Dairy farmers to get $350 per kilo of quota in first year as compensation for trade deals, market loss

By Connor Lynch
OTTAWA — Canada’s dairy farmers will get $1.75 billion in direct compensation from the federal government for market share loss from international trade deals.

The federal government announced the compensation package for dairy farmers last month to compensate them for lost market share from the Comprehensive Economic and Trade Agreement (CETA), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Dairy farmers will receive direct payouts of $345 million in the first year. How compensation will work in the remaining years of the eight-year program has yet to be decided.

This payout will be on a quota basis, with producers in the first year receiving about $350 per kilo of quota, according to Agriculture and Agri-Food Canada.

Less direct compensation methods have drawn the ire of dairy country. The $250-million compensation package for dairy farmers under the CETA agreement, called the Dairy Farm Investment Program, was a cost-share program that farmers had to apply for and the federal government would partially match costs to buy equipment or investments in the farm.

Many farmers likened it to a lottery, saying it was unfair that only some farmers benefitted despite the fact that all had lost market share. Others argued that it was unfair that farmers had to buy-in to get compensation.
Dairy Farmers of Ontario board member and Aylmer-area farmer Paul Vis said that direct compensation is much fairer than the “lottery” method of government cost-share programs. “If you got the application in soon enough, you got money. If you didn’t, too bad.” And farmers getting paid out for lost markets was only fair, he said. “We are the largest economic driver in agriculture. And they sold our market out.”

The federal government also announced that crop farmers who had been impacted by the recent market instability and U.S.-China trade war would receive a six-month extension to repay cash advances from the Advance Payments program, and had previously raised the loan limit to $1 million for individual farmers, with canola farmers also getting up to $500,000 interest-free.

“Some people will say, ‘the dairy industry got a grant. We got a loan. How’s that fair?’” said Al Mussell, senior researcher with Agri-Food Economic Systems at Guelph.

Mussell also said that the latest compensation could backfire in a couple of ways. “Effectively, the dairy farmers have painted a target on their chest from the standpoint of other commodities and other countries.” But it could also pose a financial issue, particularly for succession.

Although dairy farms have substantial assets and strong earnings, Mussell said, those earnings, relative to the value of the assets, are quite small, in the neighbourhood of two to three per cent. “If we think about buying assets relative to the earnings they generate, the investments in dairy have generated low returns.” And, as Mussell pointed out, nearly $2 billion has just been announced to go into that investment pool. “It particularly bites when farmers go to transfer the farm. Who wants to pay $1 for $1 of assets, when they only return two per cent?”

But, as the government pointed out, direct compensation was what the dairy working groups were asking for. Nor does compensation appear to be a partisan issue; though the federal election is upcoming on Oct. 21, back in 2015, Stephen Harper’s Conservative government proposed about $4 billion in compensation for dairy farmers under the Trans-Pacific Partnership (TPP), the agreement that preceded the CPTPP.

The Liberal government earmarked $3.9 billion for the supply-managed sectors in this year’s budget. This includes this $1.75-billion program, with an additional $1.5 billion set aside for the Quota Value Guarantee Program (identical to the amount promised by the former Conservative government, it will protect producers if quota values drop) and $250 million for the Dairy Farm Investment Program. This leaves $400 million, which a spokesperson told iPolitics had been set aside for the poultry and egg sectors.