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The Canadian Dairy Dispute

Canada has been extremely protective of its dairy farmers for a long time. Governed by a supply management quota system, Canadian dairy producers have had higher and more stable milk prices than U.S. producers. Canada has about 11,700 dairy farms, and just under 960,000 cows.¹ Compare that to the U.S., which has about 64,000 dairy farms and 9.3 million cows. The Canadian government put a supply management system in place in the early 1970s in an effort to reduce production surpluses. A farm’s quota can be adjusted up or down on an as-required basis by the government, according to consumer demand. This system limits farm expansion and the limited supply affects consumers directly. Canadian consumers pay the equivalent of about $6.73 (USD) for a gallon of conventional whole milk, compared to about $3.20 in the U.S. Canada’s milk pricing formula and the subsequent loss of export markets has attracted national attention in the U.S., with federal and state lawmakers urging the Administration to find a way to get Canada to roll back its pricing scheme. Nonetheless, this will be a difficult fight for American trade negotiators. The U.S. still enjoys a substantial dairy products trade surplus with Canada, and there is no punitive tariff, per se, to fight against. Instead, Canada has manipulated the situation to position its domestic suppliers to undercut U.S. imports. For its part, Canada has argued this is strictly a domestic policy issue, and that it is not responsible for the oversupply situation in the United States.Meanwhile, U.S. dairy producers and cooperatives have been scrambling to come up with new markets for not only displaced exports, but production levels that continue to increase. While trade is absolutely critical to American agriculture, this situation is emblematic of the frustration that U.S. companies sometimes face – markets are developed by innovative businesses and then undercut by protective actions.

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Farm Credit East