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Food fight: Agriculture becomes trade battleground
Trump's claim that Canada is abusing U.S. farmers ignores the full story

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Wednesday, June 13, 2018 – Page B1

U.S. President Donald Trump has angrily accused Canada of abusing "U.S. farmers, workers and companies" with its steep tariffs on farm products, most notably dairy.

Mr. Trump is correct that Canada's dairy and poultry farmers are heavily protected by a steep tariff wall.

But he's chosen to focus on a tiny sliver in what is otherwise a deeply integrated and nearly perfectly balanced $60-billion cross-border trade in agricultural and food products. And the United States is far from completely blameless when it comes to keeping certain agricultural products out of its own market, including sugar, peanuts and even dairy.

The real story of Canada-U.S. agricultural trade is that it works pretty well, for both countries.

Canada is the world's largest customer of U.S. food and farm exports and the second-largest source of those same products imported into the United States. The United States, for example, sold Canada US$3.5-billion worth of fresh fruit and vegetables in 2017, helping to foster a worldscale industry in Florida and California during the cold winter months.

Likewise, Western Canadian grain farmers happen to be really successful at growing oats, which thrive in areas with a cold spring.

Many of those same oats come back to Canada in boxes of breakfast cereal.

"That's kind of the way things have worked out over the years," explains Ron Bonnett, a cattle farmer from Bruce Mines, Ont., and president of the Canadian Federation of Agriculture.

"Whoever can do a good job of growing a product, they get a bit of an edge. It's mutually beneficial."

Canada also does well exporting canola, wheat, beef, pork and potatoes to the United States.

Over all, the United States holds a narrow trade surplus with Canada in agricultural products, with exports of US$24billion in 2017, including packaged foods, and fresh fruits and vegetables, according to U.S. figures. Canada, in turn, exported US$22-billion of farm products to the United States, led by snack foods, beef, pork and vegetable oils.

"It's a largely integrated market," says agricultural economist Al Mussell, lead researcher at Agri-Food Economic Systems, in Guelph, Ont.

"Some of our big consumer brands are American, particularly in packaged foods. And it makes sense that some of those products are manufactured in the U.S. We have trouble getting the threshold scale to do some of that in Canada."

If there is any inequity, it is that Canada doesn't process enough of its farm products, according to Mr. Mussell. "We worry a little bit that Canadians are the hewers of wood and drawers of water."

Even in the dairy and poultry industries, which are protected by tariffs of 150 per cent to 300 per cent, it's hard to make the case that the United States is getting ripped off. If anyone is being abused by Canada's supply management system, it's Canadian consumers, who generally pay much higher prices for those goods at the grocery store than Americans.

The United States enjoys a large trade edge in both dairy and poultry - in part because large-scale Canadian exports are prohibited under World Trade Organization rules because Canadian farmers are paid artificially high prices for most of their milk.

The U.S. domestic dairy market is also "highly protected" through a combination of border tariffs and domestic price supports, according to Mr. Mussell.

The United States, for example, imposes a 30-per-cent tariff on imported cheese. And while the U.S. government officially ended the practice of subsidizing farmers for low prices in 2014, Mr. Mussell said U.S. dairy farmers are still getting more than US$3billion a year in "price supports" through premium prices paid by the large dairy pools that buy their milk.

The main difference between the two markets is that Canada tightly regulates milk production; the United States does not.

And for the past couple of years, U.S. dairy farmers have been producing far more milk than the market needs, forcing its surplus onto world markets. The resulting price collapse has left many farmers in financial trouble in key dairy states, such as Wisconsin and New York.

At the margins, U.S. dairy exporters have been hurt by the Canadian dairy industry's creation last year of a new class of lower-priced industrial milk to encourage more processing of cheese, yogurt and other products in Canada.

The availability of this cheaper milk in the Canadian market has led to a sharp drop in imports of concentrated dairy protein from the United States. Imports of these products dropped 52 per cent to $61.6-million in 2017.

But that's a relatively tiny speck in what is a massive twoway flow of food and farm products.

"The big picture is that supply chains in farm and food products ... are so highly integrated between the U.S. and Canada," Mr. Mussell argues. "This other stuff is way down in the weeds."

Unfortunately for Canada, that is where Mr. Trump has chosen to do battle on trade.

Huh? How did I get here?
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