Register Friday | June 23 | 2017
Cheddargate Photographs by Kourosh Keshiri.

Cheddargate

Canadian dairy is one of the most formidable forces in Ottawa. How did our lactose overlords get so powerful?

THERE ARE ABOUT three hundred people getting drunk in the ballroom of Ottawa’s Chateau Laurier, and I’ve got a handful of cheese.

Lobbyists move through the crowd like farmhands tending cattle. One Conservative member of parliament is grimacing into a glass of wine as a burly man in an ill-fitting suit berates him about the pitfalls of Canada’s trade policy. A gaggle of overeager staffers raid the open bar and circle around food tables. A politely smiling woman is failing to divert the stampede towards the free food and booze. One member of parliament, with a handler trudging behind, floats through the crowd with a glass of beer in one hand and a glass of milk in the other.

When dairy comes to town, a veritable who’s who packs in under the huge ornate chandeliers. Nobody leaves hungry or sober. Feeding stations dot the ballroom, and I find myself attached to the mountains of cheese laid out for the gluttons. This room, with its 18-foot-high walls and woven rugs, has welcomed a queen, a princess and numerous heads of state. But tonight, it is the venue for the most visible manifestation of a year-round lobbying effort to maintain the lucrative supply management system that governs the Canadian dairy industry.

The national dairy lobby—comprised of a complex network of provincial and federal organizations that all fall under the banner of the Dairy Farmers—is a behemoth hiding in plain sight: since the late 1960s, it has financed its supporters, defeated its opponents and kept a firm hold on national policy. It is estimated that the various organizations spend $100 million a year on lobbying—more than the budgets of the five federal parties during the last election combined.

But their position is more precarious than it’s ever been. Pitted against a trade-happy Conservative government that has already tasted the sweet rewards of monopoly-breaking in their effort to crush the Canadian Wheat Board, there are signs that the dairy lobby is getting ready for a fight. 

THE SYSTEM OF SUPPLY MANAGEMENT traces its origins back to the 1960s, when a global economic rebound decimated Canada’s dairy exports overnight. Post-war Europe had clamoured for Canadian dairy but the continent’s agricultural renaissance meant ruin for Canadian farms. Dairy farmers were desperate for a solution and Pierre Trudeau’s government supplied one. The Liberals drew up the holy trifecta of protectionism: quotas, price controls and tariffs. Together, they make supply management.

During the system’s incubation period, Ottawa sent out free quotas to the country’s dairy and chicken farmers—the amount of product you can produce depends on how much quota you have. Once you have your quota and your product, you are legally required to sell it to the provincial marketing boards, which are responsible for hawking it to consumers, retailers and secondary producers. The Canadian Dairy Commission, with its $8 million budget and approximately sixty employees, now oversees the system and sets the national prices. They are the milk czars.

Rounding it all out are steep tariffs for any foreign producer crazy enough to try to break into the market. (That’s why Wensleydale from Wensleydale or Camembert from Camembert is so hard to find at Loblaws.) All in all, Canadian consumers end up paying roughly 60 cents more per litre for milk than their American counterparts—$2.6 billion tacked on to the national grocery bill every year.

In the 1970s, the initial supply management boom went bust: the industry was overproducing and Ottawa slashed prices. The result was a violent clash between five thousand farmers and riot police on Parliament Hill. “Stepping to a microphone, [Agriculture Minister Eugene] Whelan was only able to say ‘I am your minister of agriculture,’ when he was struck directly by a small bag of powdered milk, and a small milk jug,” reads an edition of the Ottawa Citizen from June 1976. The riots demonstrated the folly of crossing Canadian dairy farmers.

Now, the Canadian dairy industry amasses about $20 billion a year in sales. These are no longer mom-and-pop operations in need of government help. Statistics Canada shows that farms have been rapidly consolidating as farmers sell their quotas—an average farmer could make millions from doing so at auction, given that buying quota at inflated price from an existing farmer is just about the only way to get into the lucrative market—and the remaining farms have been doing quite well for themselves. From 2001 to 2011, Canadian dairy farms’ net operating income almost doubled.

I chatted with one stout farmer from Prince Edward Island in the Chateau Laurier during the Dairy Farmers of Canada’s annual policy convention. “I don’t take one red cent from Ottawa,” he boasted. He looked rougher around the edges than the other neatly-dressed attendees purporting to be farmers. He called himself more conservative than Stephen Harper. To him, supply management is not government-run communalism, it’s free enterprise capitalism. I ogle at him as I finish my coffee—with milk, even though I usually take it black—and walk back in to join the plenary.

MARTHA HALL FINDLAY is sitting across from me in a hotel bar, sipping tea with lemon as unfortunate jazz music blasts from a nearby speaker. Since being defeated as a Liberal MP, and subsequently losing out to Justin Trudeau for the party leadership, she has been run out of town on a rail. Now an executive fellow at the University of Calgary’s School of Public Policy, she’s found herself in a political netherworld.

Her 2012 report, “Supply Management: Problems, Politics—and Possibilities,” kicked open the door for debate on supply management and made her enemy number one for the dairy industry and all its supporters on Parliament Hill. “The only reason [supply management] still survives is because the amount of money that goes into the system has paid for years of extensive lobbying efforts,” she says. How much does the industry spend on lobbying every year? Between $80 and $100 million—that’s one number that was given to Hall Findlay. The number seems consistent with the Dairy Farmers of Canada’s multimillion-dollar budget, just one piece of the national puzzle.

That’ll buy you some good publicity. And it can pay for some damn good lobbyists, like ENsight, whom the Dairy Farmers of Canada have on retainer. The Ottawa firm is top-tier, boasting a bevy of lobbyists with well-placed Conservative connections. Last year, they poached Adam Taylor, the director of communications for International Trade Minister Ed Fast. And they’re just one firm. According to the federal lobbyist registry, there have been 1,300 meetings between supply management’s lobbyists and federal representatives since 2010. Over the same period, there have been only five hundred from Enbridge, TransCanada and the Canadian Energy Pipeline Association combined.

But with Canadian election law limiting campaign donations, interest groups can’t simply buy MPs’ loyalty any more. Instead, lobbying budgets go towards riling up potential voters. “The message is not: woe is us, we’re the poor farmers that need to be looked after,” says Hall Findlay. “The message is: we control enough votes in our ridings, if you make a change to this, we’ll rally the votes and you’ll lose.”

She should know. I asked if she was ever lobbied by the dairy industry while she was an MP. She laughs. “Are you kidding?”

That lobbying presence has managed to conjure virtual unanimity on Parliament Hill about the glories of supply management. NDP Agriculture Critic Malcolm Allen marvels at this. “I’m not quite sure how we got into such a collective mind sync on that one,” he said. “Probably the only thing we’re on a collective mind sync on.”

The groupthink reached its apogee during an infamous 2005 House of Commons vote. A motion came before the floor, committing parliament to maintaining tariff rates in the face of an ornery World Trade Organization, which deems Canadian dairy to be subsidized and therefore impossible to sell freely on the open world market. The Bloc Québécois, patrons of the powerful Quebec dairy industry and authors of the motion, ensured that each MP would stand up to be counted for the vote. One by one, members of the ostensibly free-market Conservative party rose in support, at their leader’s behest. The motion passed unanimously.

However, sources told me that there has been dissension in the Tory ranks of late: stories of caucus meetings where many, if not most, of Harper’s Conservatives have argued that this government should be the one to kill supply management. The free market advocate-in-chief is Jason Kenney, minister of employment and social development, conservative ideologue and right-hand man to the prime minister. Kenney has been known to rail against supply management in caucus, often scrapping with Agriculture Minister Gerry Ritz on the issue. His office would not offer comment.

GIVEN THESE HIGH-RANKING OPPONENTS, the dairy lobby has been fretting for years as Canada glacially moved forward on its free trade deal with Europe before finally coming up with the Comprehensive Economic and Trade Agreement (CE- TA) in late 2013. There were whispers that the deal would spell the end of the collectivist plot, but supply management emerged virtually unscathed.

The trade talks homed in on European access to the Canadian dairy market. Currently, foreign competitors are so thoroughly shunned that citizens can only bring $20 worth of cheese into Canada, or else pay a 246 percent tariff. That’s led to a booming black market for fromage. I contacted one cheese aficionado, well versed in the cloak-and-dagger ethos of underground parmesan trafficking, who said that, while she doesn’t know the exact measurement (and the government wasn’t forthcoming on it) Canadian Border Services destroys “tons and tons and tons” of fermented curd seized from smugglers every year. (Some tips: put it in your checked luggage and try to avoid temperature fluctuations.)

European negotiators set out to change this state of affairs. Documents obtained from the Canadian Dairy Commission through an Access to Information request show that Europe wanted three things on the dairy front: more market access, better geographic indicators (“Italian Asiago,” instead of just “Asiago”) and immediate removal of all duties on processed goods, including dairy. The Europeans can claim partial victories on the first two, but they flopped on the third, and this give-and-take meant that Canada had to allow higher tariffs for beef and pork. That’s the cost of running supply management.

Ottawa offered the farmers a mitigation—a pot de lait. Farmers wanted to be reimbursed for their lost market share; Harper has offered financial assistance to any farmer who falls short of their production quota. Dairy farmers pushed back, saying a government handout was contrary to their core philosophy. Even with the concessions on CETA, the Dairy Farmers of Canada took direct aim at the agreement and the prime minister with newspaper ads that the association can confirm went to print just after the deal was announced.

At their annual policy conference, held the same frigid week as the cheese reception, the Dairy Farmers of Canada considered sending a message to the prime minister requesting “that the federal government compensate Canada’s dairy sector through monetary or non-monetary measures, proportional to the damage incurred, for any and all market access concessions that might result from its incapacity to maintain import controls at the current level.”

The industry is quick with scare stories about what will happen if Canada liberalizes its dairy market: it will cost us more, hormone-laden American milk will flood our grocery stores, we’ll be pouring excess down the drain. Report after report has debunked those talking points. “It is perhaps surprising that a country like Canada with its vast agricultural potential has not seen fit to be a recent leader in pushing for liberalisation, especially when so many of its farmers would benefit so handsomely from a freer global trading regime in this sector,” reads a 2008 OECD statement. Meanwhile, a new paper from the Conference Board of Canada argues that dismantling supply management would boost profit margins for most farmers in Canada. But it seems unlikely that any government will reform supply management in the foreseeable future. To take on that sacred cow, some politician would need to be quite brave, and very stupid.