As the U.S., Canada and Mexico prepare to enter the third round of the North American Free Trade Agreement (NAFTA) discussions at the end of this month, the Northwest American dairy industry is weighing in with its unique concerns, particularly related to trade challenges with Canada.
Key U.S. objectives for a NAFTA rework include reducing any barriers to agricultural exports, and keeping those goods tariff-free.
Earlier this month, Washington’s agricultural sector stakeholders shared their apprehension regarding NAFTA negotiations. A primary concern is the possibility that updating the language on countervailing and anti-dumping duties might harm Washington growers and producers.
In addition to the agriculture community position on NAFTA, those representing the dairy sector have unique concerns, as well. Among them are high tariffs and the difficulty of getting dairy products into Canada, according to Allan Huttema, board member for the Northwest Dairy Association (NDA) and Seattle-based Darigold, an agricultural marketing cooperative.
“There is free movement for grain, like wheat and barley, across borders where there aren’t a lot of tariffs involved, and for other products like apples. There is open trade between the U.S. and Mexico as well as other countries, but when it comes to dairy, Canada has a very protective market.”
NAFTA has given the dairy sector access to the Mexican market, which has been beneficial from an export standpoint, Huttema said, but added that improvements need to be made between the U.S. dairy industry and Canada. The U.S. agricultural sector is urging NAFTA negotiators to work toward a solution on that front.
Canada “continues trying to keep dairy products in the country and is starting to subsidize exports, which have been affecting us,” he said. “Through NAFTA, we are hoping to gain more access to Canada and address some of those concerns.”
Stan Ryan, president and CEO of Darigold and NDA, explained the industry position to the U.S. House Ways and Means Trade Subcommittee during its hearing on NAFTA on July 18.
Ryan requested that members of Congress reinforce the existing, positive relationship the U.S. has with Mexico, work to repeal Canada’s Class 7 pricing strategy and assist President Trump’s administration in keeping dairy products duty-free in Canada as they are in Mexico.
In his written testimony, Ryan detailed how the U.S. dairy industry is one of the few sectors without duty-free access to Canadian markets. For the major categories of dairy products, Canada enforces tariffs in excess of 200 percent, which reach 298 percent for butter and 245 percent for cheese.
In February, Canada created a new competitive milk class called “Class 7” for milk ingredients, such as skim milk and milk powder. Over the past few months, Canada priced milk proteins under Class 7 at approximately 15 percent less than what U.S. processors pay to its own domestic processors. This means the country can incentivize its own counterparts to expand their protein businesses. Canada can then overproduce its milk and underbid world market prices, according to Ryan.
He added that the new system allows domestic milk products in Canada to reach nearly double the world and U.S. prices, pushing out competition in its domestic market and filtering surplus products into international markets.
Huttema also noted the severity of the situation, saying the change allows Canada to export dairy products at a low cost, which is an unfair advantage compared to American dairy farmers. He added that the Northwest dairy industry is encouraging negotiators to address this issue and lower tariffs to gain access to Canada’s market.
Both Huttema and Ryan praised NAFTA for its success in boosting both American and Mexican dairy products as the commodities pass across the border.
Thanks to NAFTA, U.S. milk prices since 2004 have increased an average of $1.25 per 100 pounds, according to Ryan. Also, the expansion of dairy exports has increased sales income for those farmers by $36 billion over what they would have otherwise received.
In 2016, the U.S. shipped $1.2 billion in dairy products to Mexico. In 1995, this figure was $124 million. Last year, Mexico accounted for 47 percent of U.S. nonfat dry milk exports, 31 percent of cheese and 38 percent of butterfat.
For Mexico, its milk production has increased by 58 percent since 1994. This allows for increased market opportunities for American producers and affordable prices for both Mexican and American consumers.
The third round of NAFTA discussions began on September 23 in Ottawa, and will continue until September 27.
Huttema said he’s heard positive feedback from Trump and White House staff that dairy is fairly high on the list for U.S. NAFTA objectives.
“It is hard to predict what the outcome will be, but it is clear it is a significant part of NAFTA negotiations,” he added. “I think the main message we have is we’d like to preserve what we have in Mexico and would like to gain access and expand on the Canadian side.”