U.S. trains trade guns on dairy exporters
U.S. trade guns are targetting exporters but for now the Canadian Dairy Commission (CDC) isn't in the front row, Rick Phillips, policy analyst, Dairy Farmers of Canada.Along with Canada, and, ironically, the United States, the U.S. Congressional General Accounting Office has cited 12 other countries that use state trading organizations:
Australia, New Zealand, Cyprus, the Czech Republic, India, Japan, New Zealand, Poland, Slovak Republic, South Africa, Spain, and Switzerland.State trading organizations are government, or government-supervised organizations that export agricultural products into world markets. First on the American list of targets are the New Zealand Dairy Board and the Canadian Wheat Board.
While state trade organizations are recognized as legitimate under GATT, Phillips says, trading countries are concerned that government agencies could protect domestic producers to the detriment of foreign producers. NAFTA prohibits government entities from exporting at prices below the cost of production to prevent subsidization by governments. Still, there are concerns where government agencies buy products and export them onto world markets.
NAFTA allows for state trading monopolies, as long as they operate on the same principles as private businesses. "The definition is open to interpretation." As far as the CDC is concerned, "it's fuzzy," Phillips said.
A key concern is that state trading authorities permit cross-subsidization between domestic and foreign markets. For example, the U.S. complains that the New Zealand Dairy Board uses high profits from sales to the U.S. to subsidize sales of its products into other markets. "That's how the U.S. justifies its use of the DEIP" (Dairy Export Incentive Program) in Southeast Asia, New Zealand's traditional marketing turf, Phillips says, pointing out that the Americans use DIEPs to trade in CDC markets as well.
New Zealand trade officials, in an attempt to ease concerns about its dairy board, said publicly that the board might break up into two or three domestic and export co-operatives. At the same time, the National Milk Producers Federation in the U.S. has suggested forming a common marketing agency to do what the New Zealand board is doing now.
The Canadian Wheat Board has been accused of benefiting from subsidies when the government covers its periodic operational deficits. Similarly the Australian wheat board offers a government guarantee on its payments to producers, favourable interest rates, and an authority to collect additional funds from producers for investments.
Peter Oosterhoff, Beamsville dairy farmer and past-president of the Dairy Farmers of Canada, said the U.S. may side with the European Union on two-tier pricing. Canada might face a strong challenge on its two-price system for dairy products. "It is complicated. There are a lot of factors out there that will determine where it will go."
Meanwhile, Phillips said, it's not likely agriculture will take centre stage at the next round of trade talks. Developing countries say there are more important issues at hand. Japan and Korea's objections "verge on open hostility," likely overriding the enthusiasm from Australia and New Zealand, Phillips said.
The Cairns Group of free-trading nations, which count Australia and New Zealand among their number, want to get rid of export subsidies, and domestic instruments that prevent imports, such as Canada's tariff protections.
Many countries are having a hard time measuring up to the commitments made in the last round of trade talks, let alone take on new commitments, Phillips said. An interprovincial milk pool negotiated by Canada's six eastern provinces was the right step to keep Canadian dairy industries within the lines of the current trade rules, he said.
In the U.S., "it's clear that dairy and sugar have captured the imagination of the academics. Whether they can put it on the political agenda remains to be seen.
"It's fair to say that we will re-fight old battles."
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Dairymen go beyond the board
By DON STONEMAN
No farmer is going to ship milk outside of the provincial board, says Dairy Farmers of Ontario (DFO) chairman John Core. A group of Ontario farmers want to see about that. They've taken it to Mike Harris's Red Tape Commission.But the commission's chairman has passed the issue of shipping milk outside the marketing board off to provincial Minister of Agriculture Noble Villeneuve.
Red Tape Commission chairman and Lincoln MPP Frank Sheehan says the issue was brought to his attention too late to be dealt with as he tries to write a report before his mandate runs out at year's end.
His executive assistant, Michael Ras, says "it's a global issue. It's big."
Meanwhile, Ian Ferguson, president of the industrial division of Ault Foods, Ontario's largest processor, wants more milk. He has written Villeneuve asking him "to speed this along." Bruce McTavish, Crysler, and three other farmers want to ship milk directly to Ault Foods, Canada's largest dairy processor, outside of the quota system and strictly for export. McTavish says the DFO minimum quota holding rule prevents him from shipping milk strictly for export as he had planned to do last summer.
Last month, McTavish and three disgruntled dairy producers took their complaints to Sheehan's commission.
"All we want is a run at the export market," says McTavish. "We wouldn't want producers to mix the two markets," he says. "You should either be in one system or the other. You can't have it both ways."
Ferguson says a group of farmers in southwestern Ontario approached Ault and asked if it would be interested in buying their milk directly. "Yes, we would be, we just want the milk."
He says Ault wants 100 million litres of additional milk to meet export needs, but can't get it. The DFO board planned to discuss the optional export issue at its mid-November meeting earlier this month.
"Discussions go on almost endlessly," Ferguson told Farm & Country. "It is strictly a bureaucratic, monopolistic agency which is creating the problem," he says. "We aren't happy with that, but we aren't attacking it either." Ault isn't interested in "just duking it out on commodity prices around the world," he says. Ault has developed some new technology which it wants to use to make products to be sold around the globe.
DFO's Core points out that Ault's request for 100 million litres of milk is enormous, equal to five per cent of the quota in the province, and disagrees strongly with Ferguson on the prices that were being discussed for export milk. He says the price discussed was $27 per hl., which for most producers "barely covers cash costs," which average between $27 and $30 across the province, according to producer surveys.
Core says small niche, value-added markets were in mind when the optional export program was developed, with milk selling at a price of 35 to 43 cents per litre.
Optional export contracts "were never intended to be markets of disposal." But Core says the Ault representative at the meeting made it clear that Ault was aiming at world price markets.
Core says DFO asked if "these prices will see increases over time and they [Ault] said 'no.' That was the message clearly from the representatives from Ault's. It was for a commodity-type item."
Sue Gillespie, marketing analyst for the Ontario Farm Products Marketing Commission, which oversees marketing boards, says DFO has the authority under the Milk Act to require that all milk be sold through it. The regulations are administered by the commission. "To take the authority away from [DFO], the commission would have to change a regulation." By the same token "DFO has the power and can choose to use it or not." "It is in the board's hands at this point in time," Gillespie says.
Core agrees, but points out that under the Canadian Dairy Commission Act, milk must be sold through a provincial marketing board. Producers in British Columbia and Alberta who have been marketing outside that act are being dealt with through the courts.
Core says the DFO board is against giving export contracts to individual producers who aren't operating within the system. Export contracts must be made through the board by licensed producers.
But that system is fraught with danger, he says. Processors are demanding that the milk must be "the first out of the tank" so that their commitments will be met.
If a feed or a weather crisis causes a short supply "we would have to decide if we want to continue to honour those contracts when the domestic market is crying for milk....It creates problems."
DFO opposes a direct contract between producers and a processor. A number of questions about the proposal remain unanswered, Core says.
"How do you know [milk] is strictly for export? Once you start making exceptions, how do you track the milk?
"Supply management works because everyone knows what the rules are," he says. DFO know how much milk is shipped because "we transport it to processors."
Core says "anyone who wants to produce milk for the world market can" through the DFO. But transportation, promotion and administration costs will be taken off.
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Producers hold noses and jump in the pool
County dairy producer representatives have put aside their grumbling and have stood behind their leaders during the negotiation of the multi-province milk pool, even though some feel it will cost them money and perhaps even a share of their provincial dairy market.Dairy Farmers of Ontario (DFO) chairman John Core and the pooling agreement he negotiated came under sharp criticism from producers at the Geneva Park policy setting conference near Orillia last month. But when hands were counted, there was full support for the agreement.
The larger pool has been deemed critical to fending off future trade challenges from the U.S. While the pool still isn't universal, with three western provinces refusing to give up their autonomy, the six provinces who do take part produce 80 per cent of the nation's milk "so it is better than no pool," Core said. "If we had not come to a solution and there was a trade challenge, we might have lost all of the ability to operate a two-price system."
The latest calculations by staff economists estimate that Ontario's producers will lose revenue of 23 cents per hl and another 20 cents because of the way Ontario set its prices during the harmonization of classes. It will be offset by $10 million in compensation and 282,000 kg in quota.
Ontario has 47.8 per cent of the market in the six-province pool, now known as P6.
DFO will decide how to disperse the money to producers, Core said. Quota had already been distributed last month as part of a two-per-cent increase.
Now the price gap with western provinces is of prime importance, Core said. Producers there get less for their milk, and western processors are perceived to have an advantage in cheese production.
Ontario isn't the only province making compromises, he said. Every province had at least one class where there was a major price increase. Quebec plans to phase in major price increases in two classes over six months.
Quebec and Ontario cheese prices are similar, Core said, bringing an end to some long-held myths. For years, it was never clear which province's processors paid the higher price for milk to make cheese. When prices were compared during the P6 negotiations, Quebec and Ontario milk prices were found to be virtually the same and, until recently, Quebec processors paid slightly more than Ontario cheese makers for milk.
The estimated average component prices for the coming year are $5.19 for butterfat, $8.26 for protein and $1.19 for other solids.
When the next federal subsidy cheque arrives in mailboxes Ontario dairy farmers likely won't even notice that it has been cut. That's because of the larger pool. Quebec's subsidy cheque will go down, on the other hand, because of less income from industrial milk.
The issue of the interprovincial quota exchange remained a sore point for Ontario producers. Core faced a barrage of questions and was told that Quebec farmers are willing to pay more for quota than in Ontario, and there were strong fears that Ontario's industry will migrate to Quebec.
"You have good points," he told one producer. "You are right, you have to watch it." But he pointed out that a few years ago the milk board took a hard look at provincial programs in Quebec. "One of our economists found a slight difference in programs in place then. But in the grand scheme of things, they weren't significant enough to have much impact on quota prices."
Transfer assessments are another sore point. Nova Scotia has no assessment on quota transfers. Quebec is still at 10 per cent. In Ontario, 15 per cent of any quota transferred to a non-family member reverts to the board. The assessment serves to prevent profiteering on the right to produce milk by speculators.
Peter Van Sleeuman, Lancaster, chairman of the Glengarry dairy producer committee, said "Quebec likes to do things their own way."
Without this agreement, he thinks that eastern Ontario's dairy belt "could be a threat" to the smaller Quebec market less than an hour away in Montreal.
Quebec producers won by signing this agreement, he said. "Quebec comes out of this with a price increase. They are also averting a price war."
"We have created a win-win situation with Quebec," Core said. "If there was a price war, Quebec producers would have lost. Ontario producers would have lost. Processors would have kept their margins."
Van Sleeuman is convinced that the Ontario industry will lose $10 million a year through erosion of the market place because quota will move to Quebec.
Core said concerns about losing quota to Quebec will prove to be groundless. "My sense is that the quota exchange will sort itself out. We have created as level a playing field as we can."
Graham Hunt, Stormont county, is also bitter about the advantage he thinks Quebec now has with the system. "It's blatantly obvious what Quebec wants out of this, more quota and more access to the Canadian market."
He took Core to task for telling farmers they have been paying too much for quota, and then opening it up Ontario's exchange to more aggressive bidding in Quebec. - DS