Trade Minister Todd McClay said the Government was closely monitoring proposed changes in Canada's dairy policy after New Zealand and other dairy producing countries accused it of dumping product on international markets.

The Dairy Companies Assocation of NZ (DCANZ) last week said it had 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.

McClay said he understand the concern of dairy exporters.

"New Zealand remains opposed to any form of domestic policy that distorts fair competition in export markets," he told the Herald.


"The changes being made by Canada are complex and technical and will require ongoing analysis in the light of Canada's international trade obligations," he said. "We are paying this issue close attention and taking the concerns seriously," McClay said.

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.

Canada is one of 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.

Chairman Malcolm Bailey said Canada, with its high tariff rates, had "built a high wall" around itself. "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 last week.

Canada the world's 14th largest dairy country, producing 8.68 million tonnes of milk annually, compared with New Zealand's total production of 21.9 million tonnes.