CANADA ECONOMICS
TD BANK. TD Economics. OBSERVATION. US economy to shake off Q1 Growth slump
Highlights
- Concern has crept into the U.S economic outlook after a string of disappointing data. This Friday, real GDP data is expected to show that the economy grew by less than 1% (annualized) in the first quarter, at odds with sentiment indicators, which have been painting a rosy picture of economic activity.
- Economic reality is likely somewhere in the middle of these two extremes. Sentiment indicators are likely too optimistic, while underlying momentum is better than the start-of-year growth figures imply. We expect the idiosyncratic factors weighing on activity in Q1 to reverse in the second quarter, ropelling real GDP growth above 3%.
- Quarterly GDP growth is a noisy indicator and initial estimates are prone to significant revision. Looking at a broader range of measures, the American economy continues to perform well. Barring any unforeseen shocks, growth is expected to run at a slightly better than 2% pace over the next couple of years.
FULL DOCUMENT: https://www.td.com/document/PDF/economics/special/USQ1Slump.pdf
StatCan. 2017-04-25. Foreign direct investment, 2016
Canadian direct investment abroad rose 1.4% to $1,049.6 billion in 2016. Following several years of strong growth, the stock of Canadian direct investment abroad increased at its slowest pace in six years in 2016, largely as a result of an appreciating Canadian dollar which moderated strong investment activity of $59.1 billion over the course of the year.
The stock of foreign direct investment in Canada increased 4.7% to $825.7 billion, mostly reflecting funds invested by foreign direct investors in existing affiliates. As a result, Canada's net direct investment position with the rest of the world narrowed by $22.3 billion in 2016, to $223.9 billion.
Chart 1 Chart 1: Canada's foreign direct investment position
Canada's foreign direct investment position
Growth in Canadian direct investment abroad held back by appreciation of the Canadian dollar
The slowdown in the growth of the stock of outward direct investment in 2016 was due to the appreciation of the Canadian dollar, which reduced the stock of Canadian direct investment abroad and offset most of the strong investment activity that took place during the year, led by mergers and acquisitions. The Canadian dollar gained ground against most major currencies in 2016, including the US dollar (+3%), the British pound (+19%) and the Euro (+6%).
On an instrument basis, the stock of Canadian direct investment abroad, in the form of equity, increased by 2.0% to $965.3 billion while the position in the form of debt instruments declined by 5.4% to $84.3 billion. Equity accounts for around 90% of the value of Canada's direct investment abroad.
Increases in North and South America mostly offset by declines in the rest of the world
The increase in the value of Canadian direct investment abroad in 2016 was mainly due to higher investment positions in North and South America, primarily the United States. This increase was partially offset by declines in the rest of the world, notably in Europe.
Following a 26.7% increase in 2015, the stock of direct investment in the United States was up a further 8.0% in 2016 to $474.4 billion. As a result, the US share of overall direct investment abroad had risen to 45.2% by the end of 2016, its highest level since 2008. Other countries in the Americas region with notable increases were Barbados, Brazil and Chile.
In Europe, the value of Canadian direct investment declined by 7.9% to $245.7 billion in 2016, mostly as a result of lower investment positions in Ireland and Luxembourg. The stock of direct investment also fell in the Asia and Oceania (-5.5%) and Africa (-22.5%) regions.
Foreign direct investment in Canada up on higher holdings from North America and Europe
The increase in the stock of foreign direct investment in Canada in 2016 was driven by higher holdings from North America (+6.0%) and Europe (+6.2%).
The United States was responsible for most of the increase in direct investment position from North America, rising 6.0% to $392.1 billion, while Switzerland and Netherlands accounted for most of the rise from Europe. These gains were offset in part by decreases in holdings from Asia and Oceania (-7.2%) and Africa (-20.1%).
On an instrument basis, foreign direct investment position in Canada, in the form of equity, grew by 6.2% to $673.0 billion in 2016, while the position in the form of debt instruments declined by 1.6% to $152.7 billion. Equity accounts for around 80% of the stock of foreign direct investment in Canada.
Increase in Canadian direct investment abroad concentrated in the transportation and warehousing and utilities industries
On an industry basis, the transportation and warehousing (+31.1%), utilities (+29.8%) and all other industry (+22.7%) categories recorded the most significant increases in the stock of Canadian direct investment abroad in 2016. This contrasted with declines in the real estate and rental leasing (-6.7%), mining and oil and gas extraction (-4.6%) and management (-2.9%) industries.
The finance and insurance industry remained the primary destination for Canadian direct investment abroad at the end of 2016 with a 36.6% share of the total position, followed by mining and oil and gas extraction with 18.5%.
Foreign direct investment in Canada up in most industries
The growth in the value of foreign direct investment in Canada was spread among most industries in 2016, led by wholesale and retail trade (+10.1%), manufacturing (+5.0%) and mining and oil and gas extraction (+3.2%).
Manufacturing remained the top industry for foreign direct investment in Canada with a 22.8% share at the end of 2016, just ahead of mining and oil and gas extraction with 22.7%. Since the year 2000, the share of manufacturing in the stock of foreign direct investment in Canada has almost halved, while that of mining and oil and gas extraction has doubled during the same period.
Chart 2 Chart 2: Manufacturing and mining industry shares of foreign direct investment in Canada
Manufacturing and mining industry shares of foreign direct investment in Canada
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170425/dq170425a-eng.pdf
StatCan. 2017-04-25. Monthly civil aviation statistics, February 2017
The six Canadian Level I air carriers flew 6.0 million passengers on scheduled and charter services in February, up 5.6% from February 2016.
Traffic increased 6.6% to 14.9 billion passenger-kilometres, while capacity rose 7.1% to 18.2 billion available seat-kilometres. This resulted in a slightly lower passenger load factor in February 2017 (81.9%) than in February 2016 (82.3%), as capacity growth outpaced traffic growth.
The volume of turbo fuel consumed rose 5.0% to 553.1 million litres, while the number of flying hours increased 1.3% to 165,000.
Total operating revenue edged down 0.6% from the same month a year earlier to $1.5 billion in February.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170425/dq170425c-eng.pdf
THE GLOBE & MAIL. Apr. 25, 2017. Ottawa and provinces to fight 20 per cent U.S. lumber tariffs
VANCOUVER/WASHINGTON - Donald Trump is targeting Canada in his first trade fight as U.S. President, imposing tariffs averaging 20 per cent against Canadian softwood exports – and the federal government will team up with seven provinces to fight back.
Natural Resources Minister Jim Carr will meet this week with provincial officials to hone a joint strategy to combat the preliminary countervailing duties. The U.S. Department of Commerce is imposing punitive duties ranging from 3.02 per cent to 24.12 per cent on five Canadian softwood exporters to the United States. Other Canadian lumber producers will pay the weighted average of those five duty rates, which works out to 19.88 per cent.
“The government of Canada will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation,” Mr. Carr said in a statement issued late Monday with Foreign Affairs Minister Chrystia Freeland. “Minister Carr is reconvening the federal-provincial task force on softwood lumber this week to examine additional measures.”
While the tariffs were a widely expected development in the decades-long softwood battle, Mr. Trump has tied the dispute to his broader “America first” push on trade and his promised renegotiation of the North American free-trade agreement. Eager to make good on his promises of a new economic nationalism, Mr. Trump has in recent days turned his attention away from China and Mexico – the most frequent targets of his trade-related wrath on the campaign trail last year – and instead focused his fire on Canada.
The President has reframed narrow disputes on lumber and dairy products as part of a larger existential problem with the two countries’ trade relationship. At a White House reception for conservative media outlets Monday night, Mr. Trump even floated the possibility of slapping a border tax on Canadian dairy products.
“We love Canada, wonderful people, wonderful country, but they have been very good about taking advantage of us through NAFTA,” Mr. Trump said, according to Breitbart News. “It means we’re going to start doing lumber in our country, it’s going to mean that farmers are going to start selling milk in our country.”
“Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!” Mr. Trump tweeted Tuesday morning.
Farmers in Ontario slashed prices on ultrafiltered milk last year to keep out American imports. The dispute is a subset of the larger question over supply management, a price-fixing system that governs Canada’s dairy industry, keeping imports out and prices high to ensure guaranteed return for Canadian producers.
Commerce Secretary Wilbur Ross, Mr. Trump’s point man on the NAFTA renegotiation, said softwood and dairy showed NAFTA was “not our idea of a properly functioning free-trade agreement.” In an interview with the Washington Post, he described softwood as “another bad act on the part of the Canadians.”
Canada can appeal to a trade tribunal under NAFTA’s Chapter 19 or to the U.S. Court of International Trade for a ruling on whether the tariffs are legal under American trade law. The country can also go through the World Trade Organization, which would apply international trade rules.
The President signalled earlier this month that he would seek to abolish the NAFTA tribunals in a renegotiated deal. A draft letter to Congress outlining the administration’s negotiating objectives said the U.S. would look to get rid of Chapter 19.
Canada had hoped to keep the softwood dispute separate from the broader renegotiation of NAFTA. One government source said Ottawa sees NAFTA as the framework for settling such disputes, but did not want the negotiations to involve discussions of individual disputes themselves.
But Mr. Trump’s and Mr. Ross’s comments Monday torpedoed those hopes, demonstrating that the U.S. is willing to use every dispute as leverage in the battle over a deal.
Last week, Mr. Trump vowed to pull the U.S. out of NAFTA if he cannot get Canada and Mexico to agree to major changes, branding Canadian treatment of the U.S. on dairy “a disgrace” and also expressed vague concern about “energy” as another point of friction.
Bloomberg. 24 April 2017. Trump Slaps Duty on Canadian Lumber, Intensifying Trade Fight
by Jennifer Epstein and Joe Light
- Step will raise cost of home-building, mattress box springs
- Canada vows to fight back against ‘unfair” import duties
- Trump Slaps Tariffs Up to 24% on Canadian Lumber
- Trump Announces Tariff on Canadian Lumber
U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24 percent on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed.
Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3 percent to 24.1 percent on Canadian lumber producers including West Fraser Timber Co.
“We’re going to be putting a 20 percent tax on softwood lumber coming in -- tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering, a White House correspondent for Breitbart News. A White House official confirmed the comment.
The step escalates an economic battle among neighboring countries that normally have one of the friendliest international relationships in the world. It follows a fight over a new Canadian milk policy that U.S. producers say violates the North American Free Trade Agreement.
“Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!” Trump said in a tweet Tuesday morning.
“It has been a bad week for U.S.-Canada trade relations,” U.S. Commerce Secretary Wilbur Ross said in a statement Monday, adding “it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States." He said the Commerce Department “determined a need” because of unfair Canadian subsidies to the lumber industry to impose “countervailing duties of roughly one billion dollars.”
In a dig at Nafta, which Trump has said he wants to renegotiate, Ross added, “This is not our idea of a properly functioning Free Trade Agreement.”
Canada Response
Canada fired back, saying the tariff is an "unfair and punitive duty" imposed on "baseless and unfounded" allegations, according to a joint statement from Foreign Minister Chrystia Freeland and Natural Resources Minister Jim Carr. The measures will hurt workers on both sides of the border and will raise U.S. home prices, they said.
Canada "will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation," the ministers said, adding they nonetheless "remain confident that a negotiated settlement is not only possible but in the best interests of both countries.”
The Canadian dollar dropped to a 4-month low against the U.S. dollar after Trump announced the tariff, falling as much as 0.6 percent to 73.6 U.S. cents.
In the latest chapter of a trade dispute that has been simmering for decades, the U.S. Department of Commerce in a preliminary determination Monday said it has calculated that Canada subsidizes Canfor Corp. by 20.26 percent; West Fraser Mills Ltd. by 24.12 percent; Tolko Marketing and Sales Ltd. and Tolko Industries Ltd. by 19.5 percent; Resolute FP Canada Ltd. by 12.82 percent and J.D. Irving Ltd. by 3.02 percent. It set a preliminary subsidy rate of 19.88 percent for all other producers in Canada.
Anti-Dumping
The so-called countervailing duties, which counter what the U.S. considers Canadian subsidies, came in below some analyst expectations. CIBC analyst Hamir Patel forecast the initial combined countervailing and anti-dumping duties could reach 45 to 55 percent, he said in an April 23 note. The U.S. may also apply anti-dumping duties if it determines Canadian firms are selling for below costs. That decision is expected in June.
“It definitely could’ve been a heck of a lot worse,” Kevin Mason, managing director of ERA Forest Products Research said by phone from Kelowna, British Columbia. “I think a lot of people were bracing for a higher duty.”
Canadian companies such as Vancouver-based West Fraser and Canfor Corp. will be able to weather the current duty level as lumber prices are high, Mason said. Lumber prices may actually decline in order to curtail Canadian shipments to the U.S., he said.
The duties are unwarranted and the determination “is completely without merit,” Susan Yurkovich, president of the B.C. Lumber Trade Council, said in a statement. The allegations are the same made in previous softwood trade battles which were rejected and overturned by independent Nafta panels, she said.
The industry group represents companies such as Canfor, West Fraser and Interfor Corp.
“This new trade action is driven by the same protectionist lumber lobby in the U.S. whose sole purpose is to create artificial supply constraints on lumber and drive up prices for their benefit, at the expense of American consumers,” Yurkovich said.
A detente in the lumber trade dispute expired in October, and a new agreement isn’t on the horizon. That’s contributed to a more than 20 percent surge in wood prices since the U.S. election.
Old Dispute
Since the early 1980s, the U.S. has argued with Canada over how much softwood lumber the country’s suppliers can sell in the U.S. and at what price. The two nations have negotiated temporary agreements in previous years over softwood, which comes from trees that have cones, like pine or spruce, and is preferred by builders for constructing home frames.
But hammering out a new deal has been slow-going for the Trump administration, which still doesn’t have its chief trade negotiator in place.
After the latest deal lapsed, a group including U.S. timber companies petitioned an independent government agency and the U.S. Commerce Department for duties on lumber imports from Canada, saying the country unfairly subsidizes its own industry, costing profits and jobs.
While signing an executive order Thursday on steel imports, Trump digressed to note that during a trip to Wisconsin earlier in the week, he’d called Canada’s cutting of prices of dairy ingredients "a disgrace" that’s hurt farmers in Wisconsin and New York. He added that the "disgrace" extended to "what’s happening along our northern border states with Canada, having to do with lumber and timber."
Higher Costs
While beneficial for U.S. lumber suppliers, tariffs could lead to even higher costs for companies that buy wood, such as builders and mattress makers, which use it in box springs.
Most of the softwood in Canada is owned by provincial governments, which set prices to cut trees on their land, while in the U.S. it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, U.S. producers say. Canada disputes that.
“It is regrettable that our American neighbors have chosen to renew this longstanding dispute which creates so much uncertainty for lumber market participants,” West Fraser Timber Co. Chief Executive Officer Ted Seraphim said Monday in the company’s earnings statement, prior to the confirmation of the duty.
Robert Lighthizer, Trump’s nominee to be the next U.S. Trade Representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the U.S. and Canada. Oregon Democratic Senator Ron Wyden told Lighthizer the fight is the “longest-running battle since the Trojan War.”
REUTERS. Apr 24, 2017. Ahead of NAFTA talks, U.S. sets 20 percent duties on Canadian softwood lumber
By David Lawder
WASHINGTON (Reuters) - The United States will impose preliminary anti-subsidy duties averaging 20 percent on imports of Canadian softwood lumber, Commerce Secretary Wilbur Ross said on Monday, escalating a long-running trade dispute between the two neighbors.
The move, which affects some $5.66 billion worth of imports of the construction material, sets a tense tone as the two countries and Mexico prepare to renegotiate the 23-year-old North American Free Trade Agreement.
Canada denounced the U.S. action and vowed to protect its lumber interests through litigation.
News of the tariffs sent the U.S. dollar sharply up against the Canadian dollar in Asian trading to hit an almost four-month high. The Canadian currency sank to C$1.3559 to the greenback, or 73.75 U.S. cents, down from its North American close of C$1.3516, or 73.99 U.S. cents.
Ross told Reuters in a telephone interview that Canada was "already retaliating" against the United States well ahead of the lumber duties by restricting imports of U.S. highly filtered milk protein products used by cheesemakers.
President Donald Trump last week called Canada's dairy protections "unfair."
Ross said some Wisconsin dairy producers were now "losing their farms" because of the restrictions. "Apparently Canadians now are coming down and saying: 'Since you can't do it anymore, I'll buy your equipment for 5 cents on the dollar,'" he said.
U.S. lumber producers asked the Commerce Department last November under President Barack Obama to investigate what they viewed as unfair subsidies to Canadian competitors who procure their timber from government lands at cheaper rates. U.S. lumber producers generally cut timber grown on private land.
Canadian Natural Resources Minister Jim Carr and Foreign Minister Chrystia Freeland said in a joint statement that Commerce's accusations "are baseless and unfounded" and would raise U.S. home construction and renovation costs.
Ross said the duties collected would total about $1 billion a year. In a statement, he said the need for the lumber duties and Canada's dairy restriction were "not our idea of a properly functioning free trade agreement."
NAFTA never addressed the softwood lumber issue or Canada's largely closed dairy market. The Trump administration has vowed to renegotiate NAFTA on terms that would reduce U.S. goods trade deficits of $63 billion with Mexico and $11 billion with Canada last year.
NAFTA TALKS EXPECTED THIS SUMMER
Ross said NAFTA's dispute resolution system needed to be changed because it had worked against the United States in the lumber dispute.
NAFTA talks are expected to begin later this summer after a 90-day legal consultation period.
The Commerce Department said West Fraser Mills (WFT.TO: Quote) would pay the highest duty rate at 24.12 percent, followed by Canfor Corp (CFP.TO: Quote) at 20.26 percent.
Resolute FP Canada Ltd (RFP.N: Quote) will pay a 12.82 percent duty, while Tolko Marketing and Sales and Tolko Industries will pay a 19.50 percent duty and J.D. Irving Ltd will pay 3.02 percent.
All other Canadian producers face a 19.88 percent duty, according to the document.
The preliminary determination directs U.S. Customs and Border Protection to require cash deposits on all softwood products imports starting 90 days ago.
To remain in effect, the duties need to be finalized by Commerce and then confirmed by the U.S. International Trade Commission after an investigation that includes testimony from both sides.
(Additional reporting by David Ljunggren in Ottawa; Editing by Peter Cooney)
REUTERS. Apr 24, 2017. Canadian dollar falls to four-month low after U.S. announces new duties on Canadian lumber
TOKYO (Reuters) - The Canadian dollar fell 0.4 percent in early Asian trade on Tuesday after U.S. Commerce Secretary Wilbur Ross said his agency will impose new anti-subsidy duties averaging 20 percent on Canadian softwood lumber imports.
The Canadian dollar fell to as low as C$1.3555 per U.S. dollar CAD=D4, its lowest level since late December, edging near its December trough of C$1.3598 to the dollar.
(Reporting by Hideyuki Sano; Editing by Paul Tait)
Global Affairs Canada. April 25, 2017. Technical briefing on softwood lumber
Media are invited to a technical briefing on Tuesday, April 25, 2017, with Government of Canada officials on softwood lumber.
REUTERS. Apr 25, 2017 12:43pm. Trudeau vows to defend Canada interests as U.S. targets lumber, Canadian dollar falls
By David Ljunggren
OTTAWA (Reuters) - Prime Minister Justin Trudeau vowed to stand up for Canadian interests on Tuesday after the United States imposed new tariffs on softwood lumber and trade tensions between the two countries escalated, sending the Canadian dollar to a 14-month low.
While the currency fell, shares in Canadian lumber companies rose as the level of the new tariffs came in at the low end of what investors were expecting.
The United States said on Monday it will impose preliminary anti-subsidy duties averaging 20 percent on imports of Canadian softwood lumber, escalating a long-running trade dispute between the two neighbors.
The move, which affects some $5.66 billion worth of imports of the construction material, sets a tense tone as the two countries and Mexico prepare to renegotiate the 23-year-old North American Free Trade Agreement.
Speaking to a technology company in Ontario, Trudeau said he would defend the national interest, and cabinet colleagues were poised to speak to the media to outline Canada's possible responses to the tariffs later in the day.
"Standing up for Canada's interests is what my job is, whether it's softwood or software," Trudeau said, prompting applause and cheers.
"Any two countries are going to have issues that will be irritants to the relationship and, quite frankly, having a good constructive working relationship allows us to work through those irritants."
The dispute sideswiped the Canadian currency, reflecting the importance of lumber to the nation's economy. The Canadian dollar CAD=D4 weakened to C$1.3613 to the greenback, or 73.46 U.S. cents, nearly a full Canadian cent weaker than Monday's close.
Canadian officials shrugged off the U.S. aggression on softwood lumber and recent attacks by U.S. President Donald Trump on Canadian dairy exports as typical negotiation tactics. But others urged Canada to get tougher.
"In Canada, the perception is that we're always very nice. But we can't get trampled by this guy (Trump)," said Jerry Dias, president of the Unifor union that represents more than 20,000 forestry workers across Canada.
"This is going to have a devastating impact on certain communities," he added. According to Unifor, 600 communities in Canada are dependent on forestry.
Canadian cabinet ministers, who have fanned out across the United States in recent weeks to lobby state governors, mayors, and other policymakers, said the U.S. combativeness on trade won't change the overall strategy.
"There are no victors in a trade war," said Scott Brison, president of the Treasury Board, in a phone interview from Detroit, where he was promoting the value of bilateral trade.
Still, shares of timber companies climbed in response to the move, because the average 20 percent anti-subsidy duties came in below a 20-30 percent range expected by RBC equity analysts.
Shares in West Fraser Timber Co (WFT.TO: Quote), which would pay the highest duty rate of the affected companies, rose 7.9 percent to C$60.82 and Canfor Corp (CFP.TO: Quote) stock gained 6.4 percent to C$19.34.
Softwood lumber joins dairy as a key target for Trump, who tweeted a new attack on Canada's supply management system for dairy on Tuesday. Last week the president called Canada's dairy protections "unfair."
"Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!" Trump tweeted Tuesday morning.
(Additional reporting by Leah Schnurr in Ottawa, Alastair Sharp and Fergal Smith in Toronto and Allison Lampert in Montreal; Writing by Andrea Hopkins; Editing by Andrea Ricci)
THE GLOBE & MAIL. AGRICULTURE. APR. 24, 2017. The milk war: How a letter in Wisconsin set off a trade dispute between the U.S. and Canada. The dairy sector has become central to a new dispute between Canada and the United States, but the contention began with the plight of a few American families
JOANNA SLATER/THE GLOBE AND MAIL
BEAVER DAM, WIS.
On May 1, the truck that picks up the milk from their small dairy farm will stop coming. For a few days at most, they will keep milking their cows, hoping to buy time. But then it will be over. They will call other farms, trying to divide up and sell their cows, and failing that, send them to a stockyard for slaughter. In his mind, Mr. Lichty pictures the cows walking out of his barn for the last time and does not know how he will handle it.
The story of how milk emerged as a flashpoint in a new war of words between the United States and Canada starts with the plight of families such as the Lichtys, whose livelihood now hangs in the balance. Earlier this month, Mr. Lichty walked down the long driveway to his mailbox, where he found a one-page letter from the dairy processor that buys the farm’s milk. The letter, delivered to nearly 60 Wisconsin dairy farms, said that as a result of a decision by the Canadian government, the processor could no longer buy their milk.
The letter received by dozens of Wisconsin dairy farms telling them their milk was no longer needed because of a change in Canadian government policy.
That letter set off a chain of events that led all the way to the President of the United States, who happened to visit Wisconsin on April 18. The dairy dispute has caught Donald Trump’s attention: Over the past week, he has repeatedly decried Canadian policy. In an interview on Friday with the Associated Press, Mr. Trump said dairy farmers in Wisconsin and New York are “getting killed” by the North American free-trade agreement.
The spotlight has taken some in Wisconsin by surprise. “I’ve been in agriculture all my life,” said Pam Jahnke, a long-time farm broadcaster based in Madison. “I think I can count on one hand how many times I’ve ever heard a president talk about dairy, let alone Wisconsin dairy.”
Mr. Trump’s remarks during his visit to the state were the culmination of weeks of intense effort involving local farmers, dairy-industry officials and state elected representatives. Wisconsin, a small state where the license plates read “America’s Dairyland,” is in an unusually good position to make its case heard. It was crucial to Mr. Trump’s narrow election victory in November. Mr. Trump’s Chief of Staff, Reince Priebus, grew up in Wisconsin, as did Paul Ryan, the Speaker of the U.S. House of Representatives.
At the heart of the current conflict are Canadian rules governing the dairy industry. Provincial milk marketing boards are introducing a new classification for a type of milk concentrate used to make cheese, which gives companies an incentive to buy the domestic version rather than use imports from the United States. In a report issued in March, the office of the U.S. Trade Representative said that it had communicated its “serious concerns” with the policy changes to the Canadian government and the World Trade Organization.
The story might have remained a relatively obscure trade tension were it not for two factors: the abrupt move by Grassland Dairy Products, a Wisconsin processor, to drop dozens of dairy suppliers, and the flush state of the Wisconsin dairy supply. In the letter dated April 1, Grassland said that it had suffered a “severe loss” of business due to regulatory changes in Canada and was “forced to cut back on our milk intake volumes on a very short notice.” A Grassland spokesperson did not respond to a request for comment.
For the farms that received the letter – 58 in Wisconsin and nine in Minnesota – it came like a bolt out of the blue. None of the farmers had even heard of the classification issue. Now, they had to scramble to find a new processor with 30 days’ notice during the spring milking season, when production is at its peak. In the past, getting a new processor was not a major hurdle. But as farmers such as Mr. Lichty began frantically calling around the state this month, they kept getting the same answer: We’re already at capacity and can’t take any more milk.
“We appreciate that [Canada] is trying to protect its own, but it couldn’t have come at a worse time,” Dori Lichty said as she surveyed the family’s herd of several dozen cows on a recent evening. “We have an oversupply of milk in the U.S., and especially in Wisconsin.” The 23 major dairy states produced 17.5 billion pounds of milk in March, a record.
John Pagel, president of the Dairy Business Milk Marketing Cooperative, said 21 of the impacted 58 Wisconsin farms have found new buyers for their milk. His group is working against the clock to find help for the others, such as the Lichtys.
Carrie Mess, a dairy farmer in Watertown, Wisc., has friends, neighbours and relatives who are affected by the Grassland decision. None of them have found a new buyer, forcing some to consider closing farms that have been in their families for generations. Ms. Mess threw herself into action after the initial letter arrived, appealing directly to Paul Ryan in a post on her popular dairy blog. On April 7, she joined a conference call with staff members for Mr. Ryan and Wisconsin’s two senators, as well as representatives of the dairy industry, to apprise them of the situation.
In short order, a flurry of letters began flying from industry groups and politicians to the Trump administration. On April 12, Mr. Ryan spearheaded the drafting of a letter signed by the entire Wisconsin congressional delegation to the Commerce Secretary, the acting U.S. Trade Representative and the acting Agriculture Secretary. It urged them to “take immediate action to address this dire situation where apparent unfair trade practices are putting Wisconsin dairy farmers’ livelihoods at risk.”
Wisconsin Governor Scott Walker and New York Governor Andrew Cuomo sent a letter directly to Mr. Trump containing more strident rhetoric. Wisconsin and New York are “only the first victims of Canada’s illicit dairy-trade restrictions,” the governors fumed. The Canadian government and dairy industry had plotted “a trade war against our nation’s dairy farmers.” Mr. Walker said he planned to speak with Mr. Trump privately about the issue on his visit to Wisconsin, the Associated Press reported.
Mark Stephenson, an expert on dairy policy at the University of Wisconsin-Madison, said that Canada will not volunteer to back down on the issue, and he predicted that the United States would consider taking the dispute to the World Trade Organization, where it could take years to resolve. Meanwhile, he believes that the oversupply in the market could ease up within a few months. But “that’s not a solution for these farmers who are without a market,” he said. “I don’t think they could manage much more than a week or so dumping milk.”
For Steve and Dori Lichty, the options are running out. Both grew up on dairy farms and have spent years realizing their dream of having their own operation. They bought their first cow together just days after they were married in 2004 (“There goes the honeymoon,” quipped the auctioneer, Mr. Lichty recalled). They rented farms for nearly a decade and finally bought their own three years ago, a sloping property with a view of a nearby lake.
Mr. Lichty, 42, rises at 1 a.m. to start chores and milk the cows, then goes to a part-time job early in the morning before returning to milk the cows a second time. Ms. Lichty, 37, works for a bull stud company, a business she fears will be affected if dozens of dairy farms shut down after May 1. When their daughter Vivian, 7, learned they might have to sell the cows, she burst into tears. “It’s just sickening and tough,” Ms. Lichty said. “We’re losing everything we worked for because of something totally out of our control.”
As the sun set, Mr. Lichty gathered the cows from the pasture and herded them back to the barn. “We pray and we hope,” he said. “That’s all we’ve got left.”
THE GLOBE & MAIL. TRADE. APR. 25, 2017. A guide to understanding the dairy dispute between the U.S. and Canada. High tariffs, ultrafiltered milk and supply management play key roles in the dispute
SEAN KILPATRICK/THE CANADIAN PRESS
BARRIE MCKENNA
OTTAWA
Why are U.S. dairy farmers mad at Canada?
Canada has long maintained a high tariff wall on most dairy products. The duty on milk is 270 per cent. That keeps most imports from the United States and elsewhere out of Canada, while helping to prop up higher domestic prices. One notable exception is ultrafiltered milk and other protein-rich dairy ingredients used to make dairy products such as cheese and yogurt. North American free-trade rules do not cover these ingredients, so they enter Canada duty-free. And in recent years, U.S. dairies have developed a booming business selling these low-cost products to dairies in Canada ($133-million last year). That all changed about a year ago, when Canadian dairy farmers and producers moved to close the breach in the tariff wall with a new “ingredients strategy.” They persuaded regulators to create a new lower-priced class of industrial milk as an incentive to get dairies to produce protein substances in Canada, using Canadian milk. The result was predictable: U.S. imports fell in 2016, and are declining sharply so far this year.
What is ultrafiltered milk?
Milk is made up of three main components – milk fat, protein-rich solids and water. New technology has made it easier to separate milk into its component parts and concentrate them by reducing water content. This makes protein substances easier and cheaper to ship compared with raw milk. It also increases the efficiency of cheese production, particularly if the ingredients include cheaper U.S. milk.
Read more: The milk war: How a letter in Wisconsin set off a trade dispute between the U.S. and Canada
What is supply management?
Supply management is the uniquely Canadian regime that governs virtually every aspect of milk, chicken and egg production. The system depends on three “pillars” – a tariff wall to block imports, strict quotas that determine how much each farmer can produce and fixed prices paid to producers. The system was created in the 1970s to help stabilize farmers’ incomes. But as the food industry has gone global, supply management has faced mounting internal and external pressure, including persistent trade complaints from the United States, Europe, Australia and New Zealand. The World Trade Organization has ruled that the high prices paid to Canadian farmers are subsidies, making exports very difficult. For Canadian consumers, supply management also means consistently higher retail prices for dairy, chicken and eggs.
Will the United States push for an end to supply management in renegotiating NAFTA?
Not likely. When U.S. President Donald Trump rails about the “very unfair things” Canada is doing to U.S. dairy farmers, he is mostly talking about issues such as ultrafiltered milk. The Trump administration set out its priorities for renegotiating the North American free-trade agreement (NAFTA) in a recent letter to members of Congress. In it, the administration said it would seek to reduce various non-tariff barriers to agricultural trade, including rules limiting imports and “unjustified trade restrictions” on new technologies. That is an apparent reference to Canada’s ingredients-pricing scheme. But the letter also pledges to “eliminate all export subsidies on agricultural products,” which could be interpreted as a challenge to the pricing regime that underpins Canada’s dairy industry. That has prompted speculation that Canada could trade away supply management for free trade in softwood lumber.
Why did Donald Trump choose Wisconsin to deliver his dairy tirade against Canada?
Wisconsin is a major dairy-producing state. It is also a state Mr. Trump won narrowly in the November election. And it is home to Republican House speaker Paul Ryan, a key ally for the President’s legislative agenda in Washington. The tough talk on dairy is also a sop to key Congressional Democrats such as Senate leader Charles Schumer of New York, who has led the charge against Canadian dairy policies. Mr. Trump will likely need the support of Mr. Schumer and other key Democrats to renegotiate NAFTA, but also on tax reform and health care.
Why is supply management so entrenched in Canada?
The dairy industry’s political clout should be waning. Just 13 federal ridings have more than 300 dairy farms – eight in Quebec and five in Ontario. When the supply-management system was created, Canada had nearly 140,000 dairy farms. Today, it has fewer than 12,000, and every year, a few hundred disappear as farmers leave the business and sell their quota. And yet, all three major political parties (and virtually every MP) have vowed to support the system. The industry is heavily concentrated in Quebec and Ontario, which together produce about 70 per cent of the country’s milk. Quebec alone is home to nearly half of Canada’s dairy farms – 5,894 – and pockets nearly 40 per cent of dairy revenues.
How is the growing global milk glut exacerbating Canada-U.S. trade friction?
Canadian ambassador to Washington David MacNaughton has insisted that a global oversupply of milk, not Canada, is to blame for the problems of U.S. dairy farmers. And yet, Canadian dairy farmers have been struggling to contain a deepening crisis that is threatening the long-term survival of the carefully calibrated supply-management regime. That balance has been upended by the surge of milk-protein imports, a glut of skim milk and underinvestment in dairy processing. Canada is producing too much milk, but not enough butter, and that is putting downward pressure on overall farm incomes. U.S. farmers, meanwhile, are suffering from overproduction and falling global milk prices. The United States enjoys a large dairy trade surplus with Canada.
The Globe and Mail. Apr. 25, 2017. Report blames Ontario's 2006 growth plan for soaring house prices
JANET MCFARLAND
The Ontario government’s 2006 growth plan for residential land development has spurred soaring increases in house prices in the Toronto region by limiting construction of new low-rise family homes, according to a report to be released Tuesday.
While the number of housing units built in the Greater Toronto Area over the past decade has roughly tracked the increase in population in the region, there has been “a marked mismatch” between the types of units completed and the types demanded, according to the report from the Centre for Urban Research and Land Development at Ryerson University in Toronto.
Demand for low-rise homes – especially detached homes – has not been matched by new supply, while the supply of condominium units has soared, the report says. The result has been major price inflation in all types of “ground-level” homes, including townhouses, semi-detached and detached homes.
Frank Clayton, senior research fellow at the Ryerson research centre, said soaring prices in recent years can be directly traced to the new development policy adopted by the province’s Liberal government in 2006 for the “Golden Horseshoe” region around Toronto.
The growth plan was aimed at encouraging denser development in the Toronto area and reducing the environmental impact of urban sprawl, but Dr. Clayton argues it has had the unintended consequence of driving prices higher by creating scarcity.
He said the province’s policy assumed more people would be willing to live in high-rise developments if they were built in transit-accessible areas, even though forecasts at the time suggested a large majority of housing would still need to be ground-level family homes.
“It’s one thing to pursue an environmental objective on something, but don’t deny you’re having an impact on house prices, and that’s what they did,” Dr. Clayton said in an interview.
According to the Ryerson study, estimates of housing demand prepared by a consulting firm – which were adopted by the province for the 2006 growth plan – forecast ground-level housing should account for 70 per cent of new housing development between 2001 and 2011, and 68 per cent between 2011 and 2021, to meet anticipated demand.
Construction was close to the forecast for the first decade, the report says, because many projects were already under development when the plan took effect in 2006. But during the five years from 2011 to 2016, only 46 per cent of new units were ground-level, a shortfall of 22 percentage points from the original recommendation, the report says.
Dr. Clayton said the province’s latest plan announced Thursday to curb price growth in the Toronto region will not do enough to encourage supply because “it’s all about apartments” and very few of the measures are aimed at boosting new home construction. Many measures unveiled last week are targeted at encouraging builders to construct rental apartment units, including a $125-million program to rebate development charges and reduced municipal property taxes for rental buildings.
The Ryerson report comes as the Building Industry and Land Development Association (BILD), which represents developers in the Toronto region, issued a report Friday showing a record-low inventory of low-rise homes for sale in the GTA.
At the end of March, there were only 932 new low-rise homes – including just 233 detached houses – available for buyers in builders’ inventories, compared with 17,854 in March, 2007, and 1,001 in February this year.
At the same time, builders sold a monthly record 4,500 condo units in the GTA in March, up 127 per cent from 1,981 units sold in March last year. Including condo units, there were 10,153 new homes available for sale in builders’ inventories at the end of March, a 50-per-cent decline from 21,006 units in March last year.
BILD president Bryan Tuckey said the decline in new housing inventory is “a direct reflection” of how hard it is for developers to bring product to the market.
“The hurdles builders face keep getting higher,” he said in a statement. “There are ongoing major challenges with a lack of serviced and permit-ready developable land and out-of-date zoning bylaws. The complexity and time it takes to get the vast numbers of approvals and permits necessary to build have increased dramatically in recent years.”
Mr. Tuckey said the scarcity of single-family homes is “telling us very clearly that not enough new housing and not the right mix of new housing” is being built to keep up with consumer demand.
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