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The Facts: The Canadian Dairy Industry vs the American Dairy Industry– Why Canada imposes 270% Tariffs on US Milk Imports

2018-06-11

First, the Canadian and American dairy industries are fundamentally different.

Canadian diary farmers average 80 cows, and are usually multigenerational– small and yet still functioning profitably.  They receive higher, standardized prices for their milk than do small farmers in the US.

Small American dairy farmers are going bankrupt and committing suicide.  Why?  They cannot make a profit on milk that costs $3.50 a gallon at the supermarket (about the same price as a gallon of gas).  Wholesale “plants must pay minimum prices for milk used for beverage, or Class I, usage. For most of the markets in the 52-city Nielsen report, these are minimum prices set by the Federal Milk Marketing Order (FMMO) or by the CDFA in California.”  (Progressive Dairyman, “How much does the farmer get when a consumer buys milk?” 18 November 2011)  Unfortunately, those minimum prices are below the cost of production for small dairy farmers.  Large dairy producers in the US, on the other hand, are deliberately overproducing milk to get extra subsidies from the federal government.

The US government subsidizes dairy farmers routinely– one estimate was $20 billion in payments for 2015.  Most of these payments go to larger dairy producers, despite attempts to cap subsidies.  The small dairy farmer, on the other hand, is being squeezed out by low prices and overproduction by larger competitors.

America’s dairy crisis is a classic example of an unregulated market in which supply outstrips demand because the constituent parties are all over producing in hopes of thereby acquiring a greater share of the market.

–commenter on Guardian story about “Why Canadian milk infuriates Donald Trump”

… a subsidy is a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low in order to ensure competitiveness, while supply management comes in the form of granting or paying a guaranteed price for a product or service in order to maintain a certain level of income.
as the article clearly mentioned, US farmers are subsidised, while canadian farmers have supply management – no prize for guessing which system works better . . . .

–another commenter on same article

US dairy producers are not suffering because of Canadian dairy farmers but the government’s inability to control the supply within the country via the supply system that is working in Canada. Were Canadians to relax the 270% tariff it would simply destroy their own dairy producers with a flood of American overproduction. And being the comparatively smallish market that we are, it will not save US dairy producers anyways. They would still receive pennies. Sounds like a lose-lose to me.

–a third commenter

“In a competitive market where there is no differentiation between finished product, the demand to cut costs at every level from the store to the farm is intense. There is no way to obtain any added value.”  (The same Progressive Dairyman article cited above)

The bottom line is that Canada exports more milk products from the US than the US receives from Canada, and overall there is a net surplus for the US in trade, when you count both goods and services, with Canada.  The entire value of the US milk trade with Canada: $600 million.

So why is Donald J. Trump so indignant?  Because of a number, one that protects the Canadian system from the American system.  The Canadian system is well-regulated, the American system is not.  Under the American system, overproduction is actually encouraged and nearly 100 million gallons was dumped last year.  The price of milk continues to be less than the cost of production.

Most importantly, Canada doesn’t dump milk in the US at below the cost of production, which is what would happen in  Canada if it were not for the enormous tariff of 270%.  Despite the tariff, Canada still imports 10% of its milk, while US imports are limited by law to 3% of production.   The US produced 215,400 million gallons of milk in 2017, at an average retail price of $3.29 a gallon– $708,000 million or $708 billion in retail cost to the American taxpayer.

As usual with Trump’s outrageous speech, the true story is very different when you look at all the circumstances.  Free trade in general is a good thing, but in some cases, the government can reserve the right to protect industries that are threatened by overproduction in other countries.  The trade treaties that have been negotiated contain numerous details that involve long and difficult efforts to resolve problems and dispute that go back centuries in some cases.  To suddenly declare patiently negotiated treaties “unfair” because of details that don’t look right to people not in possession of all the facts is to disrupt the rules that have been laid down by people who have worked hard to codify them.

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