Trump's tearing into Canada's agricultural policy. Does he have a point?

Canadian defenders of the supply management system say U.S. President Donald Trump is "stunningly hypocritical" for attacking dairy supports while politicians in Washington hand out billions in subsidies to American farmers — and levy punishing tariffs of their own on some commodities.

The Canadian dairy industry is at the centre of a brewing trade war between the two allies, in part because of Trump insisting that the decades-old system that uses quotas to ensure dairy supply and stabilize farmers' income is a "disgrace" that is "hurting our Farmers, killing our Agriculture!"

"Looking forward to straightening out unfair Trade Deals with the G-7 countries. If it doesn't happen, we come out even better!" Trump tweeted before touching down in Quebec last week for the G7 summit — a meeting that ended with Trump directing a Twitter tirade against Prime Minister Justin Trudeau.

"Canada charges the U.S. a 270% tariff on Dairy Products! They didn't tell you that, did they? Not fair to our farmers!"

It's an issue that's been irritating the president since the 2016 election campaign — thanks in part to the savvy lobbying efforts of some dairy farmers in swing-state Wisconsin, who have Trump convinced that Canada's supply-managed dairy system is to blame for hardship in the farm belt.

American hypocrisy knows no bounds. They do exactly the same thing … that they accuse us of doing.- Bruce Muirhead

Bruce Muirhead, an associate vice-president and professor of history at the University of Waterloo, said U.S. woes are not due to a tight Canadian market but rather to massive overproduction that has depressed the prices farmers can fetch for their products.

"They thought they could just produce their way into dairy farmer happiness, which hasn't happened, of course," he said in an interview with CBC News.

Traditionally, U.S. dairy farmers focused on producing for the domestic market, but in the pursuit of growth, producers have ramped up production for export, Muirhead said.

"There is an absolute glut of dairy products around the world. It's a tsunami of milk that is washing over the world and yet the Americans are still increasing production by 1.5 to 2 per cent a year."

More than 100 million gallons of milk were dumped into American farm fields in 2016. The U.S. government bought more than $20 million worth of cheddar cheese because the market was glutted. Dairy farmers, meanwhile, have been drawing on millions of dollars of support from the Dairy Margin Protection Program, a federal initiative that provides catastrophic coverage at a marginal cost to the producer.

Muirhead said Canada shouldn't be expected to dismantle its supply management system (which costs government nothing, since it relies instead on consumers paying more for the product) to accommodate the bad business practices of overzealous U.S. dairy producers.

Alfons Weersink, a professor of agricultural policy at the University of Guelph, said the Americans are desperate for further foreign market access — which explains why they have encouraged Trump to turns the screws on Canada.

"U.S. dairy farmers are experiencing low returns and any way to increase demand, however slight, could help their cause," he said.

These U.S. producers were also wounded by the introduction of new Canadian prices for some products in 2016 — mainly on ingredients used in the production of cheese, yogurt and ice cream. Some American producers have argued the new prices put them at a competitive disadvantage,

"Wisconsin farmers have been particularly vocal," Weersink said. One major Wisconsin processor blamed that price drop for ending buying agreements with dozens of family farms. "There are political reasons for Trump taking it up."

But the Dairy Farmers of Canada, the powerful lobby group that vocally defends supply management at every turn, said Canada is simply too small a market to help ease U.S. overproduction concerns.

"Canada already produces enough milk to fill Canadian demand. As Canada has less population than the state of California, and Wisconsin alone produces more milk than all Canadian farms combined, clearly, the Canadian market is too small to make a dent in U.S. overproduction," the president of DFC said in a statement Monday.

On paper, Canada's tariffs on U.S. and other foreign dairy imports — 270 per cent on milk, 245 per cent on cheese and 298 per cent on butter — seem steep.

In fact, dairy is a relatively minor trade issue between Canada and the United States, accounting for just a fraction of the $628 billion in trade the two countries do with each other every year, Weersink said.

"In the big scheme of trade overall, dairy is a minor player (with or without tariffs) but it is an easy target now," he said.

The entire Canada-U.S. dairy trading relationship is valued at just over $750 million a year, according to the latest figures, with American exports to Canada — worth more than $631 million a year — accounting for the vast majority of the goods that cross the border.

In 2016, Canada imported dairy products from the U.S. worth five times more than the small amount it exported.

Muirhead also pointed out that even though Canadian dairy farmers are protected by these high tariffs, imports still make up 10 per cent of the country's domestic dairy consumption, while in the U.S., imports are restricted to just 3 per cent of the dairy market.

Meanwhile, the U.S. has levied its own tariffs on a host of commodities in an effort to keep foreign imports out.

While the United States — historically an ardent free trader — doesn't levy tariffs on many of the goods entering the country, it has been turning to such measures to strategically boost politically sensitive industries like agriculture since long before Trump launched his "America First" agenda.

"American hypocrisy knows no bounds. They do exactly the same thing ... that they accuse us of doing," Muirhead said.

Take smoking tobacco, for example: it's slapped with a 350 per cent ad valorem tariff as it enters the U.S.

Canadian agriculture is no more subsidized than agriculture in the U.S.- Daniel A. Sumner, University of California

Or unshelled groundnuts (163.8 per cent), or shelled peanuts and oilseeds, which face a 131.8 per cent tariff. Many other farm products face a high tariff wall at the U.S. border: European meats, truffles and Roquefort cheese (100 per cent); processed fruits and vegetables (132 per cent); processed fish (nearly 40 per cent); dates (30 per cent); and asparagus and sweet corn (21.3 per cent), to cite just a few examples out of dozens.

Sugar, too, is sold at double the world price in the U.S. because the industry's politically connected backers have demanded high tariffs to protect it from a flood of cheap imports from Brazil.

'They should just leave us Canadians alone'

"In terms of overall farm subsidies, we just do it somewhat differently," Daniel A. Sumner, an agricultural policy professor at the University of California's Davis campus, said in an interview. "Canadian agriculture is no more subsidized than agriculture in the U.S."

The difference is that while U.S. taxpayers foot the bill for farm protections, in Canada, the cost is carried by consumers at the cash register, Sumner said.

Washington spends more than $20 billion a year on subsidies for farm businesses. About 39 per cent of the 2.1 million U.S. farms receive some form of a subsidy, with most of those handouts going to producers of corn, soybeans, wheat, cotton and rice.

Those subsidies come partly in the form of crop insurance premiums (the U.S. Department of Agriculture pays 62 per cent of their premiums, on average, for a total cost of $6.7 billion a year). The Agriculture Risk Coverage (ARC) program also provides funds if revenue per acre falls below a certain level, while the Price Loss Coverage (PLC) program subsidizes producers if prices sink below a certain benchmark price set by the U.S. Congress. The United States even subsidizes manure remediation programs.

"I have zero problem with farmers getting subsidies. Agriculture is one of those areas where producers and farmers cannot make money consistently, small and medium-sized farms are often just eking out a living," Muirhead said.

Donald Trump demands Canada dismantle supply management

6 years ago

Duration 2:20

The U.S. president says if Canada doesn't dismantle their supply management for dairy, he won't hesitate to dramatically curtail the trading relationship between the two countries

"My problem is with how stunning hypocritical American policy is. They should just leave us Canadians alone," he said.

Of course, supply management is not without its detractors in Canada.

A hallmark of Quebec MP Maxime Bernier's nearly successful Conservative leadership campaign was his vocal opposition to supply management, a system he said "protects a small cartel of dairy, poultry and egg farmers at the expense of everyone else" and "drives up grocery bills" while hurting Canada's reputation as a free trading nation.

Former Liberal leadership contender and MP Martha Hall Findlay has also said supply management has made Canada the "sick cow of global agricultural trade" because, she said, it hurts a majority of Canadian farmers — including beef, pork, grain, oilseed and pulse producers who would benefit from more global trade in agricultural products.