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WCMA Notes: Trade Towers Over Dairy Issues

A Column Offered by WCMA Executive Director John Umhoefer

Dairy is on the world stage as a series of high-profile trade issues in the last year have made headline news in global media.

And the impact of international marketing issues is no side show – world dairy surpluses and trade challenges have lowered dairy commodity prices and hit industry bottom lines as dairy exports from the U.S. softened in recent years.

Arguably the single greatest dairy issue today, exporting U.S. dairy products is the keynote focus at the International Cheese Technology Expo (ICTE) coming up April 17-19. Here’s a topline look at today’s complex and intertwined trade issues.

There’s good news to report in April, even as the on-going renegotiation of the North American Free Trade Agreement keeps the dairy industry on edge.  U.S. dairy exports have risen in the last three months, compared to previous year levels, rising 9 percent in January 2018 alone.

U.S. Dairy Export Council (USDEC), host of the dairy export education session at ICTE, announced news this week of a new partnership with Jiangnan University near Wuxi in the Jiangsu Province of China. A new Dairy Innovation Center at the university will assist in food formulation with U.S. dairy ingredients for China’s food industry and engage students in practical, hands-on food science research & development.

China avoided U.S. dairy products when it announced new tariffs on 128 U.S. products this week in response to new tariffs imposed on China by the Trump Administration. In fact, in December China lowered its tariffs on cheese from 12 percent to 8 percent amidst a broad package of consumer product reductions, with USDEC noting that China is on track to become the world’s largest market for imported cheese.

U.S. dairy also fared well in the recent free trade agreement with South Korea.  The agreement secured rising annual duty-free import volumes for U.S. dairy products into South Korea and addressed American concerns with customs procedures that have, in the past, seen U.S. dairy products rejected at Korean ports.

Yet positive news from China and South Korea is tempered by the slow progress of NAFTA negotiations, and the dairy industry’s diligent warnings that our North American trading partners are vital to the health and welfare of dairy farmers in the U.S.

In February, USDEC and National Milk Producers Federation (NMPF) released an Informa Economics study clearly stating that Mexico is the No. 1 market for U.S. dairy product exports, and the $1.2 billion worth of dairy goods shipped over our southern border makes up about a quarter of all U.S. dairy exports.

Thirty percent of all U.S. cheese exports move to Mexico, as do 10 percent of butter exports and 8 percent of whey.  The study estimated that these exports to Mexico alone support over 16,000 U.S. jobs.

Meanwhile Mexico and the European Union are closing in on a renegotiated Free Trade Agreement with direct impact on potential dairy sales into Mexico. Overall bilateral trade between Mexico and EU nations stands at $61 billion annually.  Dairy moved to the forefront of this negotiation this winter as cheese producers in Mexico balked at EU attempts to impose Geographic Indicators in the agreement, which would most notably disallow the use of the name Manchego for cheese made in Mexico.

Dairy has also taken centerstage in U.S. trade wrangling with Canada in the past year. Last April President Trump famously tweeted: “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!”

Trump was reacting to U.S. concerns over Canada’s implementation of Class 7 milk pricing for skim milk powder exports. In January 2018, USDEC and NMPF noted in a letter to Congressional trade leaders that in 2017, low Class 7 pricing “led to a 200 percent surge in Canadian skim milk powder exports around the world and slashed U.S. exports of certain dairy products.”

USDEC and NMPF are seeking to employ the NAFTA renegotiation to remove Canada’s Class 7 pricing scheme for skim milk powder and address tariff barriers that have kept U.S. dairy processors from building sales in Canada.

International trade is the No. 1 issue of our time. Learn more at the ICTE in Milwaukee.