Loss of Class 7 — not access — the larger USMCA problem, says economist


There was a tremendous amount of relief, and some consternation, when the new United States-Mexico-Canada Agreement (USMCA) was finally struck. Cleary, many industries are simply happy that things did not get worse. The dairy industry, though, feels that things did get worse for them.

Dr. Richard Barichello, professor, food and resource economics at the University of British Columbia, recently gave a guest lecture at the University of Saskatchewan on not just USMCA, but the sum total of recent trade agreements, including CETA and CPTPP, and their impact on Canda’s dairy industry.

Dale Leftwich, RealAgriculture’s Saskatchewan field editor, had a chance to take in the lecture and ask a few questions afterward, including if this was, in fact, death by a thousand cuts. (story continues after audio)

In each agreement, a little access has been granted to the trade partners. Each deal gives only a little access, but cumulatively there is significant loss of market share for domestic producers. Because the U.S. negotiated a separate agreement rather than sharing 3.25 per cent access with the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) countries, they get 3.59 percent access all to themselves. This effectively more than doubles the amount of access to the Canadian market that would have been in the Trans Pacific Partnership (TPP),Barichello explains.

“In each of these agreements Canada has given up a certain amount of market access through these increased TRQs (tariff rate quotas). So the amount of market access we have given up in terms of the European Agreement would be about 1.8 percent of our industrial milk production, the (CP)TPP about 3.2 per cent and now the USMCA another 3.59 per cent, so these whittle away our domestic market.”

At this point the Canadian market has been growing faster than the access that has been granted to other countries in these agreements, Barichello says. If this rate of growth continues, there should not be a need for outright cuts, but they will limit opportunity for an increase in domestic production.

The bigger problem seems to be the surplus of non-fat solids. There has been a growing surplus of these products for some time, and the new class that was created – Class 7 – lowered the price of these products to the world price. This helped to move some of this product domestically and reduce the surplus. Barichellos says now that this class is gone the surplus of non-fat solids will continue to grow, and, further down the line, could easily be the bigger problem.

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Categories: Ag Business / audio / CETA / Dairy / Livestock / TPP / Trade / USMCA