The Future of the Canadian Dairy Industry

bySue May Yen

AGEC 630McGill UniversityApril 4, 2006

Research Question

How will trade liberalisation between Canada and the U.S. impact the Canadian dairy industry?

Outline

Quick Facts of the Canada and U.S. Dairy Industries/Programs

Factors Influencing Change Trade Agreements Impacts of Freer Trade Conclusion Future Research

Quick Facts

CANADA $4.6 billion revenues 16,224 producers

(75.9 million hectolitres)

$323.8 million dairy trade deficit

84% of domestic support

U.S. $24 billion revenues 81,000 producers

(77 billion kilos) ~$800 million dairy

trade deficit 55% of domestic

support

Sources: DFC (2005), CDC (2006), AAFC (2005), USDA-ERS (2006), OTA (2006), NASS (2004)

Dairy Program Overview

CANADA

Tariff-Rate Quotas Price Supports Supply

Management Milk Classification Pooling

Agreements Export Programs

U.S.

Tariff-Rate Quotas Price Supports Federal Milk

Marketing Orders Market Loss

Payments Export Programs

Factors Influencing Change Consumer Demand

Health, environment, safety concerns

Technology Agribusiness Government

Fiscal pressures, rent-seekingSustainable land & resource use

Trade Agreements

Trade Agreements

CUSTA (1989) Tariffs eliminated except on dairy products

NAFTA (1994) No tariffs on prepared foods with dairy products

Uruguay Round, GATT (1994) Tariffication (Import Quotas => Tariff-Rate

Quotas) WTO-DOHA Round

Product-specific spending limit FTAA

Open all dairy markets beyond WTO agreements

Tariff Reduction: Challenges Decrease in producer and

consumer price to keep imports at a minimum Producers lose, consumers win

Canada currently has access to less % of market share in U.S. Canadian processors have

worked around import barriers

Tariff Reduction: Opportunities Canadian producers are relatively

efficientNo evidence that U.S. producers

have an advantage Access to a large U.S. market

Prices paid by U.S. consumers are often higher

Able to supply U.S. during shortages

Minimal Short-Term Impacts From More Relaxed Trade Dairy industries will continue to be

protected Industry change reflection of consumer

demand and technological innovation Policy change is driven by fiscal

pressures, rent-seeking Little evidence of inability for Canadian

dairy producers to compete Harmonisation of trade

Conclusion

Little evidence of negative impact overall on dairy producers

Trade agreements have had less direct impact than consumers and agribusiness

Government support of the industry during transition Compensation Consumer confidence, safety Fostering niche market development,

such as organic production

Future Research

Empirical analysis of trade liberalisation, focused on organic dairy industry

Investigate trade relationship with E.U. for dairy products (represents ~40% of imports)