrier against New Zealand dairy product if we get a trade deal..