OTTAWA — “We believe it’s important to point out to our U.S. friends that dairy producers in the U.S. also receive subsidies from the government, very significant subsidies.” — Foreign Affairs Minister Chrystia Freeland in Washington on Tuesday.
The United States took aim at one of Canada’s sacred economic cows during the just completed fourth round of the renegotiation of the North American Free Trade Agreement — it wants an end to the supply management system for dairy, chicken, eggs and turkey.
No Canadian government has ever opposed supply management, and the current government does not dispute that it is protecting Canadian dairy.
As Freeland said in Washington this week that doesn’t make Canada unique. She said that’s because the U.S. also protects its dairy industry, through subsidies.
Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of “no baloney” to “full of baloney.” (complete methodology below).
This one earns a rating of “a little baloney.” Here’s why.
Canada’s supply management system has been protecting Canadian farmers from international competition since the 1970s by limiting imports, fixing prices and setting quotas. It also imposes sky high tariffs of more than 200 per cent on dairy imports.
The government’s goal is to provide a stable, predictable living for farmers. Economists say that in an era of free trade that’s essentially an unacceptable relic. Some have even made comparisons to the old Soviet Union.
The protections have made supply management a target in various free trade negotiations, including the recently completed talks with the European Union. But that negotiation was nothing like this week’s U.S. broadside, which calls for a phasing out of the system entirely over the next decade.
South of the border, protections for farming have been fluid over time but omnipresent. Since the dust bowl of the 1930s, the U.S. has instituted a series of laws — farm bills — to help its farmers. The farm bill has been renewed roughly every five years.
A report this month by the Congressional Research Services assess the ramifications of the farm bill in its various forms in recent decades. The report says the first one included “subsidies and production controls to raise farm incomes and encourage conservation.”
Over the years, subsequent bills have morphed into “omnibus” bills that have been expanded to include a wide range of features including food stamps for the needy, research to help farmers be more productive, and crop insurance. The current bill will cost more than $450 billion US, according to the report.
The U.S. Department of Agriculture says the current bill “brought about substantial changes in protections for dairy farmers.”
The department’s website notes that three programs have been discontinued under the current version, but two others are still in play — an insurance program to help farmers, and a pricing system “to help establish orderly marketing conditions for the benefit of both dairy farmers and dairy product consumers.”
WHAT COMPETING INTERESTS ARE AT PLAY?
Michael von Massow, a food economics expert at University of Guelph, says putting an exact dollar figure on what constitutes an actual government subsidy is always contentious: ask five economists to do that, and you’ll get five different answers.
But there’s still evidence of U.S. subsidies, he said.
The insurance programs for farmers constitute a subsidy, he said. And he added there’s a more subtle form of subsidies at play too: “floor prices” for dairy products that are set at the federal and state levels.
“So, again there is significant support in the U.S. dairy industry.”
But it’s not clear how much the U.S. is spending because the exact figures on the implementation of the new farm bill haven’t been publicly released, said von Massow.
Jaime Castaneda, senior vice-president with the U.S. National Milk Producers Federation, said that in the last three years, U.S. farmers have paid more into the farm bill’s insurance program than the government has paid out in premiums.
“You can actually argue that U.S. farmers are actually being taxed, paying more into the government than they’re ever going to receive. That’s the bottom line.”
Adam Taylor, a trade consultant who was an aide to the former Conservative trade minister in Canada, says there’s a more insidious form of U.S. subsidies — undocumented migrant workers on U.S. dairy farms.
Taylor pointed to a pair of surveys that measured the impact of undocumented workers on the dairy industry.
A September 2015 survey by the U.S. National Milk Producers Federation found that half of all workers on U.S. dairy farms are immigrants and if those workers were excluded from the workforce, the price of a gallon of milk would soar 90 per cent. It said the cost to the U.S. economy would be $32 billion.
Last month, another study found that if all illegal workers were kicked out of New York state, 1,100 of its farms would go out of business or reduce their output significantly.
“Americans are hypocrites for going after supply management given their reliance on the undocumented workers that keep U.S. dairy prices artificially low,” said Taylor.
Taylor’s old boss, former trade minister Ed Fast, urged the Liberal government to use that “hypocrisy” to push back at the NAFTA bargaining table.
“The industry itself in the United States has admitted they wouldn’t be viable if they couldn’t use undocumented workers. This is a problem we don’t have in Canada,” said Fast in an interview.
The U.S. wants to see a phase-out of Canada’s controversial supply management system, but the Canadian government is determined to fight back. Freeland maintains that U.S. dairy farmers receive “very significant subsidies.”
There’s clear evidence that the U.S. has taken measures to protect its dairy industry. It’s also clear that undocumented migrant workers are a boon to dairy farming.
But the U.S. system, mainly administered through its successive farm bills, is a constantly evolving process. As a result there isn’t a full accounting of what the system currently pays out to farmers.
For that reason, Freeland’s accusation about the U.S. industry earns a rating of “a little baloney.”
The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:
No baloney — the statement is completely accurate
A little baloney — the statement is mostly accurate but more information is required
Some baloney — the statement is partly accurate but important details are missing
A lot of baloney — the statement is mostly inaccurate but contains elements of truth
Full of baloney — the statement is completely inaccurate
Mike Blanchfield, The Canadian Press