OTTAWA — The Conservative government has ordered dairy farmers and processors to get together and resolve their conflict over imported milk protein concentrates. The president of Dairy Farmers of Canada (DFC) Jacques Laforge says the government wants the industry to work out an agreement without going through the World Trade Organization (WTO).

The concentrates at the centre of the controversy are not classified as milk product and come into Canada duty free. Cheaper than Canadian milk, they are turned into cheese by processors for a higher profit.

Without a resolution, the long-term effect on the bottom line of dairy farms would be devastating.

Canadian skim milk stockpiled

In 2005, Canadian dairy farmers, because of imported concentrates, lost $235 million in sales, about $70 million more than the previous year. Laforge said every kilo of concentrate that comes into the country displaces 2.5 to 3 kilos of skim milk powder. The equivalent of a kilo of skim milk powder that’s turned into cheese would be worth $12 to the farmer. If the same amount were turned into animal feed, a major alternative market, it would be worth $0.80 to $1.

As bad, Canada is accumulating a stockpile of skim milk powder it can’t get rid of.

Federal Minister of Agriculture Chuck Strahl is against going to the WTO to resolve the dispute. He believes a win under WTO rules would only transfer to a loss under NAFTA. Instead of concentrates coming in from Australia and New Zealand they’d be coming in from the United States and Mexico.

Confusion over what the rules say

Confusion has been created by an apparent contradiction between the Federal Drug Act and the Canadian Agricultural Products Act, Laforge told Farmers Forum. "The Federal Drug Act clearly states that milk protein concentrates can only be used in processed cheese and not other cheeses," he explains. "The Canadian Agricultural Products Act says you can use milk or other milk solids. The word "solids" is interpreted broadly (by processors) to include milk concentrates."

Laforge says the laws were set up before concentrates appeared on the scene, and while the dairy processors are following the letter of the law or wringing every favor they can from it, they are evading the law’s spirit.

"The industry has to come to grips with conflicting regulations on what makes compositional standards," he says.

Unfortunately for dairy producers, the federal minister of agriculture "has taken different legal advice than we have," Laforge said. On January 2006, a federal court ruled that milk protein concentrates over 86 per cent could come into the country free of duty. Laforge wants that decision overturned.

He said the Bloc bill to re-classify protein concentrates, passed in the House in June 2006, was a political gesture, indicating Canada wanted to act to control the import of concentrates. However, the Conservatives voted against the bill.