WASHINGTON, D.C. — In his first official international visit, USDA Secretary Sonny Perdue visited Toronto on June 5 to conduct a series of meetings with Canadian officials. His tour included visits with Canadian Minister of Agriculture and Agri-Food Lawrence MacAulay and Premier of Ontario Kathleen Wynne.

 

Perdue’s trip centered around bilateral trade issues, most notably ultra-filtered milk which has been a recent point of disagreement between the two countries.

“We had very good, very candid discussions, very frank, like family members discussing some things that are not necessarily comfortable,” said Perdue. “We laid out a great framework to begin renegotiating NAFTA (North American Free Trade Agreement).”

Ultra-filtered milk, a milk-protein concentrate, is used to fortify cheese and yogurt products and has been a hot button issue the past few months.

From 2011 to 2016, U.S. exports of ultra-filtered milk to its northern neighbor increased from $33 million to $98 million. However, a newly-created Canadian pricing policy encourages Canadian dairies to buy certain types of milk products domestically.

Known as Class 7, critics claim the deal prices domestic milk ingredients used to make cheese and yogurt below cost and that the pricing breaks World Trade Organization (WTO) trade obligations. Since the new policy went into effect on Feb. 1, exports to America’s northern neighbor have dropped to near zero.

As the product did not exist at the time of the NAFTA agreement in 1994, there are no trade agreements for the product. Canadian milk producers operate under a supply management system that supports prices of milk – and by extension milk products – at levels well above U.S. prices and prices that prevail in international trade. Under the new Class 7 rules, certain Canadian milk product ingredients are to be priced by provincial milk marketing boards at or below internationally competitive levels, potentially curtailing U.S. exports of such products, particularly un-filtered milk to Canada.

“In a blatant violation of international trade agreements it is party to, Canada unilaterally shut down a thriving market for U.S. ultra-filtered milk,” wrote Scott Walker and Andrew Cuomo, governors of Wisconsin and New York, respectfully, in an April 18 letter to President Trump.

“This illegal action hit dozens of Wisconsin farmers so far, leaving a million pounds of milk production without a market. In New York, around 70 dairy farmers and millions in salves have been affected by the new Canadian regulations.”

Canadian officials, however, do not buy that argument. In a rebuke to the letter, Canadian ambassador, David MacNaughton, issued his own response to the governors stating that an overproduction from U.S. dairy producers is the culprit.

“Canada has not taken any broader actions to limit imports from the United States. As a matter of fact, Canada’s dairy industry is less protectionist than that of the U.S, which has employed technical barriers to keep Canadian dairy out of the U.S. market,” MacNaughton wrote.

“Canada imports 6.3 percent of its cheese, 10 percent of its butter and 10 percent of its milk powders, while the U.S. imports 3 percent of its cheese, 3 percent of its butter and 8 percent of milk powders notably less than Canadian imports.”

The National Milk Producers Federation estimates that U.S. farmers and processors stand to lose about $150 million a year as a result of Canada’s new policy. Due to relatively strict dairy policies and a supply-management system which controls the amount of milk that reaches the Canadian market, U.S. milk tends to be more affordable than that produced in Canada.

“I made it very clear that the Class 7 designation we felt was unfair, undercutting this industry that grew up south of the border,” Perdue said after his meeting with MacAulay in Toronto. “The quick win would be to do away with Class 7 milk, which we think is a very unfair, underhanded circumvention of the WTO.”

Canadian farmers see the issue differently, however. “We must point out the reality that there have been no changes to Canadian regulations related to dairy imports, or changes to Canadian dairy tariffs, and we want to set the record straight,” said Isabelle Bouchard, Director of Government Relations for Dairy Farmers of Canada in April. “At the root of the American dairy sector’s argument is the recent implementation of a new class of milk (Class 7) in Canada.

“Unfortunately, their argument is filled with falsehoods and half-truths. Despite what has been said by the American dairy sector, Class 7 is a domestic policy, the sole purpose of which is to allow the Canadian dairy sector to be able to respond to a changing Canadian market environment. The truth is, both the U.S. and world dairy markets are currently over-saturated, which has led to low prices at the farm-gate and a lower price received by the processors. It is wrong to use Canada as a scapegoat for the situation in the United States.”

Grading U.S. wheat exports

Wheat was the other dominant topic of conversation on Perdue’s trip. Currently, when the U.S. exports wheat to Canada, it is automatically designated as the lowest quality and lowest price grain. 

 

Perdue stated that the wheat-grading issue seems to be less of a concern to Canada and its farmers and that it could be resolved in a timely manner. This subject, however, is not so easy to brush aside, according to some.

“Before any changes are made to our grading system, we need to have public consultations to figure out the consequences of adding more American grain to our system,” said Bill Gehl, Saskatchewan Wheat Development Commission chairman.

“I think producers need to know what the ramifications to our shipping agreements would be and how American grain will fit under the MRE (Maximum Revenue Entitlement). There are a lot of important questions that need to be addressed. We need to resist the pressure from the United States and do what is right for Canadian grain farmers.”

During his trip, Perdue also discussed certain provincial wine issues, where wines are not displayed in the same high-traffic areas as Canadian wines. Perdue participated in a celebration of the 10th year of the Southeastern United States-Canadian Provinces Alliances, an organization created to foster mutually beneficial relationships Perdue helped found as governor of Georgia in 2007.