NAFTA Deal done with Canada and Mexico

[Cardboard]

Thanks for the thoughtful post Viking!

 

Reading through this thread, it sounds like many think that the U.S. got nothing out of it. So why did Freeland and Trudeau wasted so much time and created so much uncertainty before signing this "gift" from Trump?

 

I will say it again, it was milk and Trudeau trying to avoid any concession on it to win votes mostly in Quebec! Once they realized that Trump was serious to hurt the auto sector, they were forced to give in.

 

There wasn't so much to be negotiated or corrected between Canada and the U.S. on trade as the main issue with NAFTA or the job vacuum comes from Mexico. Some tweaking for sure and then the U.S. trying to take down some protective tarrifs imposed by Canada (dairy).

 

Now, I recognize that some of you may never have been inside a Canadian manufacturing plant but, I can tell you that a key concern of people working there has been outsourcing to Mexico due to low wages for years and now decades.

When you produce something in Canada and your key market is the U.S., it becomes quite obvious that producing in Mexico is a solid option.

 

There is no easy solution to that problem IMO. More education in higher wage countries is one but, very long term. Higher productivity is another but, you would be surprised how easily that gets "exported": modern machinery, better processes can get moved quite easily.

 

So eventually the sourcing decision comes down mainly to wages, availability of skills, logistics (distances), currencies and security of supply.

 

Cardboard

[RichardGibbons]

Reading through this thread, it sounds like many think that the U.S. got nothing out of it. So why did Freeland and Trudeau wasted so much time and created so much uncertainty before signing this "gift" from Trump?

 

I will say it again, it was milk and Trudeau trying to avoid any concession on it to win votes mostly in Quebec! Once they realized that Trump was serious to hurt the auto sector, they were forced to give in.

 

LOL, this is a pretty amusing way to look at it.  Trump was asking for the moon.  After months of negotiation, he got a moon rock. The reason they "wasted so much time" was so that they didn't have to concede much at all.

 

Really, it's the normal Trump playbook:

1. Bluster, bluster, bluster

2. Accomplish nothing

3. Claim a huge victory

4. Supporters blinded by tribalism and ideology twist the evidence and logic to try to support Trump's narrative

 

[longtermdave]

You all pay too little for milk:

 

https://www.amazon.com/Tuscan-Dairy-Whole-Vitamin-Gallon/dp/B00032G1S0

[LC]

You all pay too little for milk:

 

https://www.amazon.com/Tuscan-Dairy-Whole-Vitamin-Gallon/dp/B00032G1S0

 

Real value investors go the extra mile:

 

https://www.framedart.com/keren-su-danita-delimont/baby-calf-cow-farm-animal-orissa-india-print-793857.htm?sku=P793857&source=GoogleAdwords&ad=P793857_GoogleShopping&utm_source=google&utm_medium=cse&utm_term=793857&gclid=Cj0KCQjw0dHdBRDEARIsAHjZYYDTT21_oYaCqg8NQ3CsfpMEAy23KI1t67do80z4l0ZS9-HdX4gZcSIaApx0EALw_wcB

[Spekulatius]

Complementary information.

 

Hard to get a clear picture on prices but the following is a reasonable source of information and methodology is interesting but conclusions are incomplete (more on that at the end of the post):

http://fieldagentcanada.com/wp-content/uploads/2018/06/Canadian-Fluid-Milk-Report-2018.pdf

 

Take-home messages:

1-milk prices vary ++ between regions in Canada

2-milk prices vary ++ even within regions in Canada

3-Canadian milk prices appear to be higher than US prices but the methodology on the US side is different and based on a smaller sample

 

On 1-, I would say that the net return to the producer is quite stable across the country given the principles behind supply management which is basically a national policy. In Atlantic Canada, higher prices at the consumer level can be explained by higher input costs and lower economies of scale at the farm level and higher transportation costs compared to farms in Ontario and Quebec. I know less about dairy farms in Alberta and BC.

 

On 1-, the difference in price between Quebec and Ontario does not lie at the producer level but has to do, as rb explains, with a different philosophy. Milk prices are set similarly to gas prices with a minimum and a maximum. In Quebec, the range is relatively small. In Ontario, the range is larger, especially down, because retailers have historically and typically used milk as a "loss leader", so consumers who save on milk will tend to pay more for other products because, in the main, the net margin for groceries is similar between Quebec and Ontario.

 

On 3-, If you look at historical evolution of prices, often US prices for milk have been lower and, for some periods, by a lot. However, one needs to compare apples to apples. The difference in subsidies directly to the producer can explain some of the differences. Also, if you look for the price of milk that is free of growth hormone, which is banned in Canada, the price differential tends to disappear. And, if you look at some work that's been done, in the US, it's been shown that a significant portion of workers on dairy farms are immigrants, frequently undocumented (up to 50% of workers in some reports) which seems to also explain a significant part of the price differential. So, overall, there doesn't seem to be much left for true productivity enhancing economies of scale in terms of a price advantage for the consumer.

 

One of the problems is that both the US and the CDN dairy systems are relatively broken (seems to be a pattern, doesn't it?) and the tendency, on both sides, has not been to fundamentally reconsider the policies put in place a long time ago but has been to try adding adjustments on top of it all resulting in a relatively inefficient patchwork.

 

I just realized that I wrote this post eating ice cream with milk products (diafiltered milk) probably imported from the US. Am I a traitor?

 

Dairy farmers seem to have political influence, same in Europe, where there are a lot of subsidies for farmers and milk too. I think the problem is that there are lot of small farms which aren’t very productive and larger ones, which tend to be more productive. So if subsidies were canceled, you would see complained and stories in thr news about small farmers going bankrupt/closing shop.

[Cigarbutt]

Dairy farmers seem to have political influence, same in Europe, where there are a lot of subsidies for farmers and milk too. I think the problem is that there are lot of small farms which aren’t very productive and larger ones, which tend to be more productive. So if subsidies were canceled, you would see complained and stories in thr news about small farmers going bankrupt/closing shop.

The trend has indeed moved towards larger players and more milk produced per animal with the US leading the way but the trend is international. In theory, this should translate into a more affordable product.

The gains from increased productivity, whether or not in deregulated markets, seem to have been "milked" mostly, in descending order by the retailer, the processor, then the producer and finally the consumer.

In an ideal world the US and Canada should integrate their dairy markets, but this would require a dialogue and it is difficult for one player to lower its guard if confidence in the other is limited.

I guess Canada could unilaterally get rid of its supply management but, under present circumstances, it would need to compensate somehow those affected during the transition (especially smaller players and those in "remote" areas) and would need to set up a permanent subsidy system. Mostly, in countries that went through a similar process, consumers have not benefitted.

Like on many other fronts, I think we can do better...together.

 

https://www.wilsoncenter.org/sites/default/files/1i2v%20i17%20Supply%20Management%20-%20FINAL_0.pdf