The latest deadline the Trump Administration has given Canada to concede on tough issues and complete renegotiations of the North American Free Trade Agreement came and went again on Friday. To finish the deal, Agriculture Secretary Sonny Perdue told CSPAN over the weekend that Canada’s Class 7 dairy policy must go.
“Our farmers don’t have access to the Canadian markets the way that they have access to us. Class 7 has to go. It can’t be renamed something or called something else,” he said.
According to Perdue, Class 7 gives Canada an unfair advantage in global sales of milk solids. He and many U.S. dairy groups say the pricing structure allows our neighbors to the north to “dump” their excess milk on the world market. In fact, Mike North of Commodity Risk Management said, that’s the reason we’re in this trade pickle with Canada anyway.
“You know, we talked about this trade war, and implied in that is everyone saying, ‘Oh, well, we shot the first round.’ With Canada, that's not true,” he told AgriTalk host Chip Flory last week. “You go back to last spring. They put together that Class 7 pricing mechanism and then for us in Wisconsin, or others in New York, that ultra-filtered milk that we were selling them as a stopgap to meet some of their needs got shut down immediately, and a lot of farmers lost their contracts with plants because there wasn't a home for it and it created all sorts of issues, but that particular pricing mechanism has allowed them to dump skim milk powder into the world market cheaper than anyone.”
Getting rid of Class 7 as part of NAFTA negotiations would be an easy give, according to North.
“They should be able to give that up,” he said. “They've had some time to work through it. They've had some chances to dump their powder and they have. Their skimmed milk powder exports are up 200%. So, you know there is opportunities here for them to make some concessions for sure.”
Last week Larry Kudlow, the U.S. National Economic Council Director, said on multiple occasions that the issue keeping NAFTA negotiations from reaching the finish line is dairy policy. While they might be willing to kill Class 7, dismantling the Canadian supply management system as some farm groups have implied is necessary will likely never happen.
“Are they going to get rid of their supply management and more importantly their quota system? No, that will not happen,” North explained. “Quota right now is trading at about $30,000 per cow. The math on that across all their cow numbers… the government doesn't have the appetite to write that big of a check. They can’t get rid of it.”
Any NAFTA talks will be on hold until U.S. Trade Representative Robert Lighthizer returns from a trip to the E.U. later this week.