The Special Interest Group Threatening US-Canada Trade Relations

The Special Interest Group Threatening US-Canada Trade Relations

The North American Free Trade Agreement (NAFTA) is once again making headlines with news that the United States and Mexico have agreed, in principle, on a revised deal. But Canada remains an outsider — and one of the primary causes is its powerful dairy lobby.

Canada currently imposes lofty tariffs on dairy imports at the behest of the this strong, cartel-type lobby. And its disproportionate political clout is obvious, as the Canadian government continues to defend these dairy tariffs to the detriment of the rest of the nation. This special interest group is not only jeopardizing the world’s second-largest trade relationship, but also wreaking havoc on Canada’s political landscape.

Canada’s dairy market is far from free. Instead, it abides by the rules of a system called “supply management,” which combines government-imposed production limits, minimum prices, and high tariffs to stabilize (and increase) the price of Canada’s dairy products artificially.

Here’s how the system works: A government committee sets a monthly production quota for all dairy produced in the country. Farmers must then pay the government in order to produce a fixed amount of dairy, and can only sell milk produced within this specified limit. Prices vary across provinces, but because there are nearly a million Canadian dairy cows, these quotas are collectively worth about $32 billion (CAD). Canada also imposes extremely high tariffs on dairy imports to restrict supply, with dairy tariffs averaging 249 percent. Any milk entering Canada above quota faces a 241 percent tariff, meaning that any amount of milk worth $1 that enters the country is slapped with an additional cost of $2.41 when it crosses the border. 

Supply management disproportionately hurts less affluent Canadians. In fact, a recent study found that supply management costs the poorest 20 percent of Canadians about $339 per year — or about 2.3 percent of their income. For the wealthiest 20 percent, supply management costs $554 per year, or just half a percent of their income. 

This system emerged in the 1960s, when economic planning was much more in vogue. Now, its survival depends upon a powerful lobby that has its tentacles in all the major federal parties. The Liberals, Conservatives, and New Democrats all support supply management. Touching the system is a third rail of Canadian politics, even though there are only 11,000 dairy farms in the whole country.

Dairy Farmers of Canada (DFC), the sector’s main advocacy arm, maintains the system through incessant and often bizarre public campaigns, and they heavily lobby politicians for support. Dairy farms in Canada are heavily concentrated in a small number of constituencies in Canada’s most populous provinces, Ontario and Quebec. Aggravating the DFC would cause electoral headaches for any party brave enough to oppose them. Conservative opposition leader Andrew Scheer has attacked Prime Minister Justin Trudeau for not defending supply management enough against Trump’s attacks. 

Trump has repeatedly pointed to dairy tariffs as a major stumbling block in NAFTA renegotiations. The Canada-U.S. trade relationship is the second-largest in the world, and 75 percent of Canadian exports enter the United States. Despite this, a cross-party consensus to defend supply management remains firmly in place, creating substantive tensions with the United States and other trading partners, putting the dairy lobby in charge of the country’s economics. 

But the dairy lobby’s power goes even beyond its potential to sever this strong trading relationship. Indeed, it has exerted a disproportionate influence on Canadian politics over the last 18 months as well.

In 2017, the Conservative Party held a leadership election to replace former Prime Minister Stephen Harper. The party narrowly elected former Speaker of the House Andrew Scheer with 50.95 percent of the vote. Scheer beat Member of Parliament (MP), Maxime Bernier, who got 49.05 percent. The election of Bernier, an avowed and uncompromising libertarian — and Canada’s most vocal opponent of supply management — would have represented an existential threat to the dairy cartel.

These close results prompted a closer look at some credible evidence that Scheer won only because the dairy lobby signed up farmers to vote against Bernier. These temporary members, or “fake conservatives” as Bernier referred to them afterward, may have decisively swung the vote — just a few hundred votes in certain constituencies may have been enough to change the outcome. The party-fueled anger and discontent after the election by immediately destroying the ballots without giving a clear reason why, shrouding the discrepancy between the official voters list and the number of votes cast. 

Bernier’s post-election relationship with the Conservative Party was tenuous. He was initially appointed to Scheer’s opposition cabinet, but later demoted after he continued to publicly attack the dairy cartel. On August 23, Bernier announced he was leaving the party because it was “too intellectually and morally corrupt to be reformed,” specifically citing Scheer’s continued support for supply management. He further revealed plans to start a new conservative party. In the first polls, which came out three days later, support for this unestablished party was already in the double digits, splitting the conservative vote. 

If this party, which is supposed to be formally launched this week, comes to fruition, it will almost certainly guarantee a Liberal victory in the next election in 2019. Ultimately, Scheer’s vigorous support for supply management may have won him the leadership, but it could easily cost him the election.

Despite Trump’s repeated threats, the spell the cartel has cast over the political establishment does not appear to have been lifted. Foolishly ignoring Trump’s repeated warnings, both Trudeau and Scheer continue to affirm their support for supply management. If NAFTA 2.0 ends up excluding Canada, much of the blame can be placed on politicians anxious to appease the dairy cartel. And if Americans want a concrete warning of the power of special interests to hijack democracies, they need only look north.  

Benjamin L. Woodfinden is a Doctoral student in Political Science at McGill University in Montreal. He has been published in The American Conservative, Maclean’s and The Ottawa Citizen.

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