A group representing New Zealand dairy companies has joined forces with overseas counterparts in a bid to get the World Trade Organisation to take action over what they allege is the dumping of dairy products on world markets by Canada.
The Dairy Companies Association of New Zealand (DCANZ) - which represents all the main dairy companies in New Zealand - said it had asked the World Trade Organisation (WTO) to initiate proceedings against Canada if it continues with a planned extension to its dairy trade protections.
In a joint letter, DCANZ and its associated organisations in the US, Australia, Europe, and Mexico set out their concerns that a recently concluded agreement between Canadian dairy producers and processors would provide an incentive to substitute Canadian dairy ingredients for imported dairy ingredients and would unfairly subsidise exports of Canadian dairy products.
The agreement would provide a guaranteed price for milk used to manufacture ingredient dairy products, including skim milk powder and milk protein concentrate, which is below Canada's cost of milk production, and which matches the lowest globally traded reference price for these products.
"This will result in trade diversion and global price suppression," DCANZ executive director Kimberly Crewther said.
"It contravenes Canada's WTO obligations and undermines the intent of the Trans-Pacific Partnership agreement that Canada signed earlier this year."
DCANZ considers Canada to be among the most protected countries in the global dairy trade, with tariff rates of up to 300 per cent prohibiting most trade outside of limited quota volumes. New Zealand has previously taken and won a WTO case against Canada for the use of illegal export subsidies.
DCANZ chairman Malcolm Bailey said Canada, with its high tariff rates, had "built a high wall" around itself, making it uneconomic as an export destination. Canada has a supply-managed dairy sector, which means farmers pay for allocated quota.
"The effect of their protectionism is to create milk products that can't be sold and they keep coming up with new ways to get it on the market," he told the Herald.
Canada is not a big player on world markets but any Canadian product that finds its way on to world markets is most likely to be skim milk powder, which can be held in storage for up to two years.
"If one player - let's say it's just few thousand tonnes - goes on the market and is prepared to get rid of it at US$1500 a tonne and the going price is US$2500 a tonne, it can have a big impact on the whole market," Bailey said.
"The financial impact on all the dairy exporting countries can be way out of proportion to the tonnage involved," Bailey said. "That's the most egregious part of what these protected dairy industries end up doing," he said.