Massive Trans-Pacific Trade Deal Pits Dairy Against Beef in Canada

The outcome of a high-stakes lobby war between Canadian beef and dairy farmers could be decisive for whether Canada gets in on a massive controversial trade deal.

The Trans-Pacific Partnership (TPP) is a comprehensive trade and investment treaty that's nearing the end game of negotiations. The treaty aims to decrease or eliminate import tariffs between 12 Pacific Rim countries with a combined population of nearly 800 million people, representing about 40 percent of the world's economy, including Canada, the United States, Japan, Vietnam, Malaysia, New Zealand and Australia.

After the US Senate granted President Barack Obama authority to submit the deal to an up-or-down vote in Congress, talks look ready to accelerate, with a ministerial-level meeting reportedly set to take place this summer.

The TPP has been criticized for its lack of transparency, strict copyright enforcement measures and lax environmental standards, and for giving foreign multinationals the right to sue governments before international tribunals (with no reciprocal rights for citizens to sue them back).

In Canada, the friction appears to have centered around cows.

Internationally competitive sectors, like beef ranchers, are desperate to get in on the free-trade action. But the dairy industry, which is protected by tariffs and production quotas, is unwilling to give up sky-high tariffs that other countries have hinted might be a deal breaker.

According to the Canadian Federation of Agriculture, a blanket organization representing farmers across the country, the tariff debate is the only issue dividing the two groups.

"Market access is an issue that people get emotional about," said CFA president Ron Bonnett, who turned from dairy to beef farming a few years ago. "And sometimes there's been some polarization."

The big prizes for beef ranchers are markets in Malaysia, Vietnam and, especially, Japan, where Australia has recently negotiated a deal gradually knocking tariffs down to 19.5 percent. That gives them a big trading advantage over Canada, which still sees its beef exports to Japan taxed at 38.5 percent. Canada shipped about 13,000 metric tons of beef to Japan in 2012, worth about $59 million US, compared to Australia's $1.5 billion last year.

That's why the Canadian Cattlemen's Association is set on getting a deal, and soon.

"We either join up and get a deal that eliminates the tariffs and we could expect to double or triple our exports," John Masswohl, the group's international trade director, told VICE News. "Or else the Japanese imports are just going to go to Australia."

But to catch up with the Australians, Canada will have to give something up in return. Other countries in the TPP negotiations, particularly the US and New Zealand, want a chance to break into Canada's heavily protected markets for dairy, poultry, and eggs, which are tightly controlled by a complex system of quotas and tariffs known as "supply management."

New Zealand, a country of 4 million, is one of the largest dairy exporters in the world, with about one third of the world market. In November 2011, their trade minister called Canada's supply management system "completely inconsistent with tariff elimination" saying it "looks like it belongs in the former Soviet Union."

The US has made similar statements, with agricultural negotiator Darcy Vetter challenging the Canadian position earlier this year.

"Canada was aware when they joined that we expected them to provide full market access, and that a condition of them participating was to put dairy, poultry, and eggs on the table," she said. "We expect them to do so."

Related: This International Trade Deal Could Be a Huge Assault on Environmental Protections

But supply management is the darling of Canada's powerful dairy lobby. Created more than 60 years ago, the system relies on price fixing and high tariff walls to stabilize income for roughly 12,000 dairy farmers, mostly in Ontario and Quebec. Essentially, provincial dairy commissions assign quotas to farmers and buy up all of their milk at a fixed price. To keep out foreign competition, Canada places import duties of more than 200 percent on skim milk, about 250 percent on cheese and almost 300 on butter.

The result is that Canadians pretty much only drink Canadian milk and pay up to $550 CAD ($435 US) more on their annual grocery bill, when protected eggs and poultry are factored in. Those additional costs disproportionately hit poor families, according to one report. Supply management has no doubt saved many a family farm (or, increasingly, a large agro-concern), but critics say it's little more than a monopoly that drives up costs for Canadians.

Needless to say, the dairy farmers aren't ready to see their lucrative system come under threat, whatever the cattlemen might want.

"We have different interests," says Yves Leduc, president of the Dairy Farmers of Canada. "The dairy, poultry, and egg sectors are domestic oriented. From that perspective our objectives are to preserve the supply management system."

Leduc says his members are "preoccupied" by the pressure coming from New Zealand and the US. But he doesn't think that Canada should give into pressure from other countries to make changes that could jeopardize the system. He sees it as a matter of national sovereignty.

"Supply management is domestic policy," says Leduc, "and it's the right of Canada to decide on its own domestic policy."

Despite the Harper government's determination to conclude as many trade deals as possible, the dairy farmers' concerns seem to have had a big impact on Canada's negotiating position. The prime minister and the minister of international trade have repeatedly said that they will defend supply management in trade talks.

How did milk become such a key concern for the Harper government? The dairy sector is a multi-billion dollar industry, and all that milk money has given dairy farmers a lot of clout on Parliament Hill. One report estimated the industry spends $100 million ($80 million US) on lobbying. In the last six months alone, DFC representatives met with MPs and bureaucrats on "international trade" issues 12 times, according to the National Registry of Lobbyists.

Election regulations limit contributions lobby groups can make to federal campaigns, but dairy farmers can still work to mobilize Ontario farmers, who form a crucial part of the Conservative party's base — just as a fall election nears.

The cattlemen have been even busier in Ottawa, with 52 international trade-related visits recorded in the lobbyist registry this year.

There might be room for a compromise. In 2013, Canada convinced the EU to sign a free trade agreement by agreeing to quotas that still left supply management intact, while doubling the amount of European cheese imports. Those measures didn't destroy the system, but they did increase competition and reduce the market share of Canadian cheesemakers.

The government may be preparing to offer a compensation deal to dairy and poultry farmers, according to a Globe and Mail report citing confidential government sources.

"Canada makes no apologies for ensuring that any deal reached is in our best interests," a spokesman for the Canadian trade minister told VICE News. "Our goal is to secure balanced outcomes that benefit all sectors of our economy, across all regions of our country."

The Dairy Farmers of Canada have heard nothing of a compensation offer, according to Leduc, who says they have "no reason to question the commitment of the Canadian government" to supply management. Still, if import quotas are further loosened, he says they'd seek compensation at a value equivalent to their losses.

And if that happens, Canada's place in the TPP would seem all but assured.

Follow Arthur White on Twitter: @jjjarthur