Representatives from Washington state’s trade and agricultural sectors are praising the new United States-Mexico-Canada Agreement (USMCA). The trade deal would govern trade relations among the United States’ neighboring trade markets, remove a significant obstacle for U.S. dairy products entering Canada and would give American dairy farmers a slightly larger slice of the Canadian dairy market.
On Oct. 1, the U.S., Canada and Mexico reached the new trade agreement which is expected to be signed next month and put to a vote by Congress within 60 days of its signing. In addition to the changes related to Canada’s dairy market, the deal would specify that cars entering North American markets must contain at least 75 percent American, Canadian or Mexican parts to be exempt from tariffs. The agreement also contains a sunset clause to expire or renew after 16 years.
Jay Gordon, Policy Director for the Washington State Dairy Federation (WSDF) told Lens the trade deal would remove uncertainty for dairy farmers when it comes to the price of their products.
“It makes it very hard to do business on the buyer and seller side when it is not under their control,” said Gordon.
A Mexican company may be trying to buy milk powder from a Washington seller, added Gordon, but neither party will know how the product’s price will be affected by tariffs. In May, a pound of bagged milk could cost one dollar but might be $1.25 per pound a month or two later.
As part of the USMCA deal, Canada said it would agree to dismantle the “class 7″ pricing program, which covered milk ingredients including skim milk, milk powder and protein concentrates.
Under that pricing scheme, the Canadian government would look at the world market price for powered milk and set the Canadian price paid to dairy farmers at around 35 percent below the world price each month, explained Gordon.
“It built an assurance that Canadian powdered milk would be the cheapest on the world market,” he said, adding that this action distorted an otherwise cheap product.
“It’s charging the Canadian consumer a lot for the butter and giving that to dairy farmers, but pricing the powder very low has meant the Canadian consumer has paid the price…and we also have to because we are having to compete.”
The USMCA agreement would also slightly open the Canadian market for U.S. dairy products. Currently, the U.S. has access to 3.2 percent of the Canadian dairy market, and USMCA would increase access to 3.6 percent. The combination of this access, along with the removal of the class 7 pricing scheme, will be a step in the right direction for American dairy farmers, added Gordon.
Gordon said he expects both the national and state levels of the dairy sector to have a vested interest in the trade agreement. WSDF will be preparing questions to ask the congressional delegation regarding how Canada is going to dismantle the class 7 pricing, what is being done with the surplus milk, how the agreement is structured and what is included in the increased Canadian market access.
Darigold President and CEO Stan Ryan said in a statement that the new agreement would preserve and expand the partnership with Mexico while also enhancing access to the Canadian market.
“Looking north, dairy trade with Canada was one of the most difficult and contentious negotiating issues to solve in the entire USMCA deal,” said Ryan.
He added that the class 7 pricing system “essentially dumped milk proteins on world markets” and caused American dairy processing and farming jobs to move to Canada.
Although the U.S. was able to stop the current pricing scheme from expanding, the trade agreement expands on that progress even further.
“The dairy aspects of USMCA were some of the most fiercely contested and divisive issues. We are grateful for the Administration’s and the U.S. Trade Representative’s stern and ardent support of the U.S. dairy industry,” said Ryan.
“Big picture, it’s a fantastic move forward,” said John Stuhlmiller, CEO of the Washington Farm Bureau (WFB). “It’s a very bright spot. We’re the most trade-dependent state in the nation, so it’s great to have this with our two closest trading partners.
“There’s a lot of gains, a lot of neutrals, and there are some significant improvements for dairy,” he added. “Will that result in financial gains? We don’t know that yet, but there are market gains, so that is promising. We are delighted with what has been delivered in this agreement.”
Lori Otto Punke, President of the Washington Council on International Trade (WCIT), had this to say about the new NAFTA replacement: “An integrated North American market, which this new USMCA continues, is critical to Washington state businesses, farmers, ranchers and workers.”
Since NAFTA began, Washington’s exports into Mexico and Canada have increased 700 and 200 percent, respectively. The agreement also created 330,000 jobs for Washingtonians.
“We look forward to learning more about the new USMCA and its new potential for Washington State’s role in global trade,” she added.