WI dairy farmers welcome new trade agreement but expect long-term decline to continue
The number of licensed dairy farms in Wisconsin dropped to a new, all-time low of 8,372 as of September 2018, according to the state Department of Agriculture, Trade and Consumer Protection. The new NAFTA – now known as the United States-Mexico-Canada Agreement, or MCA – agreed to this month should help, but dairy-farm organizations expect the downward trend to continue.
Wisconsin dairy farmers' profit margins are being squeezed by several factors, said Edge Dairy Farmer Cooperative's Director of Government Relations John Holevoet. There's too much milk and dairy being offered on commodities markets, which has been driving prices lower. Operating costs, on the other hand, are rising, which is making it more expensive to operate a dairy farm profitably.
The current round of international trade disputes resulting in more and higher tariffs hasn't helped matters, so the USMCA agreement was particularly welcome news.
“Wisconsin farmers welcome the new agreement with our North American trade partners with open arms,” Wisconsin Farm Bureau Federation President Jim Holte said in a statement. “The state’s agricultural economy greatly benefits from trade and the relationships with our neighboring countries. The USMCA is very good news as it builds upon our already-established trade relationships with Canada and Mexico in several key areas.”
More specifically, USMCA eliminates certain facets of the Canadian government's dairy program that have been undercutting imports of dairy products from the U.S. and other major dairy producers, such as the European Union and New Zealand, Holevoet said. Canada’s dairy program was effectively being used to undercut U.S. dairy products.
As a result of USMCA, U.S. dairy farmers will gain access to 3.6 percent of Canada's dairy market. That’s more than what would have been achieved under the Trans-Pacific Partnership (TPP), according to the Wisconsin Farm Bureau Federation.
Canada eliminating its so-called Class 7 milk pricing program, which effectively shut U.S. exporters out of the Candian market for ultra-filtered milk used in making cheese, has been receiving a lot of attention, Holevoet noted. While significant, ultra-filtered milk exports represent a small portion of milk and dairy exports and just three U.S.-based producers, one of them based in Wisconsin, export ultra-filtered milk to Canada, he said.
Receiving less attention but more significant in terms of its impacts on U.S. dairy farmers and markets is that Mexico agreed to not enforce certain geographic, agricultural product indicators as part of USMCA. Geographic indicators are used to classify and differentiate a wide range of agricultural products based on where, and often how, they were produced.
A sparkling wine can only be called champagne if it comes from the Champagne region in France. Likewise, parmesan or asiago cheese must be produced in specific geographic areas in Italy and aged for a certain number of years. Agricultural products that use the same types of ingredients and make use of the same production methods and practices have to use other names. That can have a huge impact on potential sales and revenues, Holevoet said.
Mexico imports more U.S. milk and dairy products than any other nation in the world, he added.
“From the U.S. standpoint, Mexico agreeing not to enforce certain geographic indicators should boost exports of cheese, and a large proportion of our dairy exports to Mexico are in the form of cheese,” Holevoet said.
U.S. cheese and dairy export sales to Mexico were disrupted in the wake of Mexico and the European Union reaching an agreement in principle regarding international trade in May 2018. Provisions of USMCA should offset that.
“Mexico agreeing not to enforce a certain number of geographic indicators on U.S. exports is a 'sleepy' part of the new trade agreement, but it will probably have a bigger, positive impact on U.S. dairy exports longer term than the changes in Canada,” Holevoet said.
USMCA should provide a boost for dairy farmers in Wisconsin and across the U.S. if passed by Congress and its Canadian and Mexican counterparts. It doesn't address other, long-term, fundamental factors that have been driving the long-term decline in the number of dairy, as well as farms generally, in Wisconsin and nationwide, however, according to Holevoet and other U.S. agricultural experts and organizations.
“It's disappointing to see the decline in Wisconsin dairy farm numbers continuing," Holevoet said. "Right now, the number of farms going out of business in Wisconsin has spiked, but it's consistent with the trend after World War II. There are less than 9,000 dairy farms in Wisconsin at present. At one point, there were over 100,000."
Persistently low market prices for milk and dairy is one factor contributing to the recent spike in dairy farms going out of business, but market conditions can change, at times suddenly, Holevoet pointed out.
The market for milk and dairy is cyclical and heavily dependent on international trade and related geopolitical developments, he explained. “Right now, oversupply is causing prices to fall, but we had record-high prices just four years ago which led to efforts to produce more to meet market demand,” Holevoet said.
Less volatile in nature is the increasing age of the average Wisconsin and U.S. dairy farmer. The average Wisconsin dairy farmer is approaching what's considered retirement age in other industries, Holvoet pointed out.
Attracting younger people to start dairy farming and helping the younger generation already involved in dairy farming are critical, he said.