Cows are milked at a dairy farm in Lynden, Ontario. Canada’s dairies are protected by some of the world’s most restrictive agricultural trade barriers, which helped to stall talks last month just as negotiators were closing in on a Trans-Pacific Partnership deal.

Bloomberg/Washington

On paper, it’s not a fair fight: a dozen nations representing 40% of the world’s economic output versus 12,000 Canadian dairy farms.
But Canada’s dairies are protected by some of the world’s most restrictive agricultural trade barriers, which helped to stall talks last month just as negotiators were closing in on a trade deal known as the Trans-Pacific Partnership.
Other nations are pressing Canada to open its dairy market in the accord, a top priority of US President Barack Obama. Agricultural issues, along with auto imports and drug patents, have emerged as one of the thorniest areas of disagreement holding up the pact. “This is a social question about the quality of life, for us and for the animals,” said Real Gauthier, as he walked through a barn housing 90 cows on a farm 50km (30 miles) northwest of Montreal in Sainte-Anne-des-Plaines, Quebec.
Canadians take pride in contrasting their family dairy farms with mega milking-operations in the US, even as they pay an average of 23% more for milk. Put in place in the 1970’s, the “supply management” system limits production and imports.
It is seen as a way to avoid emergency government aid to dairies, said Maurice Doyon, an economics professor at Laval University in Quebec City. It eliminates booms and busts, effectively letting small farmers stay in business while consumers pay a fair — but higher — price for milk, he said.
The social benefit is stable farms and communities, he said. “People see it as more than an answer to an economic problem. People see it as a way to keep family farms all over the country,” he said.
Gauthier, whose three brothers help run the farm, says defending the Canadian system is worth sinking the trade accord, and that any compromise by Prime Minister Stephen Harper would endanger his re-election in Canada’s election in October.
“You can argue about the economics of the issue, but for us, it is important that you can support yourself and be a good farmer without being very large,” Gauthier said as his 80-year-old father surveyed the century-old farm from a bicycle.
Canada isn’t the only thorn in negotiations for the trade pact. Japan’s hesitancy to open its rice market and US reluctance to changes in its sugar program also contributed to talks last month grinding to a halt short of a deal. The head of Vietnam’s Pacific talks delegation said on Tuesday that high-level talks could resume in September.
The dairy issue may be discussed at a meeting of the Association of Southeast Asian Nations in Kuala Lumpur.
Governments led by the US, New Zealand and Australia, three of the world’s biggest dairy exporters, say opening markets would bring trade benefits and lower milk prices for consumers. US cooperatives and processors wrote US Trade Representative Michael Froman and Agriculture Secretary Tom Vilsack in June, urging Canada and Japan to make changes. “Our support for TPP is not unconditional,” wrote the groups, which included Land O’Lakes and Dairy Farmers of America. “All TPP countries must do their part,” the groups said.
Canada’s system has helped slow consolidation, advocates say, though critics say the difference isn’t significant. In the US, which has gradually opened its market since the 1980s, the number of dairy farms fell 76% from 1990 through 2014. In Canada, the decline was 63% in the same period, according to data from both governments.
Still, while fewer but bigger US dairies increased production 39%, on demand for exports, the expansion in Canada was 6.3%. Canada’s system focuses almost exclusively on local consumption.
The three major dairy exporters negotiating the Pacific trade accord have milking operations that are on average double to five times the size of Canada’s average of 77 cows per operation.
But that hasn’t always helped farmers or consumers, said Walter Kessler, whose 80-cow farm near Huntingdon, Quebec, is 5km north of the New York border. With US neighbours and a cousin who operates a 300-cow dairy in California, the top US milk state, Kessler said he didn’t think agriculture should be part of the trade negotiations.
“With food, your guiding principle shouldn’t be to produce whatever is cheapest,” said Kessler, 53, who arrived in Canada from Switzerland when he was 17.
“There’s no such thing as a free market,” Kessler said. “Someone always controls the production. It’s just that here it’s the farmers, and in other countries it’s the processors.”
Saputo, Canada’s largest dairy processor, said August 4 it will be able to navigate any changes that result from a trade agreement.
Nations with larger markets also charge lower prices. Adjusting for currencies and units of measure, Canadian milk prices are 23% higher than in the US, based on government statistics from both countries.
“A lot of small farms would have been toast a long time ago without supply management,” Andy Novakovic, a dairy professor at Cornell University in Ithaca, New York, said. “The system doesn’t stop evolution from occurring, but technology, genetics improvements in dairy herds all proceed more slowly.”
Opening the market would likely cut two-thirds of Canada’s dairy farms, Novakovic said, and make production in Quebec and Ontario less attractive than in export-friendly provinces of the west, much as what happened in the US, he said.
That’s where dairy is an issue for Harper, caught in an election between his desire to complete a trade deal and specific pledges to defend dairy, said Gary Hufbauer, an analyst at the Peterson Institute for International Economics in Washington.
“If Canada walks away from TPP, or is pushed out over dairy, Harper will be pilloried as the prime minister who degraded Canada’s status in world economic affairs,” Hufbauer said.
Dairy farmers have support from all major parties on the issue. Harper has vowed to protect supply management in the trade talks, while saying he is committed to completing the agreement.
“Canada is committed to continuing to play a constructive role in advancing the TPP,” government trade spokeswoman Josephine Laframboise said in an e-mail on Wednesday.
The leader of the opposition New Democratic Party, Tom Mulcair, also supports protections for Canadian farmers. The election is set for October 19.
Compromise remains possible, Doyon said. Supply management has survived trade deals - the North American Free Trade Agreement left it intact, and a pending treaty with the European Union made only minor adjustments.
After reaching a deal with Europe, dairy farmers are in no mood for further compromise, Bruno Letendre, president of Dairy Producers of Quebec, said from his office in suburban Montreal.
Canadian farmers might be willing to negotiate with the US “if you would put your farm bill on the table,” he said, referring to aid packages Congress enacts for US producers roughly once every five years. “We support with regulation, you support with money,” he said.
And ultimately, money shouldn’t be the issue, Gauthier said. Supply management works, even if it costs consumers a few extra dollars - though he said he wouldn’t even concede that point.