As the fifth round of talks to renegotiate the North American Free Trade Agreement (NAFTA) wrap up in Mexico City, Canada appears to be becoming less dependent on U.S. imports of certain dairy products, particularly butter.
“Canada's efforts to curtail butterfat imports seem to be going exactly as planned. At the turn of the year, the Canadian Dairy Commission increased the national milk production quota, and Canadian dairy producers have responded accordingly,” says Sarina Sharp, agricultural economist with the Daily Dairy Report.
In October during the fourth round of NAFTA talks in Washington, D.C., a U.S. proposal that would dismantle Canada’s quota system over 10 years was introduced. While Canada has not officially responded to that proposal, it is widely expected that the country will reject it. The sixth round of NAFTA talks will take place in Ottawa in January.
In the meantime, Canada is ramping up milk production. For the first eight months of 2017, milk production in Canada rose 5.9% above the first eight months of 2016, according to data from Statistics Canada.
“Canada’s stronger domestic milk production has started to displace imports, including imports of U.S butter,” notes Sharp.
Canadian cream imports were off to a strong start in 2017, besting prior-year imports in the first six months of the year. Beginning in July, however, cream imports started to lag year-earlier volumes. Compared to 2016, Canadian cream imports fell 14.8% in July, 31% in August, and 14.3% in September.
Canadian butter imports are also lower. For the first nine months of the year, Canada’s butter imports slipped 4.9% below the first nine months of 2016. In September, the country’s imports plunged 60.8% below September 2016 levels to less than 1.5 million pounds.
Canada’s September butter imports were the smallest monthly volume in more than two years, Sharp notes, and so far this year, the United States has supplied more than half of Canada's butter imports and nearly 87% of Canada's imported cream. However, in September, New Zealand edged ahead of the United States to become Canada's top source for butter, and U.S. butter exports to Canada dropped to 13-month lows, she adds.
“The United States could regain some of its lost market share through competitive pricing,” Sharp says. “But Canadian dairy producers are unlikely to reduce milk output any time soon, and that will continue to suppress Canada's dairy product imports.”