Saputo criticises Canadian milk scheme

08 Aug, 2018 04:19 PM
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Lino Saputo Jr:
So Canada cannot have a two-tier system...that's not fair trade.
Lino Saputo Jr: "I'm not against the milk supply management system in Canada, it works well for Canada."

The owner of Australia's largest milk processing company Lino Saputo Jnr has lashed out at a Canadian dairy export support scheme.

Speaking after the release of Saputo's quarterly results on Tuesday, Mr Saputo said he backed concerns of United States, Australian and New Zealand farmers about the scheme.

But he supported Canada's milk supply management system.

The system sets domestic production quotas and the milk price paid to farmers, while Canada blocks imports from other countries by imposing high levels of tariffs.

In 2016, a new Class 7 pricing scheme was struck, which allowed processors to pay lower prices for domestic milk ingredients used to make cheese and yoghurt and to export the rest.

Mr Saputo said Canadian producers were trying to have their cake and eat it too.

"I'm not against the milk supply management system in Canada, it works well for Canada," he said.

But Mr Saputo said he was opposed to the Class 7, which was behind the 1.5 billion litre increase in Canadian milk production to 9.5 billion litres in the past two years.

The excess production was being sold as powder into international markets.

"So what I am saying is if Canada wants to have a supplied milk system, you've got to manage that supply to domestic consumption, which is what the milk supply managed system is all about," he said.

"So perhaps that means that 1.5 billion litres of milk has to come off the table from Canada.

"So Canada cannot have a two-tier system, which is what they have with the Class 7 - that's not fair trade."

Mr Saputo also blamed Class 7 for difficulties at the farmgate that had prompted the Canadian Dairy Commission to impose a 4 per cent increase in the price paid to farmers.

"The suppliers are complaining about lower revenues," he said.

"Well, Class 7 has contributed to lower levels at the farm level because Class 7 is set at international prices and suppliers are getting a blended price.

"So, of course, the economics at the farm level aren't making sense.

"But Class 7 is a culprit there."

Mr Saputo said the Canadian dairy industry would have to give something in the negotiations for the North American Free Trade Agreement (NAFTA).

"If we think that there is going to be a NAFTA deal signed and there is going to be no change to the dairy industry, then I think we are all crazy. That's not going to happen," he said.

Removing Class 7 would be better than offering incremental import licences to the US.

Mr Saputo also lashed out at what he called irrational behaviour by companies in the US in the wake of the Trump-led tariff war.

US processors initially panicked and, concerned that export markets might be closed to them, started to look to place more product domestically, he said.

The international supply pipeline also filled up as buyers moved to sure up supply before tariffs were imposed.

US stockpiles of product had subsequently grown to 1.4 billion pounds.

This had led to dairy processors in the US trying to sell their products at lower prices.

"We are seeing things going on in our industry we haven't seen before," Mr Saputo said.

But he said Saputo was not prepared to fight for every market segment.

If it was a long-standing customer in a market for a product it could produce competitively, Saputo "will have to fight", but if it was less profitable, "we will cut those products loose".

"We've got deep enough pockets that we can fight the good fight wherever we choose to go," he said.

"Sometimes we choose to fight and sometimes we choose to walk away depending on the importance of customer and divergence of the product mix."

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