Explainer: Spilt milk? Why are the US and Canada fighting over dairy?

WINNIPEG, Manitoba, Feb 1 (Reuters) – The United States said on Tuesday it is seeking a second body to settle trade disputes over Canada’s dairy import quotas, accusing Canada of failing to meet commitments to open its market to American producers . The move is the latest salvo in longstanding tensions between trading partners over Canada’s protected dairy industry.

HOW DOES THE DAIRY SYSTEM WORK IN CANADA?

Canada has tightly controlled supplies of dairy, eggs and poultry since the 1970s, restricting farmers’ output and limiting imports through onerous tariffs.

Quotas limit how much farmers can produce to meet domestic demand.

Import quotas limit the amount of product that can be imported into Canada from other countries at a low duty rate.

The Canadian Dairy Commission, a government agency, sets an annual milk price that milk processors pay to farmers.

A WTO panel ruled in 2002 that Canada had violated its trade commitments by supporting dairy products and sided with the United States. The result of the WTO ruling is that Canada is not allowed to export much milk.

WHY IS THE UNITED STATES EXCITING?

US milk processors want to increase sales to Canada, but high tariffs stand in the way.

The US Trade Representative’s Office alleges that Canada is taking an unfair approach in setting quota allocations under the US-Mexico-Canada trade deal, effectively banning some market participants such as Canadian retailers and food service providers from using the allocations.

Canada’s Trade Minister Mary Ng said she was disappointed with the US move and would resist her attempts to “renegotiate” during the settlement process.

WHAT IS THE VALUE OF CANADA’S DAIRY SECTOR?

Farm dairy sales in Canada are CA$7.39 billion (US$5.54 billion) per year. According to government figures for 2021, shipments of processed dairy products are worth CA$16.2 billion.

WHY DOES CANADA WANT TO KEEP THE SYSTEM?

All major political parties say they support supply management because it stabilizes dairy farmers’ incomes.

Producers in other countries have suffered from volatile price swings.

Canada’s 9,739 dairy farmers form one of the country’s most influential lobbies. Most farms in Quebec and Ontario, the Canadian provinces with the most seats in parliament.

WHAT ARE OTHERS SAYING?

Other milk-producing countries like New Zealand say Canada’s controls are an unfair way to protect Canadian industry.

Inside Canada, some groups say supply management is preventing the country from becoming a milk-exporting power like it has been with grains and meat. They argue that severely restricting imports will result in higher Canadian food prices.

($1 = 1.3343 Canadian Dollars)

Reporting by Rod Nickel in Winnipeg, editing by Deepa Babington

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