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Canada’s Dairy Supply Management: An Obstacle to TPP and a Sore Point Down Under

Posted November 12, 2014

Fresh from talks in Beijing at the APEC summit, Prime Minister Stephen Harper is in Auckland, New Zealand today meeting with his counterpart John Key ahead of the annual gathering of G20 leaders being held later this week in Brisbane, Australia.

One topic in particular promises to be contentious for Harper when discussion turns to the matter of international trade. Although Canada and New Zealand are closely aligned on “almost any issue under the sun,” Canada’s agricultural policy known as “supply management” is, in the words of Simon Tucker, New Zealand’s high commissioner to Canada, “quite an obvious anomaly” in the relationship between the two countries.

Protectionist agricultural trade policies – most especially those of both Canada and Japan – which restrict market access on various farm goods, are among the final sticking points that have yet to be resolved in negotiations to bring the Transpacific Trade Partnership (TPP) to a successful conclusion.  New Zealand had initially opposed Canada’s entry into the TPP talks back in 2010 due to concerns over Canada’s supply management policy. Prime Minister John Key stated at the time that Canada’s exclusions for supply-managed dairy products would be “unacceptable” within the TPP context. The Key government only relented on its opposition in 2012, once Canada agreed to put farm protection on the negotiating table.

New Zealand is the world’s largest exporter of dairy products, controlling a third of the global milk market and annually shipping US$13 billion worth of products to China, the U.S., Japan and the EU. The tiny Pacific Rim country now has several million more dairy cows than its 4.5 million people and has been dubbed by the Wall Street Journal the “Saudi Arabia of Milk.” But it was not always so. 30 years ago, the dairy industry in New Zealand was in financial crisis. Considered moribund and uncompetitive after years of having been heavily subsidized and sheltered from competition by high import tariffs and restrictive trade barriers, in 1984, the government undertook a sweeping free market reform program to radically restructure the entire industry. As part of the reform initiative, tariffs were unilaterally slashed and non-tariff barriers in the form of quantitative restrictions were eliminated altogether.

Unsurprisingly, the example of New Zealand’s dramatic industry turnaround hasn’t been lost on pro-business groups like the Conference Board of Canada that have called for similar free market reforms to Canada’s dairy industry. Specifically, those pushing for greater trade liberalization want to see elimination of the existing quota system along with the prohibitive, market-closing tariffs that run in excess of 250 percent on foreign cheese, butter and other dairy products. Despite running the risk of alienating most of Canada’s TPP trade partners, at least for the time being, the Harper government continues to strongly support the supply management system, noting the dairy industry’s $16 billion contribution to the economy and the 218,000 jobs it creates.