On behalf of Dairy Farmers of Canada, thank you for the invitation to appear before the Standing Committee on International Trade as part of its study on the North American Free Trade Agreement (NAFTA). I invite all members to read the brief we have submitted to the committee, since it contains a lot more information than my short presentation.
I would like to point out that Canada's dairy sector contributes significantly to Canada's economy. In fact, every year, our contribution is $19.9 billion to the GDP, and $3.8 billion in tax revenues. In addition, the dairy sector sustains 221,000 jobs.
It is important to remember that Canadian dairy farmers derive their returns from the market, without any direct government subsidies. The situation is completely different in the United States. Although we focus our efforts on serving the domestic market, international trade talks are very important for us when it comes to maintaining our supply management system. The system is described in our brief.
The Canadian dairy sector was excluded by the Canadian government from the original NAFTA. As such, Dairy Farmers of Canada urges the Canadian government to continue to exclude the Canadian dairy industry from NAFTA negotiations. Let me stress that Dairy Farmers of Canada is not opposed to Canada entering into trade negotiations with other countries, provided that there is no negative impact on the Canadian dairy industry.
Opening the Canadian dairy market to the U.S. would be costly for the Canadian economy in terms of GDP losses, reduced contribution to the GDP, job losses, especially in the regions, and lower returns to producers. In addition, it would bring no benefits to Canada.
As the current Government of Canada has pointed out on many occasions, in terms of dairy trade between Canada and the U.S., the U.S. enjoys quite a favourable dairy trade balance. In 2016, the trade surplus for the U.S. was more than $400 million Canadian. In addition, almost 10% of Canadian demand is met through imported dairy products, much of which is being dumped on the Canadian market from the U.S. In comparison, in the U.S., only 3% to 4% of domestic demand is filled by imports from all countries. It is therefore wrong to say that the Canadian market is closed.
Not only does Canada honour its international trade commitments, but it also allows heavily subsidized American products to enter the Canadian market and compete with our domestic production. The amount of support provided to U.S. agriculture through direct and indirect government subsidies clearly precludes a level playing field, and is not likely to change any time soon. It is therefore critical to address this question as part of the NAFTA renegotiations in order to ensure a level playing field between Canada and the U.S.
In addition, it is worth noting that the U.S. limits its imports of foreign dairy products through tariff rate quotas, making their dairy industry just as protective as Canada's industry, if not more so. For information purposes, the U.S. has a total of 24 tariff rate quotas for dairy, compared to 12 for Canada. Furthermore, it is important to remember that, in some cases, the U.S. has even more stringent protectionist policies than Canada; they are in place for so-called sensitive U.S. industries, including dairy and sugar.
The last point I want to discuss is compliance with the rules. Some have suggested that Canada has not played by the rules by adopting policies that allegedly impede trade. Dairy Farmers of Canada strives to ensure that the Canadian dairy industry is dynamic and responsive. The dairy industry continuously responds to changes to the domestic market environment. Any new policy is created in order to respond to those changes.
The agreement in principle between producers and processors for a national ingredient strategy, including the class 7, isn't any different.
The introduction of class 7 fosters innovation, which will result in the growth of the Canadian dairy industry.
The purpose of the strategy is to upgrade our capacity, provide an array of products for use in foods and non-food applications, simplify supply chain management, and increase flexibility in order to meet market demand in a more timely and efficient manner, all while adding value to domestically produced protein in the Canadian market.
Once again, the Canadian system is concerned about meeting the needs of the domestic market, and is not export-focused like the U.S. industry. It is important to remember that, on several occasions, the U.S. has circumvented trade regulations in its trade with Canada. For example, the U.S. developed a product rarely used domestically, diafiltered milk, specifically in an attempt to take advantage of loopholes in existing trade agreements and undercut the Canadian dairy market. Canadian dairy producers have lost approximately $230 million annually since 2015 as a result of the importation of diafiltered milk directly displacing Canadian domestic production.
Additional examples are provided in the document that we have submitted to the committee.
The Canadian dairy industry has respected and will continue to respect existing international trade agreements. The same cannot be said for the U.S. dairy industry.
Let me conclude by stressing that other representatives from Dairy Farmers of Canada and I are present at every round of negotiations. In our view, so far, the Government of Canada has been successful in handling the negotiations effectively and keeping stakeholders informed, but we will stay alert.
Thank you for your attention.