Inclusion in the TPP May Come at a Cost for Canada


Contributors: Ed Farrell, Jerry Chapin

As President Obama signed Trade Promotion Authority into law he removed a major stumbling block to completion of the Trans-Pacific Partnership (TPP) trade negotiation when chief negotiators, and then Ministers, meet in Maui July 24-31.  However, a sticking point for many of the countries in the negotiation may be Canada’s reluctance to nix their protectionist supply management system for dairy and poultry.

With respect to dairy, the system dates back seventy years to when Canada faced significant surpluses following World War II, as the strong profits realized by Canadian dairy farmers from their trade with the U.K during the war evaporated with the normalization of trade within Europe after the war. In an attempt to align production with demand, Canada adopted a system that established floor prices for certain dairy products, which in turn supported on-farm milk prices. In further pursuit of price stabilization, the government established a supply control system that targeted specific dairy products.  These policies eventually gave way to Canada’s current supply management system.  While this system has propped up Canada’s milk producers, it could now exclude Canada from the largest trade deal since NAFTA.

The Canadian system is best understood as comprised of three parts: Price setting, control of supply, and protection from foreign competition. Prices are set by the Canadian Dairy Commission and ultimately result in significant income for dairy farmers. To avoid overproduction, farmers are allotted a production quota, which is a transferable asset currently valued at about $28,000.00 per dairy cow. Thus, an average Canadian dairy farm of around 70 cows has about $2,000,000 worth of quota. The final component to Canada’s supply management system is protection from foreign competition, which brings us to the TPP.

Canada’s ability to regulate their market is dependent on keeping competitively priced imports out, and to this end Canada has very restrictive tariff rate quotas on dairy products, with over quota tariffs ranging from 246% for cheese to 300% for butter. The result of these supply management policies is that Canadians are currently paying just over C$7.87 for a gallon of milk, or nearly twice as much as the average U.S. consumer.

There is no question that as negotiators meet in Maui, all eyes will be on Canada, which is under pressure to open their dairy market to imports from TPP countries such as Japan, Australia and New Zealand, as well as the U.S. Some believe this pressure will be enough to bring the nation out of its protectionist mind set. However, Canada has long stood behind their supply management program and is not showing much indication that they plan on bending to foreign pressure, regardless of whether the pressure is coming from powerhouse neighbors such as the U.S. or allies half way around the world. As recently as last month, a spokesman for Canadian Trade Minister Ed Fast said Canada would defend dairy supply management in its negotiations.

Faced with elections in October, will the Harper administration de-regulate the dairy and poultry industry as they did their wheat industry in 2011, or will they hold firm in support of their unique and dated regulatory system? And if they hold firm on dairy and poultry, will the US and others take a hard line and exclude Canada altogether? Or will some middle ground be found? Whether preserving Canada’s regulatory system for dairy and poultry is worth losing inclusion in the TPP — a deal that will ultimately benefit Canada in a wide range of sectors — may ultimately be a decision the Harper administration has to make.

Trade is Critical to Rural America; Agriculture is Key to TPA

By Marshall L. Matz and former USDA Secretary John R. Block

Trade policy may present an opportunity for the Obama Administration and the Congress to work together in a bipartisan manner but it is sure not unanimous.   While Agriculture Secretary Vilsack and U.S. Trade Representative’s Chief Agriculture Negotiator Darci Vetter are making the case for Trade Promotion Authority (TPA), Senator Ron Wyden, the Senior Democrat on the Senate Finance Committee, is arguing for more negotiating transparency to be required by TPA before signing on.  In addition, while there is very strong support for TPA in the agriculture community, it is not unanimous.

TPA is a critical tool in the effort to complete the 12-country Trans-Pacific Partnership (TPP), and down the road the European Union Transatlantic Trade and Investment Partnership (TTIP) negotiations.  These trade agreements support U.S. jobs while helping American agriculture compete more successfully in the global marketplace. TPA will help ensure that America’s farmers, ranchers, and food processors receive the greatest benefit from the TPP, TTIP, and future trade negotiations.

These agreements could have an important economic impact on specific commodities and American agriculture more generally.  Secretary Tom Vilsack recently spoke out on the importance of trade to agriculture:

“It is no surprise that agricultural producers are joining the chorus of voices calling on Congress to renew Trade Promotion Authority. The past six years were the strongest period for agricultural exports in the history of our nation, despite the fact that many other countries’ markets are not as open to American products as our markets are to theirs. New trade agreements that help level the playing field for agriculture will build on the success we’ve seen in the agricultural economy since 2009 and help producers create more new jobs across the country. What makes the agricultural economy stronger makes our entire nation’s economy stronger. It is imperative that Congress act on Trade Promotion Authority early this year.”

Fiscal years 2009 to 2014 represented the strongest six years in history for U.S. agricultural trade, with U.S. agricultural product exports totaling $771.7 billion. Agricultural exports last fiscal year reached $152.5 billion, the highest level on record and supported nearly one million jobs here at home, a substantial part of the nearly 11.3 million jobs supported by exports all across our country.

USTR’s Office of Agricultural Affairs has overall responsibility for U.S. government trade negotiations and policy development and coordination regarding agriculture.  Darci Vetter and other USTR officials, works closely with relevant U.S. government agencies, particularly USDA, as appropriate.

In a recent letter to Congress a broad range of groups outlined the benefits of trade as follows:

“As a result of trade agreements implemented since 1989, when the U.S. began using bilateral and regional trade agreements to open foreign markets to our goods, U.S. agricultural exports have nearly quadrupled in value and now stand at a record $152.5 billion (fiscal 2014).  During that period, earnings from U.S. agricultural exports as a share of cash receipts to farmers have grown from 22 percent to over 35 percent.

“These farm and food exports have a positive multiplier effect throughout the U.S. economy.  Every $1 in U.S. farm exports is estimated to stimulate an additional $1.27 in business activity.  Off-farm activities and services include purchases by farmers of fuel, fertilizer, seed and other inputs as well as post-production processing, packaging, storing, transporting and marketing the products we ship overseas.  Exports of $152.5 billion in fiscal 2014 therefore generated another $194 billion in economic activity in the U.S., bringing the total benefit to the economy to $347 billion.”

The chart below shows the percentage of production that was exported, by commodity, in the most recent year for which there are numbers:

Commodity Percent
Wheat 50%
Corn 11%
Soybeans 62%
Beef 14%
Pork 26.5%
Diary 15.4%

In short:

1. Exports are critical to the agriculture economy; and

2. Agriculture’s political power may be the key to passage of TPA and the trade agreements being negotiated.

While only one percent (1%) of all Americans farm and the conventional wisdom is that agriculture has lost power, production agriculture still has an important role to play in making the case for expanded trade and TPA, as the farm economy has a major impact on all those who live in rural America.  From farm implement dealers to car dealers to rural bankers and the local coffee shops, what is good for farmers is good for rural America.

TPA gives us an opportunity to put economics before politics.  The farm groups who have signed the TPA letter to Congress are well positioned to make the case for expanded trade with both Democrats and Republicans bridging the urban-rural divide in America.

Marshall Matz specializes in agriculture policy at OFW Law.  He was formerly (Democratic) Counsel to the Senate Committee on Agriculture, Nutrition and Forestry.  John R. Block was Secretary of Agriculture under President Reagan.