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The Future of the Canadian Dairy Industry

The Future of the Canadian Dairy Industry. by Sue May Yen AGEC 630 McGill University April 4, 2006. Research Question. How will trade liberalisation between Canada and the U.S. impact the Canadian dairy industry?. Outline . Quick Facts of the Canada and U.S. Dairy Industries/Programs

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The Future of the Canadian Dairy Industry

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  1. The Future of the Canadian Dairy Industry by Sue May Yen AGEC 630 McGill University April 4, 2006

  2. Research Question • How will trade liberalisation between Canada and the U.S. impact the Canadian dairy industry?

  3. Outline • Quick Facts of the Canada and U.S. Dairy Industries/Programs • Factors Influencing Change • Trade Agreements • Impacts of Freer Trade • Conclusion • Future Research

  4. CANADA $4.6 billion revenues 16,224 producers (75.9 million hectolitres) $323.8 million dairy trade deficit 84% of domestic support U.S. $24 billion revenues 81,000 producers (77 billion kilos) ~$800 million dairy trade deficit 55% of domestic support Quick Facts Sources: DFC (2005), CDC (2006), AAFC (2005), USDA-ERS (2006), OTA (2006), NASS (2004)

  5. CANADA Tariff-Rate Quotas Price Supports Supply Management Milk Classification Pooling Agreements Export Programs U.S. Tariff-Rate Quotas Price Supports Federal Milk Marketing Orders Market Loss Payments Export Programs Dairy Program Overview

  6. Factors Influencing Change • Consumer Demand • Health, environment, safety concerns • Technology • Agribusiness • Government • Fiscal pressures, rent-seeking • Sustainable land & resource use • Trade Agreements

  7. Trade Agreements • CUSTA (1989) • Tariffs eliminated except on dairy products • NAFTA (1994) • No tariffs on prepared foods with dairy products • Uruguay Round, GATT (1994) • Tariffication (Import Quotas => Tariff-Rate Quotas) • WTO-DOHA Round • Product-specific spending limit • FTAA • Open all dairy markets beyond WTO agreements

  8. Tariff Reduction: Challenges • Decrease in producer and consumer price to keep imports at a minimum • Producers lose, consumers win • Canada currently has access to less % of market share in U.S. • Canadian processors have worked around import barriers

  9. Tariff Reduction: Opportunities • Canadian producers are relatively efficient • No evidence that U.S. producers have an advantage • Access to a large U.S. market • Prices paid by U.S. consumers are often higher • Able to supply U.S. during shortages

  10. Minimal Short-Term Impacts From More Relaxed Trade • Dairy industries will continue to be protected • Industry change reflection of consumer demand and technological innovation • Policy change is driven by fiscal pressures, rent-seeking • Little evidence of inability for Canadian dairy producers to compete • Harmonisation of trade

  11. Conclusion • Little evidence of negative impact overall on dairy producers • Trade agreements have had less direct impact than consumers and agribusiness • Government support of the industry during transition • Compensation • Consumer confidence, safety • Fostering niche market development, such as organic production

  12. Future Research • Empirical analysis of trade liberalisation, focused on organic dairy industry • Investigate trade relationship with E.U. for dairy products (represents ~40% of imports)

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