On Canadian dairy farms, fear and frustration as U.S. demands trade concessions

WINNIPEG, Manitoba/MONTREAL (Reuters) - Marie-Pier Vincent, a fourth-generation Quebec dairy farmer, worries it will be even harder to make ends meet if Canada allows more tariff-free imports of milk products from the United States under a reworked North American Free Trade Agreement.

A dairy cow cleans her newly born calf on a dairy farm in Saint-Valerien-de-Milton, southeast of Montreal, Quebec, Canada, August 30, 2018. REUTERS/Christinne Muschi

Vincent, 28, is already looking for a second job to pay back the money she borrowed to strike out on her own two years ago and start up a 35-cow farm 100 km (60 miles) southeast of Montreal. She and Canada’s 11,000 dairy farmers made these investments trusting in the country’s price controls and protection from imports that have been in place since the 1970s.

Now she fears Canada could relax its controls and agree to admit more U.S. dairy.

“It’s a huge deal as I have a lot of debts,” she said. “We really hope there will be no concessions.”

U.S. President Donald Trump wants a reworked NAFTA deal that eliminates dairy tariffs of up to 300 percent that he argues are hurting U.S. farmers, an important political base for Republicans.

Canada is under pressure to reach a new NAFTA deal with Mexico and the United States by Friday after the bilateral deal announced by the United States and Mexico on Monday.

Canadian Prime Minister Justin Trudeau, whose federal Liberal government relies on support from Ontario and Quebec where most dairy farmers live, repeated on Wednesday that he will defend Canada’s dairy industry. If he makes concessions, he could harm his 2019 re-election chances.

But Ottawa is ready to make concessions on Canada’s sheltered C$21 billion ($16.3 billion) dairy market to save a dispute-settlement system, a provision that was dropped from an agreement that the United States and Mexico reached earlier this week, the Globe and Mail reported on Tuesday.

A Canadian government spokesman declined to comment on the report.

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Quebec Premier Philippe Couillard warned Ottawa on Wednesday that any weakening of Canada’s supply management policies would have “serious political consequences.”

Ralph Dietrich tripled capacity at his Ontario farm over the past three years to 170 cows producing milk. Dietrich bought an additional farm and more production quota after Canadian farmers struck a deal to sell skim milk to the country’s processors at a lower price.

That deal, called Class 7, allowed them to compete with cheap U.S. supplies, and the move angered American farmers.

Ending the Class 7 deal, as U.S. Agriculture Secretary Sonny Perdue has demanded, would force farmers such as Dietrich’s son and son-in-law to reduce production.

“The two young people in the next generation would have a lifetime ahead of them of doom and gloom,” said Dietrich, who is chairman of Dairy Farmers of Ontario. “It would be the beginning of the end of supply management.”

Class 7 allows farmers to sell at a competitive price the protein-rich part of milk, called the skim, to Canadian dairies for use in making cheese and yogurt. Prior to Class 7 taking effect last year, Canadian dairies imported from northeastern U.S. processors greater quantities of a similar product that is not subject to Canadian tariffs.

François Dumontier, spokesman for les Producteurs de lait du Quebec, a dairy producers’ group, questioned how Canadian farmers could be stopped from setting their own prices.

“We sell the milk to processors at the price we want.”

Separately, surrendering greater tariff-free access for U.S. dairy, as Canada has done in past trade deals, would add to a steady erosion of supply management, said Manitoba dairy farmer David Wiens.

“Each time you do that you’re taking something away from the Canadian dairy industry and over time weaken the industry,” he said.

($1 = 1.2920 Canadian dollars)

Reporting by Rod Nickel in Winnipeg, Manitoba and Allison Lampert in Montreal; Editing by Lisa Shumaker