Canada's dairy farmers: 'If you give an inch, Trump is going to take a mile'

Negotiations are underway to hammer out a new North American trade deal in the United States capitol, nearly 600 kilometres southeast of Philip Armstrong’s dairy farm. The tension in Washington is weighing heavily on the 60-year-old sixth-generation farmer from Caledon, Ont.

“There’s not a lot we can do. It’s like the weather. You can’t control it. You can be scared, concerned, all those type of adjectives,” he told Yahoo Canada Finance on Tuesday. “The weight is constant. It’s like a pressure.”

Two sources with knowledge of Ottawa’s negotiating strategy said on Tuesday that Canada is ready to grant limited access to U.S. dairy producers, Reuters reported.

“I hope they’re wrong,” Armstrong said of the unnamed Canadian sources. “I just keep thinking, if you give an inch, Trump is going to take a mile.”

Canada’s supply-managed dairy industry has been blasted by a chorus of U.S. officials, most notably President Donald Trump. The controversial system limits the supply of dairy that is produced, while setting the price farmers receive and keeping out foreign milk through tariffs, some as high as nearly 300 per cent.

Canadian dairy was thrust into the U.S political limelight during Trump’s 2016 campaign, as U.S. dairy farmers in key states sought better access to the tightly-controlled Canadian market. The issue has forced a wedge between the two countries in the North American Free Trade Agreement negotiations, now underway for more than a year.

Prime Minister Justin Trudeau has vowed to defend the 1960s-era supply management system designed to avoid boom and bust cycles in Canada’s dairy market. However, he has not explicitly ruled out expanding access for American producers in Canada.

Dalhousie University food distribution and policy professor Sylvain Charlebois expects U.S. negotiators will ask for an up to 10 per cent foothold in Canada’s dairy market, effectively doubling the access they have now.

“If we agree to anything we are in deep, deep trouble,” he warned. “We could lose a lot of farms, and a lot of processors as well.”

Canada has 10,961 dairy farms, according to a 2017 federal government estimate. Charlebois said allowing U.S. producers to claim 10 per cent of Canada’s dairy market would cause a proportional shutdown of Canadian farms.

“It literally means that we have 1,100 too many dairy farms in Canada overnight. They would produce milk for nobody. If you allow more milk, cheese and yogurt into the Canadian market, you don’t need our milk anymore,” he said.

A group representing Canada’s dairy industry fears a “death by a 1,000 cuts” if the U.S. is granted broader access, saying such a move would compound the impact of concessions made under previous international trade agreements.

“Enough is enough. This should not become a trend where we are always reaching into the dairy sector to solve (trade) problems,” said Dairy Farmers of Canada Vice President David Weins. “What Trump wants would be extremely devastating to our dairy farms.”

Canada recently gave up dairy market access to Pacific Rim and European trading partners. The Comprehensive Economic and Trade Agreement (CETA) allows European countries three per cent access. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which does not include the U.S., allows member states access to 3.25 per cent of the Canadian market.

“Right now, we are going to be absorbing the shock of both CETA and CPTPP. We’ve not gone through that yet. We still haven’t measured the impact on prices at retail and prices at farm-gate,” said Charlebois. “Any percentage (of additional foreign market access) would be too much right now.”

“Our industry employs over 220,000 people,” said Weins. “We’ve made it very clear to our government, and to others, that every time there is access given it further diminishes our industry and impacts farm families across the country.”

Armstrong’s namesake family farm about 40 kilometres northwest of downtown Toronto dates back to the mid-1800s. The dairy operation explained significantly in the generation governed by supply management.

“Dad, when he came in, he was probably milking about 30 cows. Right now, we are at about 380 to 390 cows. We’re milking 325 to 345, three times a day,” Armstrong said.

He’s far less confident about growth prospects for the next generation if the comparably massive U.S. dairy industry is allowed to push further into Canada.

“We are giving up our future growth in Canada. They say they could phase it in (U.S. competition) over 10 years, but that was our growth for those years. Now it goes to a foreign company,” Armstrong said. “You’re handcuffing the dairy farms here.”

COMPETITION ANXIETY

Charlebois has long advocated for Canada to abandon supply management, dismissing the decades-old system as a relic in the modern industrialized world, steeped in Quebec-based political tension. However, he is not convinced that Canada’s long-sheltered dairy industry could survive being thrust into the free market.

“We need a different system. The quota system should remain in place, but at the same time it needs to open up. That’s what Mr. Trump is telling us,” he said. “Benchmark the entire industry based on top-performing farms. You either encourage farmers to become more competitive or you encourage them to exit the industry. That’s one thing you need to do. The second thing is to look at how you can provide programs in the sector for farms to become more competitive. Yes, I’m talking about subsidies.”

Doing this the right way could take 10 to 20 years, Charlebois estimates. It’s a timeline that could be a tough sell if Trump pressures his trade officials to score a fast win in order to secure political support in the U.S. dairy belt.

Armstrong, and Weins of Dairy Farmers of Canada, who also runs a family dairy farm an hour south of Winnipeg, have faith that Canada’s trade delegation will have their back. They’re closely monitoring the rumours emerging from the ongoing talks, hoping their industry will not be bargained off in pursuit of compromise on larger wedge issues.

“I don’t think it’s fair to ask. It’s time to say no,” said Armstrong. “If we stop feeding ourselves, dairy could certainly be taken over by the states.”

Charlebois said dairy farmers, on either side of the border, should not be criticized for the Canadian dairy’s vulnerability to an incursion from the south.

“They are paying the price of Ottawa’s political hypocrisy over 20, 30 years. No one has ever dared look at the system through a modern lens,” he said. “I was expecting this to happen a long time ago. We needed the Trump administration to remind us that we need to do some homework.”

Download the Yahoo Finance app, available for Apple and Android.