Dairy Farmers Face Uncertain Future With New Tariffs (video)

USDEC President and CEO Tom Vilsack says new tariffs will remove a competitive U.S. advantage in Mexico while making it harder to sell dairy products to fast-growing China.

U.S. dairy exports got off to a sunny start this year, with record volumes in April. That gave dairy farmers hope for a brightening future. But tariffs announced this month by Mexico and China have brought clouds into the forecast. 

What follows is a recap of what has happened and what the U.S. Dairy Export Council is doing to mitigate damage to its farmer-funders and the rest of the U.S. dairy industry.

June 1 salvo, with Mexico returning fire

On June 1, the U.S. imposed steel and aluminum tariffs on Mexico, Canada and the European Union. 

It didn't take long for Mexico to respond with new tariffs on U.S. products, including tariffs that will soon reach 20 to 25 percent on U.S. cheeses. The first wave of those Mexican tariffs was implemented on June 5 and U.S. cheeses are now facing duties of 10 to 15 percent as a result.

Prior to that action, U.S. dairy exporters paid no tariffs when their cheeses crossed the border into Mexico, in accordance with terms of the North American Free Trade Agreement.

NAFTA has been a boon to U.S. dairy. It helped make Mexico our No. 1 cheese export market with $391 million in sales last year and a 75 percent share of Mexico’s cheese imports.

"We had a competitive advantage in that market," U.S. Dairy Export Council President and CEO Tom Vilsack said on Iowa Public Television’s "Market to Market" show. "All we have now is a logistical advantage."

China strikes back

In a similar point-counterpoint scenario, the U.S. announced 25 percent tariffs on a list of Chinese products on June 15. China retaliated the same day by announcing tariffs of 25 percent on hundreds of U.S. imports, including a wide range of dairy products.

Both sets of new tariffs are scheduled to take effect July 6.  

China is an important growth market. In 2017, the U.S. sold $577 million in dairy products to China, an increase of 49 percent over the previous year.

"This is going to create a real problem," said Vilsack on the nationally syndicated "Market to Market" show. "We won't be as competitive in China as we could have been."

It is likely to take time for this international chess game to play out and the endgame is not yet in sight.

Casting a summer shadow

The tariffs put a summer shadow over what Vilsack described as "a very good start to the year."

In the first four months, exports were equivalent to 16.8 percent of milk solids produced—well above the historical average. In April, single-month exports equated to 18.8 percent of milk solids produced—a new record.

Broad and robust economic growth has been driving global demand, making now the best time to expand sales.

That’s what “The Next 5%” is all about. USDEC’s aim through this program is to increase U.S. dairy exports from 15 percent of annual U.S. milk production to 20 percent.

Even with the challenge of tariffs, USDEC remains committed to the ambitious goal.  

More than 60 dairy companies sign letter to Trump

In an effort led by USDEC, more than 60 companies and organizations representing U.S. dairy farmers and cheese makers sent a letter Tuesday to President Trump.

The letter asked the president and his administration to work collaboratively with Mexico by suspending the steel and aluminum tariffs until negotiations for a modernized NAFTA have been concluded. USDEC worked with other dairy organizations to make sure the message was widely disseminated. 

The letter also expressed industry appreciation for President Trump’s insistence that Canada end market-distorting pricing schemes and open its market to more Made-in-America dairy products.

Unlike Canada, Mexico has long been a model for dairy trade.

The letter concluded this way:

"Our industry recognizes that the U.S. must be resolute in ensuring our trading partners uphold their end of the bargain with us. We trust that your Administration’s skilled staff can find a way to resolve this issue, given Mexico’s strong commitment to working with the U.S. to further improve U.S.-Mexican trade. Not all countries have shown this same willingness."

In addition to the communiqué to the president, USDEC gave its members materials to provide clarity on the new dynamic in Mexico as well as resources when they communicate with members of Congress and their Mexican buyers. 

On "Market to Market," Vilsack was asked what farmers should be looking for as they follow future developments. "They need to pay attention to whether this is escalating or if there is a genuine effort to de-escalate," said Vilsack. 

To watch 1-minute clip including analysis from Tom Vilsack, click video below.

In a trade disagreement between the U.S. and China, a 25 percent tariff has been proposed on a wide array of U.S. dairy products. This has led to uncertainty for U.S. dairy farmers, and USDEC’s Tom Vilsack offered helpful insight today on Iowa Public Television’s Market to Market pic.twitter.com/smgPelnVL1

— U.S. Dairy Exporter (@USDairyExporter) June 23, 2018

Information resources for farmers

USDEC has several resources helping farmers follow trade policy developments affecting dairy. Unlike some USDEC members-only content, a login is not required to:

• Access the U.S. Dairy Exporter Blog, the publication you are now reading, for market analysis, research and news on trade policy and other issues. Subscribe to get updates in your inbox. 
  
  
• Follow USDEC on Twitter: @USDairyExporter.
  
  
• Read USDEC trade policy news releases.
  
  
• Follow Next 5% developments on our new usdec.org page devoted to our ambitious goal. We tried to make the address easy by naming it Next5percent.org (Note: Next5%.org, using percentage symbol, will not work).

• Go to GotDairyJobs.org to get the numbers, faces and graphics you need to understand and tell dairy's positive economic impact story. This includes state-by-state fact sheets on dairy exports. 

Mark O'Keefe is vice president of editorial services at the U.S. Dairy Export Council.