NAFTA Renegotiations: An opportunity for Canadian Dairy?

• Published in: The School of Public Policy publications (Online) Vol. 11
• Main Authors: Beaulieu, Eugene, Venkatachalam, Balaji
• Format: Journal Article
• Language: English
• Published: Calgary University of Calgary, The School of Public Policy 01.03.2018; University of Calgary
• Subjects: Cheese; Competition; Consumers; Dairy industry; Dairy products; Economic models; Free trade; Imports; International economic organizations; International trade; Liberalization; Milk; Negotiation; North American Free Trade Agreement; Prices; Pricing policies; Tariffs; Trade policy; Trade restrictions; Trans-Pacific Partnership Agreement; Canada; United States > US
• ISSN: 2560-8320; 2560-8312; 2560-8320
• DOI: 10.11575/sppp.v11i0.42679

What are the implications of a renegotiated NAFTA for Canadian dairy producers? Many observers dread the prospect of even the slightest liberalization in the dairy sector. This paper takes a different perspective, arguing that opening Canada’s dairy sector would come with benefits not just for consumers, which is undeniable, but could also transform the industry and lead to a more productive dairy sector in Canada. Canadian dairy producers have been protected domestically through supply management and internationally through import-restricting border controls for over 40 years. This combination of domestic and foreign policies keeps Canadian dairy prices artificially high and allows producers to gain enormously from the system while hitting dairy consumers directly in the pocketbook. These policies are extremely costly for Canadian consumers and benefit the protected domestic dairy producers. Canadian international trade policies result in 200-percent tariffs on imports of many dairy products and almost 300-percent tariffs on over-quota imports of cheese. The OECD estimates that from 2010 to 2016, Canadian trade policy with respect to dairy and the “supply management system” annually transfers over US$2.9 billion from Canadian consumers and taxpayers to milk producers. This is extremely expensive for Canadian consumers and this transfer to Canadian dairy producers underscores why our trade partners have focused on the exorbitant tariffs that support this system. We argue that it is not only consumers that are hurt by the status quo, but that the industry itself can evolve and thrive from increased competition.