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Supply management is in the news again … but it’s really about pizza cheese

How a new pizza cheese ingredient influenced Donald Trump's trade agenda.

AHEAD OF THE HEARD -- Who would have thought that Canadian dairy producers would become a target of President Trump. One presumes the President has more critical things to worry about like peace in the Middle East or avoiding nuclear war with North Korea instead he is worrying about pizza cheese. That’s what is at the bottom of this kerfuffle, but as usual there is more to the story.

This trade issue actually involves a cheese-making dairy product imported from the US. There has always been a regular cheese trade between Canada and the US, but it has been subject to quotas. What changed was cheese making technology it created a new cheese ingredient product called ultra-filtered milk (UFM) and because it was new it is not mentioned in any tariff and quota trade agreements. What UFM did was dramatically reduce the cost of making industrial cheese for the pizza business that cheese business is worth hundreds of millions of dollars. The American dairy industry was quick to use new UFM technology on a massive commercial level. Canadian pizza cheese makers found the UFM trade loophole and were soon importing millions of dollars’ worth of this much cheaper cheese ingredient from American processors. That circumvention of cheese import rules annoyed the Canadian dairy industry and they tried to thwart the imports through regulatory mischief. But they were unable to close the loophole so they then started selling Canadian-made UFM at a cheaper price than the American imported product. That caused US UFM imports to crash specifically from the state of Wisconsin, whose dairy farmers cried foul, then lobbied a gullible President Trump, and voila we have him threatening Canada over a pizza cheese making ingredient.

But as usual whenever the dairy business is mentioned there is an automatic response by urban media pundits about the evils of supply management. The delusion is that dairy products will suddenly become 50 per cent cheaper without supply management; they may well become cheaper but there will be perverse consequences. Commentary gets truly ludicrous when Martha Hall Findlay, CEO of the Canada West Foundation, states that poor single mothers have to buy milk from millionaire dairy farmers all because of supply management. Such absurd statements display an appalling lack of the most rudimentary understanding of commercial agriculture economics. Over 80 per cent of farm production comes from 20 per cent of producers, and much of that production involves cash flows and assets of millions of dollars on most commercial farms. I guess from Findlay’s perception milk or any other food product purchased by poor consumers can only come from certified non-millionaire producers. That would guarantee even higher food prices.

American milk tends to be cheaper because of massive US government subsidies like their milk floor price program and their dairy cow buyout program it’s been estimated the US dairy industry receives $4 billion in annual subsidies. The Canadian dairy industry receives no dairy specific government subsidies. Another reason US milk is cheaper is the prevalence of gigantic industrial dairy farms that milk 5,000 to 15,000 cows three times a day. No such super-sized dairy operation exists in Canada where dairy farm size averages around 200 cows. Moderate-sized dairy farms are a deliberate though unofficial policy of dairy marketing boards and provincial governments. It means that more dairy farms are spread out across the country providing economic benefit to more local areas. If that supply management controlled distribution did not exist, only 20 super-sized industrial dairy farms all located in southern Alberta could supply the entire province. Instead our provincial needs are supplied by about 500 family dairy farms located in every agricultural zone in Alberta.

Now having said all that if supply management were eliminated and interprovincial free trade in dairy products was the rule, Alberta could become a powerhouse in milk production. Our producers with their experience in large cattle feedlot operations, some as large as 100,000 head, have the husbandry skills, financial expertise, and land base to manage large 10,000 head dairy operations. Super-sized dairy farms would be more feasible here than in the Fraser Valley, Ontario or Quebec with their multitude of environmental, odour, and land use regulations against intensive commercial agriculture. One could see the migration of large-scale milk production to Alberta just like what occurred with the cattle feeding industry in the 1980s. In other words, Alberta benefits from both supply management and any future changes to milk production and marketing. Hopefully our government can see the wisdom of supporting both sides of the issue.