Dairy was a big sticking point for Canadian and US officials as they renegotiated NAFTA.
In the end, Canada agreed to open up its market and allow American farmers to sell more milk, cheese and other dairy products north of the border. It also agreed to end a pricing system that limited imports of certain milk ingredients.
President Donald Trump is calling the deal a win for US dairy farmers, and Canadian farmers are angry. But some experts are downplaying the impact.
“Honestly I don’t think it’s going to have a terribly noticeable impact on US dairy farmers in general,” said Andrew Novakovic, a professor of agricultural economics at Cornell University.
Under the new deal, which will be called USMCA, Canada will set new quotas for dairy imports from the United States. It will still put tariffs on dairy products that exceed the quotas, ranging from 200% to 300%.
The new quotas are expected to give American dairy farmers access to up to 3.6% of Canada’s market. Estimates suggest this will increase exports to Canada by $70 million, or 0.0003% of US GDP, a BofA Merrill Lynch Global Research report said.
“At the end of the day, this is not a trivial thing. But the United States is a big market, and this is a relatively small amount of dairy products relative to the total,” Novakovic said.
The Canadian dairy market produced roughly 17% of what the United States did each year over the past three years, according to US government data.
The United States sends far more dairy to Canada than the other way around. The United States exported an annual average of $675 million of dairy products to Canada and received about $282 million over the past few years.
But American dairy industry groups lobbied to make sure a rewrite of NAFTA would address Canada’s protectionist dairy policies. They had support from lawmakers on both sides of the aisle.
In a statement made Monday, the groups thanked the Trump administration for fighting against Canada’s practices, but also called the change “incremental.”
“This agreement, when implemented, should give us additional marketing opportunities that will allow us to provide high-quality American dairy products to Canada, which means we’ve made incremental progress,” said Jim Mulhern, president and CEO of National Milk Producers Federation.
Opening up the market, and eliminating the pricing system for milk ingredients, were the groups’ top priorities. They were still reviewing the text to better understand the impact.
The US dairy farmers were also pleased the outlines of the original NAFTA deal remained intact. The deal, struck in 1994, has significantly opened American farmers’ access to Mexico, which is now the biggest export market for them.
But Mexico has put tariffs on US cheese in retaliation for the Trump administration’s tariffs on steel and aluminum.
“We’re all happy NAFTA negotiations have concluded. But it’s critical that the 25% retaliatory tariffs are also removed. They are really hurting us,” said Jaime Castaneda, senior vice president of trade policy at the National Milk Producers Federation.
Meanwhile, the Dairy Farmers of Canada quickly came out to criticize the new trade agreement. The group was “disappointed” over the concessions the government made, especially after Canadians agreed to open up its dairy market for the Trans-Pacific Partnership and for a trade deal with the European Union.
“The announced concessions on dairy in the new USMCA deal demonstrates once again that the Canadian government is willing to sacrifice our domestic dairy production when it comes time to make a deal,” said Pierre Lampron, president of Dairy Farmers of Canada.
Canada also limits domestic milk production, keeping prices higher. Despite the concessions made, its supply management system largely remains intact. Though, they argue that the policies are needed to compete with other countries that also protect their dairy farmers. The United States offers subsidies to its dairy farmers and puts tariffs on some specific dairy products, too.
Under the USMCA, the United States also agreed to open up some of its own market to Canadian imports. It will allow more Canadian dairy, peanuts and peanut products, and a limited amount of sugar to cross the border, according to a document from US Trade Representative’s Office.
Trump and his Mexican and Canadian counterparts are expected to sign the deal by the end of November. It will then be up to Congress to approve the deal, which is likely to come up for a vote next year.