Canadian subsidies helping to drive down global skim milk powder prices are illegal and the Government should waste no time in challenging them at the World Trade Organisation, former Trade Minister Todd McClay says.

McClay was still taking advice from officials on a possible WTO case until his National-led government was dumped after September’s general election.

“I have no doubt in my mind that Canada is breaking WTO rules and they need a very strong message sent to them that we will be going down the route of WTO action unless they change this behaviour, which is harming our farmers.”

It is more than a year since a coalition of international dairy industries called on their respective governments to challenge Canada’s new Milk Class 7, which, they said, breached a WTO ban on export subsidies.

The major dairy processing bodies of New Zealand, the United States, Australia, Argentina, the European Union and Mexico followed up with another letter in June urging action but as yet no government has initiated a case.

In NZ the incoming Government had its hands full carving out a new position in the Trans Pacific Partnership talks and was yet to comment.

But McClay believed the threshold for a WTO case had been met and the Government should not hold back.

“There is now evidence that Canada is dumping skim milk powder in a number of markets where we do well with more than 100% increase in volumes and it is starting to have an impact on prices.”

Dairy Companies Association chairman Malcolm Bailey estimated close to 100,000t of SMP had found its way on to world markets that would not have happened without the new Canadian pricing system.

While considerably less than the nearly 400,000t in the European Union’s intervention stocks, Bailey said it was having a disproportionate impact on the global market for SMP.

While the Europeans’ objective was to turn a profit from its stockpile, Canadian exporters were selling heavily subsidised SMP for as much as US$300/t below the world price and creating chaos.

“We believe the rational behaviour and expectations in the market around Europe are quite different to the tactics being followed by the Canadians.”

Returning last week from Ottawa and Washington DC Bailey said US dairy groups were backed up by agriculture and trade officials who also expressed support for a legal challenge.

That was despite President Donald Trump’s well-documented antagonism towards the WTO dispute settlement body’s record of adjudicating on the US’s trade disputes.

“They are well briefed on the problem and the importance of resolving it and they really do want to join a WTO dispute to sort it out.”

In Ottawa, by contrast, Canadian farmer and processor groups feigned surprise when confronted by allegations of illegal export subsidies.

That appeared to be a deliberate tactic.

“My conclusion is that there is an orchestrated approach of just pushing people back and continuing to buy time while their increase in milk production is cemented in place by investment in milk processing.”

In August Chinese company Feihe International confirmed it would invest C$225m in a dairy plant in Ontario that would turn Milk Class 7 milk into the base materials for 60,000 tonnes of infant formula to be exported to China annually.