Trade Compliance

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Industry Groups Push Trade Ministers for Change in Canadian Dairy Policies

Posted July 05, 2017

A coalition of international dairy organizations including industry groups from the United States, Mexico, Europe, New Zealand and several other countries, last week called on their respective trade ministers to demand that Canada change its dairy policies, which it claims are facilitating “the unfair export of highly subsidized Canadian dairy products onto global dairy markets,” while at the same time increasing Canada’s barriers to dairy imports.

Specifically, the group is seeking an abolition of Canada’s recently implemented “Special Milk Class 7” policies covering so-called ultrafiltered milk that were designed to incentivize the substitution of Canadian domestic origin dairy ingredients for imported protein products by artificially lowering milk ingredient prices for Canadian dairy processors, and it is claimed, to also position Canadian dairy exports to “unfairly compete” in foreign markets by offloading skim milk powder surpluses at prices far below the actual cost of production.

“The impact of these policies on international markets is already being seen,” the group states, citing as evidence the fact that “exports of low priced Canadian skim milk powder grew by 273% in the first four months of this year.”

In its letter the group urged trade ministers to pursue “all available avenues,” including dispute settlement at the World Trade Organization, to end Canada’s “new and harmful dairy policies.”

As the technical underpinnings of this dispute are fairly complex, earlier this year, the online magazine iPolitics published a thorough “Dairy 101” explainer:

Diafiltered milk, or ultrafiltered milk as the Americans call it, is milk that has been finely filtered through a membrane in order to target its protein content. It has a similar consistency to coconut milk and typically has a very high protein content (greater than 40 per cent). When raw milk is processed for butterfat (necessary for making butter) it is separated into two parts: butterfat and what’s called ‘non-fat solids,’ commonly referred to as milk ingredients. Diafiltered milk is non-fat solids that have been processed one step further.

An American invention, diafiltered milk is used primarily by dairy processors in Canada to make cheese because it produces higher yields while making less waste (in this case skim milk). Skim milk, due to oversupply, is often dumped or used on farms as animal feed or dried down to powder form. Its oversupply has been a longstanding issue that the dairy industry has been grappling with for years.

Major diafiltered milk production plants have been built in recent years along the Canada-U.S. border in states like New York and Wisconsin to service Canadian demand. Because of an ongoing oversupply of milk – and its ingredients – within the United States, the American dairy industry has been exporting the product in liquid form to Canadian processors. The Canadian Border Services Agency considers it to be a protein ingredient and therefore it is not subject to Canada’s high dairy tariffs.

Further, because the product was invented post-NAFTA, Canadian officials have been told that they are not allowed to subject American diafiltered milk imports to what’s known as a tariff rate quota (TRQ) – that cap the amount of product allowed in. That’s meant the American dairy industry has had complete and unfettered access to the Canadian market place for diafiltered milk for several years. (Diafiltered milk is not used by American dairy processors.)

Canadian dairy farmers have repeatedly demanded Ottawa crack down on these imports by enforcing Canadian cheese standards that require cheese be made with a certain amount of milk. Farmers, particularly those in Quebec, have argued the American product is displacing Canadian milk sales and are putting their operations at risk. Discussions on the matter are ongoing, however, no changes to the import rules around the product have been made as of yet.

The Coalition claims that adoption of the Class 7 measures contravene Canada’s international commitments and constitute an attempt to circumvent previous rulings by the WTO.  Moreover, it alleges that “Canada’s increasingly protectionist policies are diverting trade with attendant global price-depressing impacts, and are in conflict with the principles of free markets and fair and transparent trade.”