Washington Insider -- Friday

Insider Dairy Rumbles With Canada

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Trump: New NAFTA Details Coming by First Week of May

Details on renegotiation of the North American Free Trade (NAFTA) agreement will come between now and the first week of May, President Donald Trump pledged this week.

"We'll be reporting back sometime over the next two weeks as to NAFTA and what we're going to do about it," Trump said in the Oval Office after signing an executive memorandum focused on steel imports, according to a pool report.

Trump again noted his dismay over US dairy trade with Canada. He said he had not planned to break from prepared remarks to touch on dairy but "the fact is, NAFTA, whether it's Mexico or Canada, is a disaster for our country."

"We're going to have to get to the negotiating table with Canada very, very quickly," he said.

Trump did not elaborate on NAFTA proposals ahead. One possibility is that the White House could formally notify Congress of its intent to reopen NAFTA, a step that is statutorily required under Trade Promotion Authority (TPA/fast-track) legislation before talks can begin. A draft of the notification was circulated on Capitol Hill late last month (link), but the administration is waiting for Robert Lighthizerto be confirmed as U.S. Trade Representative (USTR) before sending a final version.

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USDA-Nominee Sonny Perdue Comments on Lawmaker Questions

USDA-nominee Sonny Perdue wants to establish a USDA Undersecretary for Trade, based on his responses to questions submitted for the record by members of the Senate Agriculture Committee.

Perdue said he will request that a plan for implementing the new trade post be developed and would report that to Congress. The former Georgia governor promised Sen. Steve Daines, R,. Mont., that he would fill the position as quickly as possible. Former USDA Secretary Tom Vilsack worked against the position, which was mandated in the 2014 Farm Bill, warning Congress it would be a complicated move to consolidate under one mission area the department's varied international trade activities.

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Grassley raised approval of new biotechnology traits for grains with Perdue. Sen. Chuck Grassley, R., Iowa, brought up frequent delays in other countries' — including China's — approval of new biotechnology traits for grain crops, and asked USDA Secretary-nominee Sonny Perdue what he would do to streamline the process so farmers can have the best technology as soon as possible. Perdue said he will "insist that USDA be more aggressive in supporting advancements in biotech."

On possible administrative changes to US cotton program. Sen. John Boozman, R., Ark., said he thinks there are "policy adjustments" that can be made ahead of the 2018 Farm Bill to help cotton producers who are struggling with low commodity prices. He was referring to actions that former USDA Secretary Tom Vilsack said he did not have the authority to carry out. House Agriculture Committee Chairman Mike Conaway, R., Texas,requested that Vilsack designate cottonseed as an "other oilseed" so growers could receive subsidies from two programs in the farm bill (Price Loss Coverage or Agricultural Risk Coverage) — a fix that Vilsack said would have to be made by Congress.

"If confirmed, I will have USDA review the authority of the secretary to make changes to cotton programs, as well as explore other potential solutions to help cotton producers, consistent with budget limitations," Perdue said in written answers to lawmaker questions. Congressional sources say that language will likely be included in a forthcoming spending bill to deal with the cotton safety net issue.

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Fri. April 21 Washington Insider Dairy Rumbles With Canada

It is hard to characterize Canadian policies for agriculture. Much of the nation's ag sector is avidly committed to open markets and depends heavily on exports, but there are exceptions. Supplies are tightly regulated for milk, eggs, chicken and turkey, for example.

Under supply management systems, producers operate under tight quotas for domestic production and imports and are charged penalties for overages. Critics often argue that supply management is unduly protectionist and often is highly controversial, especially in international trade negotiations and it leads to inefficiencies in the market to the detriment of consumers.

There are 17,000 Canadian farms that operate under supply management; about 8% of all farms, and more than 11,000 of those are dairy operations. While Canadian dairy producers tend to like their program's stability and its supported prices they worry a lot about competition from their southern border. Most of the Canadian production is just across the border from the highly productive U.S. Northeast and Midwest where milk and dairy prices tend to be much lower than those under the Canadian system.

Informa Economics is reporting the Canadians recently rolled out a policy that U.S. producers say effectively blocks imports from the United States and violates NAFTA by creating incentives for Canadian processors to use local supplies. U.S. producers are up in arms about the policy and say the rules are adding to a glut of milk on the American side of the border. The governors of Wisconsin and New York have written the President about the problem.

Not only did President Trump promise dairy farmers his administration would intervene to restore exports of American milk to the Canadian market, but he said he would change NAFTA in the process.

"We're going to call Canada and we're going to say 'What happened?'" Trump said during an appearance at a Snap-On Tool plant in Kenosha Wisconsin. He promised a "solution, not just the answer." He said that the Canadian dairy policy was "very, very unfair" to U.S. producers and promised that it is "not going to happen for long."

The new Canadian program is a "national ingredients strategy" that allows Canadian cheese-makers to buy certain ingredients at the lowest world market price—and, is effectively pricing out U.S. exports of ultra-filtered milk, producers say. Industry groups say the policy has already led to farmers in Wisconsin losing contracts with major U.S. dairy processors that ship the products north of the border to be made into cheese — and they want the administration to retaliate against the measures and challenge them at the WTO.

However, the President went farther. Regarding NAFTA, he said, "We're going to make some very big changes. We're going to get rid of NAFTA once and for all."

Canada was quick to respond. The Ottawa-based Dairy Farmers of Canada says it is confident the Canadian government will "defend and protect" its dairy industry and the economy. The group has blamed oversupply of milk in the U.S. for the situation.

Meanwhile, Canada's ambassador to the U.S. sent a letter to the governors of New York and Wisconsin after Trump's comments, saying the trade balance in dairy between the two nations favored America by a ratio of about five to one. "Canada doesn't accept the contention that Canada's dairy policies are the cause of financial loss for dairy farmers in the United States," wrote Canadian ambassador to U.S. David MacNaughton. He also wrote that "technical barriers" make the U.S. more protectionist than Canada, and his nation isn't a cause of the global oversupply that has hurt American farmers.

Jim Mulhern, president and CEO of the National Milk Producers Federation, welcomed Trump's comments. "Canada's repeated disregard for its dairy trade commitments to the U.S. has left American dairy farmers enduring the severe and unfair consequences," Mulhern said.

Grassland Dairy Products Inc. in Greenwood, Wisconsin, said it has lost Canadian business valued at as much as $100 million annually in the last week, and notified dozens of farmers that it cannot take milk deliveries beyond the end of April. Cayuga Milk Ingredients in Auburn, New York, said it also lost all of its Canadian exports, a source of about 30 percent of overall sales.

This dispute promises to be messy—especially if it undercuts a trend within the administration toward softening its overall anti-trade inclinations. The United States found the Canadian Supply Management policies to be a difficult hurdle in the Trans-Pacific Partnership negotiations and U.S. officials have long been critical of supply management impacts on U.S.market opportunities—but, they are firmly embedded in parts of Canada. So, this is a dispute producers should watch closely in terms of its overall implications for U.S. trade and trade policy, Washington Insider believes.

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