How to Feed the World by Jessica Eise

Author:Jessica Eise
Language: eng
Format: epub
Publisher: Island Press
Published: 2018-03-18T04:00:00+00:00

The Case of Dairy and the TPP

There is much to be said about international trade agreements. Many books and articles have been written about them. Indeed, I have written more than a few myself.

Not only would it be impossible to summarize them all in one short chapter, it would likely be impossibly dull to dig through as a reader. Yet a case example can give us considerable insight into the matter of trade and agriculture. As such, let’s dig into the particulars of one such case, a relevant one—that of dairy products under one of the current trade agreements under negotiation, the TPP.

Two of my former students, now gone on to spread their academic wings, made a case study of this particular topic. These two, Jason Grant and Everett Peterson, both now at Virginia Tech, in addition to Sharon Sydow, a member of the chief economist’s staff at the US Department of Agriculture, analyzed the dairy sector and international trade in depth, a task more complicated than it may superficially appear.9 When it comes to international trade, the dairy sector is surprisingly heterogeneous.

There are two dozen types of dairy products traded. These often have dramatically different tariff structures. This can depend on the competitiveness of the sector, as well as its political influence on trade policy. In the United States, for example, imports of fresh cheese face a relatively high effective tariff. Milk powder, skim milk, and casein (a protein by-product of dairy processing) are imported with virtually no barriers at all. In addition, dairy imports are riddled with something called the tariff rate quota (TRQ) system.10

TRQs are essentially a means of regulating trade while avoiding the use of import quotas. Import quotas were banned under the Uruguay Round Agreement of the WTO. Under the TRQ system, a prespecified level of imports is allowed to enter the market at a relatively low tariff. However, once a certain level of “in-quota” imports is reached, the tariff jumps to a higher, often prohibitive, level.

TRQs result in a lot of side deals that are often bilateral, and these arrangements may also be overly influenced by nontrade geopolitical factors and relationships. In a rapidly evolving global economy, this type of prespecified sourcing of products is bound to result in some pretty dramatic inefficiencies. Of course, if these inefficiencies were eliminated, as is the goal of many trade agreements, it would cause a major restructuring of the industry. One such example is offered by New Zealand’s dairy product exports to Canada and the United States, where regulation has resulted in high dairy prices and an industry that, on average, is not internationally competitive. Opening the border to dairy imports from New Zealand, a highly competitive producer, would result in many small dairy farms in Canada and the United States going out of business. It would also result in lower revenues for all domestic dairy producers. By maintaining a TRQ on dairy imports, with a high out-of-quota tariff (51 percent on butter imports from New Zealand into the United States), the government is able to protect its domestic dairy industry.

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