Saturday, April 13, 2024

Dairy’s beef with Canada grows

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US market soured for NZ by growing exports of subsidised milk.
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Trade Minister Todd McClay is promising to turn up the heat once again on Canada as yet another example has emerged of its dairy policies depressing returns for New Zealand exporters. 

McClay was already preparing to line up his Canadian counterpart Mary Ng over her country’s ongoing rule-breaking under the Comprehensive and Progressive TransPacific Partnership (CPTPP) trade agreement at a meeting of global trade ministers next week in Abu Dhabi.

Now it can be revealed McClay will also seek to corner Ng over growing concerns among NZ exporters about Canadian exports undercutting them in the United States market.

In a speech to the US Business Summit late last year, Fonterra chief executive Miles Hurrell singled out the threat from subsidised Canadian dairy products to the co-operative’s valuable US business. 

He said high tariffs limit its ability to sell lower-value commodities to the US, though it does not face the same trade barriers for higher value products.

As a result the US is the co-operative’s fourth largest market by value and most valuable on a per-unit basis.

However, Hurrell said, this is now at risk.

“Canada’s growing exports of subsidised milk protein is the largest risk to Fonterra’s value-add business in the US,” he said. 

It is not the first time subsidised Canadian milk exports have wreaked havoc on international dairy markets to the cost of NZ exporters.

In 2016 the NZ industry joined an international alliance of dairy producers calling for their governments to take on Canada’s Milk Class 7 system, which they alleged broke World Trade Organisation rules by purchasing skimmed milk powder at below international prices and dumping it on the global market.

A dairy industry leader at the time said the depressing effect on global SMP prices was probably costing NZ dairy farmers $100 million a year in lost earnings.

No action was taken until then president Donald Trump negotiated a cap on subsidised Canadian dairy exports as part of a new trade agreement with Canada and Mexico in 2018. 

However, Dairy Companies Association of NZ (DCANZ) executive director Kimberly Crewther said the problem of illegally subsidised Canadian dairy exports has resurfaced under a new pricing classification, Milk Class 4 (a). 

“We used to talk about Milk Class 7. And again this is the frustration.

“There is just this continuing reconfiguration within the Canadian system to do the same things.

“It is extending this time beyond just SMP and we are seeing increasing volumes of other protein products as well which is a concern for us as unsubsidised producers.”

Crewther said Milk Class 4 (a) breaks a World Trade Organisation ban on export subsidies and potentially other trade rules.

While taking a WTO case against Canada would be futile on account of the body’s broken appeals system, Crewther said, there are other legal options available to NZ and others.

She noted Canada and NZ are both members of the Multi-Party Interim Appeal Arbitration Arrangement, a breakaway tribunal set up to adjudicate trade disputes in the absence of a working WTO dispute settlement system.

McClay said he shares DCANZ’s concerns with Milk Class 4 (a) and the impact it is having on global dairy markets.

“This is a serious matter for our industry and the integrity of the rules-based trading system.

“We will be examining all options, including seeking legal advice, and expect Canada to meet its obligations to NZ.

“I will also be raising this with my counterpart as well as other countries at the WTO Ministerial meeting next week, along with the separate issue relating to the implementation of the CPTPP panel ruling,” he said. 

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