June 8, 2018 / 7:47 PM / 4 months ago

Explainer: Trump sours on Canada's sheltered dairy system

WINNIPEG, Manitoba (Reuters) - U.S. President Donald Trump renewed his complaints about Canada’s dairy system on Thursday ahead of a Group of Seven summit in Quebec that is likely to center on trade disputes.

U.S. President Donald Trump arrives at the the G-7 summit in Charlevoix, Quebec, Canada, June 8, 2018. REUTERS/Leah Millis

In a tweet Trump said, Canada “doesn’t bring up the fact that they charge us up to 300 percent on dairy - hurting our Farmers, killing our Agriculture!”

HOW DOES CANADA’S DAIRY SYSTEM WORK?

Canada has managed supplies of dairy, eggs and poultry since the 1970s, restricting how much farmers can produce and limiting imports through onerous tariffs.

Quotas restrict how much farmers produce according to domestic demand.

The Canadian Dairy Commission, a government corporation, sets prices for butter and skim milk powder annually, which provincial boards use as a reference in establishing the price of milk.

DOES THE SYSTEM BREAK TRADING RULES?

Canada’s dairy system falls outside of the North American Free Trade Agreement (NAFTA).

A WTO panel ruled in 2002 that Canada breached its trade obligations through its dairy support, siding with the United States. The result of the WTO ruling is that Canada is not allowed to export much dairy.

WHY IS TRUMP UPSET?

U.S. dairy processors want to increase sales to Canada but high tariffs of nearly 300 percent stand in the way. For several years, U.S. dairies rapidly boosted shipments to Canada of milk proteins, used to make cheese and yogurt, using a loophole in Canada’s tariff system. But a 2016 deal between Canadian dairy farmer groups and processors including Saputo Inc, Agropur and Parmalat Canada [PLTPRC.UL] curbed the flow.

Even so, the United States shipped nearly C$600 million worth of dairy north in 2016, five times greater than Canadian sales to the United States.

WHAT IS THE VALUE OF CANADA’S DAIRY SECTOR?

Farm dairy sales amount to around C$6 billion ($4.6 billion) annually. Processed dairy shipments are worth C$15 billion, according to 2016 government figures.

HOW MUCH IMPORTED DAIRY DOES CANADA ALLOW?

Canada allows about 20,000 tonnes of cheese imports annually, a total that will almost double once a free trade deal with the European Union is fully implemented in five years. Cheese shipped to Canada above the quota is subject to a tariff of more than 200 percent, according to Al Mussell, research lead at Agri-Food Economic Systems.

Cheese imports still make up a small percentage, currently around 5 percent, of Canadian dairy consumption.

WHY DOES THIS SYSTEM SURVIVE?

All major political parties say they support supply management because it stabilizes incomes for dairy farmers. Producers in other countries have suffered from volatile price swings.

But the country’s 11,280 dairy farmers form one of the most influential lobbies in Canada. Most farm in Quebec and Ontario, the Canadian provinces with the most Parliament seats.

WHAT DO CRITICS SAY?

Other dairy-producing countries such as the United States and New Zealand say it is an unfair way to shelter the Canadian industry. Within Canada, some groups say it prevents the country from becoming a dairy-exporting power, as it is in grain and meat. They say that severely restricting imports results in higher Canadian food prices.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Sandra Maler

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