U.S. dairy industry members are concerned by new Canadian pricing policies on milk used in processing they say will hurt U.S. dairy exports to its northern neighbor.

At issue is a pricing policy that went into effect in Ontario last April that establishes a new class of milk and pricing for milk for processing that would undercut dairy imports from the U.S.

The same strategy appears to be at play in negotiations between the Dairy Farmers of Canada and the Dairy Processors Association of Canada, which announced a “national agreement that includes the creation of an ingredients strategy” in July. Details of that agreement have not been released.

“The goal is to incentivize Canadian processors to use domestic milk or dairy ingredients, and it’s specifically focused on U.S. imports going into further processing in Canada,” said Shawna Morris, U.S. Dairy Export Council vice president of trade policy.

Canada is trying to use pricing tools to make domestic dairy ingredients more attractive and cheaper and drive up the cost processors would be forced to pay for U.S. product, she said.

Canada’s pricing system consists of convoluted and complex regulatory tools, and its milk-classing structure is intentionally used to block imports, she said.

It’s difficult to get details on how Ontario’s program is working and how a national program might work, she said. But U.S. companies already see export losses, and it’s likely a national program would lead to more, she said.

Targeted in the Ontario policy are imports of U.S. ultrafiltered milk, which is highly concentrated to remove water and high in protein. It’s used primarily in Canada for making cheese, and would be impacted by the national strategy, she said.

USDEC and the National Milk Producers Federation on Thursday praised Sens. Chuck Schumer, D-N.Y., and Tammy Baldwin, D-Wis., for urging an investigation into the policies.

In a letter to Ambassador Michael Froman and USDA Secretary Tom Vilsack, the senators said it is troubling that these pricing programs appear to be designed to displace imports of U.S. product.

“We are extremely concerned that the Class VI pricing policy that has recently been in place in Ontario violates Canada’s existing trade commitments to the United States, and reports suggest that this new national strategy may follow a similar approach,” the senators stated.

The Class VI pricing program appears to incentivize Canadian processors to shift to using more Canadian dairy inputs, in essence penalizing them for the use of imported dairy inputs, they stated.

“Based on the information currently available on this program and the clear public track record that the Class VI pricing program is being implemented specifically to displace imports, we have serious doubts as to how the program would be compliant with Canada’s NAFTA and WTO obligations,” they said.

The North American Free Trade Agreement and the World Trade Organization govern trade between the U.S. and Canada.

The senators said they are particularly concerned that Canada is moving to target New York and Wisconsin exports of ultrafiltered milk, with dairy companies in those states saying they have already lost considerable export sales as the result of the new policy in Ontario.

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