A new, tentative agreement reached between Canadian dairy farmers and processors will allow Canadian processors to buy domestic milk ingredients at world market prices. The nationwide pricing strategy aims to incentivize the use of Canadian domestic ingredients by pricing them at levels that are competitive with those offered by American and other international producers. In Canada, domestic dairy ingredients are priced at higher levels than international equivalents due to Canada’s supply management regime. The new strategy is expected to focus on imports of ultrafiltered (also known as diafiltered) milk, which has enjoyed access to the Canadian market as a duty- and quota-free import into Canada.
The Current Regime
Prior to 2016, ultrafiltered milk entered Canada duty- and quota-free under the North American Free Trade Agreement (“NAFTA”) as a non-fluid protein concentrate rather than milk. This led to the growth of a substantial ultrafiltered milk industry in the Midwestern and Northeastern United States. In May 2016, the Canadian dairy industry instituted a temporary program that allowed Canadian manufacturers to buy domestic ingredients at world market prices, as opposed to the typically higher prices established by Canada’s national supply management system. The Canadian Milk Supply Management Committee’s (“CMSMC”) temporary program modified milk class 4(m) to include liquid skim milk, in addition to liquid and dry milk protein concentrate, the latter of which was being imported as a substitute for liquid skim milk because of its duty exemption under NAFTA. Major American processors such as Cayuga Milk Ingredients and O-AT-KA Milk Products Cooperative have renounced both the CMSMC’s temporary program, as well as the new tentative agreement reached this month, as they are expected to lose much of their access to the Canadian market due to the changes.
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