By Christine Haughney | 10/10/2017 10:00 AM EDT

With Doug Palmer, Jenny Hopkinson and Helena Bottemiller Evich.

U.S. DAIRY CALLS FOR END TO CANADIAN SUPPLY MANAGEMENT: U.S. dairy producers are taking a hard line ahead of the fourth round of the NAFTA talks this week by urging the Trump administration to push for elimination of Canada's supply management system. "I don't know what the U.S. government is going to do, but we certainly are talking very clearly that we need complete elimination of [Canadian] tariffs," said Jaime Castaneda, senior vice president for strategic initiatives and trade policy at the National Milk Producers Federation. "Once you eliminate tariffs, supply management goes."

That's a big demand, since Canadian officials from Prime Minister Justin Trudeau on down have vowed to vigorously defend the supply management system. In one example, Ontario Premier Kathleen Wynne told our colleagues at Morning Trade recently that supply management is a "very rational system."

"We have to make sure we solve the right problem," Wynne said. "If the problem is oversupply in the United States, then we need to have that conversation. If the problem is access to markets, then we should have that conservation."

Dairy is a particularly sensitive issue on both sides of the border because it was one of the few agricultural sectors, along with poultry and eggs, that was not fully liberalized during the original NAFTA agreement. In addition, Canada has recently put in place policies to encourage more butter production that have fueled an oversupply of other products, like skim milk solids, which are being dumped onto world markets to the detriment of American and other dairy exporters, former U.S. chief agriculture negotiator Darci Vetter told Pro Trade's Doug Palmer.

Unless that issue is also addressed, any new market openings for U.S. dairy that take the form of an import quota could be meaningless, since Canadian processors already have ample access to skim milk powder and proteins at low prices, Vetter added. Castaneda underscored that point, emphasizing that U.S. dairy will consider the NAFTA renegotiation a "failure" if it does not fix that problem.

HAPPY TUESDAY, OCT. 10! Welcome to Morning Ag, where your host is happy to see that the Nobel Committee wisely awarded the economics prize to a man who can explain why Americans overeat and accrue debt. I welcome all thoughts, scoops, tips, feedback, birthday shout-outs and wedding announcements! Send them to chaughney@politico.com or @chaughney. Follow the whole team at @Morning_Ag .

MEXICO AND CANADA'S AG DEMANDS: The U.S. has already eliminated most agricultural tariffs through the NAFTA framework, except for dairy and sugar, so there is relatively little more Canadian and Mexican farmers can get from a new deal. But since both Mexico and Canada have long wanted FDA recognition to sell Grade A dairy products like fresh yogurt and fresh cheeses in the U.S., there could be pressure to allow those products in, Vetter said.

The U.S. and Mexico recently struck a sugar deal that takes care of the most immediate concerns on that front, but Canada continues to want to be able to export more refined sugar to the U.S., Vetter added. In addition, since Canada's refineries have excess capacity, they'd like to be able to import raw sugar from other countries around the world, refine it, and have it count as Canadian when exported to the U.S. so it can enter duty-free, she added.

Investor-state NAFTA news: The Trump administration is expected to make its assault on NAFTA's investor-state dispute settlement process during this week's talks, coming out with a proposal that would effectively hobble the controversial arrangement, Pro Trade's Adam Behsudi reports. Pros, read that here.

WILL SPS INNOVATIONS IN TPP RESURFACE? Vetter said she hoped two of the Trans-Pacific Partnership's innovations in food safety and plant and animal health regulations, otherwise known as sanitary and phytosanitary measures, will reappear in a revised NAFTA pact. One of those established an accelerated process to resolve SPS problems that are detected when agricultural goods are crossing the border, while another institutionalized cooperation between countries to resolve policy differences before they become full-fledged disputes, Vetter said.

While there are relatively few SPS disputes between the U.S., Canada and Mexico, a revised SPS chapter could help in both areas, Vetter said. Beyond NAFTA, the value of new SPS standards would be to establish a set of "best practices" that could be incorporated into future trade agreements the three countries reach, she said.

Conaway and co. report back from Canada: After House Agriculture Chairman Mike Conaway and four other House members pressed Canadian officials on the NAFTA talks in Ottawa this past weekend, they issued a joint statement where Conaway said he won't back down. "U.S. production agriculture will continue to stay at negotiators' elbow throughout this process to ensure their interests are taken into account," he said. "This is too important to screw up."

Rep. Kurt Schrader expressed concerns that differences in areas like dairy, wheat and wine may be impossible to surmount. "It became obvious to me as we ended our visit that both sides will continue to support one another vigorously, but that the Canadians feel no urgency to come to the table in any of the above," he said. Reps. David Rouzer, Ted Yoho and John Faso also made the trip.

WHERE IS USDA'S MEASURE TO CHANGE SCHOOL LUNCH RULES? On July 6, USDA sent an interim final rule to the White House that would change some of the school lunch standards championed by former first lady Michelle Obama, including stalling restrictions on salt and locking in flexibility in meeting the mandate to serve only whole-grain-rich foods. The rule is still there, though perhaps not for long. The review being conducted by the White House Office of Information and Regulatory Affairs is supposed to take 90 days, but officials can ask for a three-month extension. The rule has now been under review for 96 days, and the White House has yet to seek more time.

Flashback to the lunchroom: Agriculture Secretary Sonny Perdue visited a Leesburg, Va., elementary school a week after taking office to announce he'd give schools more leeway to meet the school nutrition standards beefed up during the Obama administration. While he praised Michelle Obama's efforts on child nutrition, Perdue said schools should be able to serve food that students find palatable and that administrators shouldn't be forced-fed regulations that have increased expenses in some cases. Pros, brush up on that announcement here.

A USDA spokesman told MA the rule is still a top priority for Perdue. "The regulatory development process is well underway, and we are working with the Office of Management and Budget to facilitate completion and prompt publication of the rule," the spokesman said.

CODFATHER SELLS FLEET TO HIS CLOSE FRIEND: New England fishing mogul Carlos "The Codfather" Rafael has sold his fishing fleet to fellow fishing mogul Richard Canastra for $93 million, it was reported on Friday. A federal judge sentenced Rafael last month to 46 months in prison after he pleaded guilty last year to 28 charges involving federal fishing violations.

At Rafael's sentencing, a federal judge said he would rule shortly on what would happen to Rafael's 13 fishing vessels - a fleet that supplies fish to markets and restaurants along the East Coast, including to many Manhattan restaurants. While Canastra boldly went public with news of his purchase, the judge has not said whether the deal will be approved.

Who would be in charge? Canastra and Rafael have long worked together in New Bedford, Mass. While Canastra told The Standard Times that "Carlos would stay out of the business," fishing industry experts worry the arrangement would allow Rafael to exert control over the operation from behind bars. A SeafoodNews.com editorial noted the sale would further concentrate New England's scallop and groundfish fleet in the hands of the Canastra family.

ROW CROPS:

California wildfires force farmers and ranchers to flee: The deadly wine country fires have forced farmers in Sonoma County to evacuate with their dairy herds and other livestock, the San Francisco Chronicle reports.

Top vineyards have also burned: Wine Spectator reports that vineyards in Napa and Sonoma counties have been burned, with at least one winery destroyed.

FFAR eyes place in 2018 farm bill: The Foundation for Food and Agriculture Research is asking lawmakers to reauthorize and fully fund the organization in the coming farm bill - a potentially big ask, given the tight budget that is anticipated for the measure. More from Pro Ag's Jenny Hopkinson here.

VA to screen for hunger among veterans: The Department of Veterans Affairs is set to begin screening all veterans who visit its health-care system for signs of hunger. If patients indicate they have run out of food or struggled to pay for it within the past three months, VA staff will connect them with food pantry resources or get them info on how to enroll in SNAP. The Washington Post looked into what's new and what it could mean for veterans at risk of food insecurity.

Watchdog group calls for Zinke investigation: The Campaign Legal Center asked the Justice Department to open a Hatch investigation into Interior Secretary Ryan Zinke since he appeared at a political fundraiser while on an official trip to the U.S. Virgin Islands, POLITICO reports.

Beef won't hold up Mercosur talks: European Commission officials said they expect to wrap up trade talks with Mercosur by year's end despite disputes about beef exports, POLITICO Europe reports. France, along with eight other EU countries, have protested the negotiations.

A rising outsider for JBS: While the Batista brothers battle their court cases, an outsider is rising through the ranks of the protein giant, Bloomberg reports.

How tractors are playing a role in Catalonia's independence movement: They've become a new symbol of independence, The New York Times reports.

Drug-resistant E. coli strain contributed to Hefner's death: Food Safety News reports that Playboy founder Hugh Hefner was fighting a drug-resistant form of E. coli before he died from cardiac arrest and respiratory failure, Food Safety News reports.

THAT'S ALL FOR MA! See you again soon! In the meantime, drop your host and the rest of the team a line: cboudreau@politico.com and @ceboudreau; jhopkinson@politico.com and @jennyhops; hbottemiller@politico.com and @hbottemiller; chaughney@politico.com and @chaughney; jlauinger@politico.com and @jmlauinger; and pjoshi@politico.com and @pjoshiny. You can also follow @POLITICOPro and @Morning_Ag on Twitter.

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