Dan Wong 
President, Western Dairy Council

These are trying times. 

That might be the biggest understatement of the past two years as the dairy industry in western Canada -- like all sectors of the economy -- wrestles with a host of unprecedented challenges ranging from drought to floods, to supply interruptions to, most recently, the effects of the Omicron variant of COVID-19. The cumulative effect of these challenges has been to create unprecedented disruptions throughout supply chains for many consumer goods. It’s not the way any of us had hoped to start the New Year. 

Recently, we’ve heard reports of dairy product shortages and “out-of-stocks” at some grocery stores, not just in British Columbia or western Canada, but across the entire country. This is an obvious source of concern as everyone involved in the Canadian dairy industry -- including farmers, their input suppliers, transporters, processors, service providers, distributors and grocery stores -- is dedicated to ensuring that consumers have ready access to the dairy products they want and need, all the time. When we hear about empty store shelves, the natural reaction is to ask, “where’s the bottleneck?” 

The answer is that depending upon the product, the geographic location and the specific circumstances in a given day or week, it can be anywhere, or in several places, throughout the supply chain. Equipment and supplies are held up at ports. Truck transport is slowed by a shortage of drivers and, as we’ve seen in BC over the past two months, by highways that have been battered and destroyed by once-in-a-lifetime floods. Even more recently, we’ve seen the Omicron variant take a toll on all segments of the supply chain. 

The impact of Omicron can’t be underestimated. Food & Beverage Canada recently reported that food processors are experiencing about 30% absenteeism, presumably reflecting the pervasiveness of Omicron. Earlier in January, the Retail Council of Canada reported absenteeism of up to 20% at retail stores, including grocery stores. In addition, there are reports that restaurants have had to curtail their hours of operation because of staff shortages owing to COVID-19. 

And yet, it’s not just Omicron, but the accumulation of all these factors that has caused disruptions in the supply chain. Producers have faced feed shortages as a result of severe weather and transportation challenges. Processors have experienced slowdowns in the delivery of packaging and other supplies. Transport companies, faced with shortages of qualified drivers and vehicles, a situation that pre-dated the pandemic, are now faced with longer hauling times as a result of traffic restrictions on damaged highways. In addition, grocery retailers, on the receiving end of these accumulated delays, are not immune to staff shortages related to the Omicron variant and may take a bit longer to get shelves re-stocked. 

WDC’s members have also felt the impact of these disruptions. COVID-19-related absenteeism has affected us too, as have delays in the delivery of supplies and, at the peak of the flood catastrophe in BC’s Fraser Valley, regional access to the milk supply. Yet the prevailing feedback from our members is that, while operations and distribution may be affected in certain cases, they are still getting products to market. Aside from the occasional weather delay (it being January), the dairy processing sector in western Canada is functioning well and customer orders are being filled. Of course, none of this would be possible without the exceptional efforts put forward by the dairy farmers and staff at the Milk Marketing Boards who have worked tirelessly to keep milk flowing (even in British Columbia, where production has been restored after one of the most incredible environmental disasters in the province’s history). 

Despite the challenges, all segments of the dairy supply chain are doing everything they can, in unprecedented circumstances, to ensure that high quality dairy products are available to consumers in all regions of the country. 

​​We are not alone in this. Other agri-food sectors are also managing supply chain disruptions, as are industries as diverse as automobiles, electronics and building supplies. Some economists expect supply chain issues to persist for the remainder of the year. It will be a challenge, but we can expect the dairy industry to come through, as it always has. 

On January 4, 2022 the CUSMA Dispute Settlement Panel published its report on Canada’s administration of its dairy tariff rate quota (TRQ). At the centre of the dispute is how Canada has allocated its TRQs – the quantities of dairy products such as milks, cheeses, powders, yogurt and ice cream that can be imported at lower duty levels under the terms of CUSMA.
 
The report finds on the one hand that "Canada’s practice of reserving TRQ pools exclusively for the use of processors is inconsistent with Canada’s commitment in Article
3.A.2.11(b) of the Treaty not to “limit access to an allocation to processors.”
 
On the other hand, the report finds that “nothing in the panel’s ruling constrains Canada’s discretion to administer its TRQ however it wants, within the treaty’s set limits. Quite the contrary – Canada has significant discretion in designing and implementing its allocation mechanisms.” And further, “The Panel agrees with Canada that the design of an allocation mechanism, including who may obtain an allocation, is left up to the discretion of the importing Party, in this case Canada, to determine, subject to consistency with the other provisions of the Agreement.”
 
Reaction to the decision has been mixed, with both countries claiming victory. U.S. Trade Representative Katherine Tai proclaimed that “This historic win will help eliminate unjustified trade restrictions on American dairy products, and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA (as it is known in the United States) to market and sell U.S. products to Canadian consumers.”
 
For Canada’s part, International Trade Minister Mary Ng and Agriculture and Agri-food Minister Marie-Claude Bibeau declared that “We are pleased with the dispute settlement panel’s report, which ruled overwhelmingly in favour of Canada and its dairy industry. In particular, it is important to note that the panel expressly recognizes the legitimacy of Canada’s supply management system. The panel also confirms that Canada has the discretion to manage its TRQ allocation policies under CUSMA in a manner that supports Canada’s supply management system.” 
 
Canada now has until February 3 to propose the measures it will take to comply with the CUSMA panel’s decision. The federal government has indicated that it will work with the industry to ensure that its TRQ allocation mechanism satisfies the panel’s decision. 
 
The final panel report is available here.