Study: Free Trade Agreements Helped Bring $8.3 Billion to U.S. Dairy Over 10 Years

USDEC and NMPF estimate FTAs increased the average U.S. dairy farmer’s income $7,560 from 2004-2014.

Editor's Note: This is the first post of a two-part blog series explaining a joint report (PDF download) by USDEC and NMPF on the “Economic Impact of Trade Agreements Implemented Under Trade Authorities Procedures.” The next blog post in this series will examine, "Six Countries Where Free Trade Agreements Deliver Big Impact for U.S. Dairy Exports."

How important have free trade agreements been to the U.S. dairy industry?

An analysis by the U.S. Dairy Export Council and the National Milk Producers Federation shows FTAs helped bring an additional $8.3 billion to the industry from 2004-2014.

According to the study, additional exports of U.S. dairy products examined during that period resulted in:

• A $0.34 per hundredweight higher average milk price.
• An average of $756 in additional income each year for the American dairy farmer.
• An additional $7,560 for the American dairy farmer over the 10 years studied.

“Positive ROI is not the automatic result of every free trade agreement,” said USDEC President Tom Suber. “But this analysis shows that each individual agreement negotiated over the last 15 years has led to an increase in dairy exports. That’s why we focus so much energy on our trade agreements.”

USDEC members help fund trade policy efforts in Washington through their annual dues.

TPP still being examined, not part of this study

USDEC and NMPF are “still reserving judgment” as they carefully examine the full text of the Trans-Pacific Partnership agreement released by the Obama administration, said Jaime Castaneda, senior vice president of trade policy at the U.S. Dairy Export Council.

Although the impact of the TPP agreement on the dairy industry’s outlook remains to be determined, past Free Trade Agreements have clearly been positive for the U.S. dairy industry, according to the analysis by USDEC and NMPF.

The 2004-2014 report was done in response to an International Trade Commission investigation seeking to assess the economic impact of Trade Agreements implemented under Trade Authority procedures.

Dairy markets are in a global downturn that may not, according to USDEC forecasts, fully end until 2017, causing considerable pain in the meantime. However, the report makes the case that Free Trade Agreements have over the long haul boosted U.S. dairy exports, which have, in turn, benefited U.S. farmers, processors and the U.S. economy as a whole.

Statistics showing the positive impact of U.S. dairy exports

Consider these data points:

• Our nation has gone from exporting dairy products valued at less than $1 billion in 2000 to exporting a record $7.1 billion in 2014, an increase of 625%. Click to tweet.

• Sixteen years ago we were exporting roughly 5% of our milk production, now we’re at three times that level, even as overall U.S. milk production has continued to grow. Click to tweet.

• The equivalent of one day’s milk production each week from the entire U.S. dairy industry ultimately ends up overseas, making exports integral to the health of the dairy industry at large. Click to tweet.
  

• USDA’s Economic Research Service (ERS) estimates that each billion dollars of U.S. dairy exports generates 20,093 jobs at the milk production level. Click to tweet.

• A dollar of U.S. dairy exports generates $2.76 of economic output. Click to tweet.
  

• For agriculture as a whole, each billion dollars in exports generates 5,780 jobs, an impressive number. But in the dairy sector, each billion dollars in exports generates over three times as many jobs. Click to tweet.

• The $7.1 billion that we exported in dairy products in 2014 supported more than 142,000 U.S. jobs at the production level. Click to tweet.

• According to ERS multipliers, those exports generated nearly $19.6 billion in additional economic activity at that level. Click to tweet.

• At the manufacturing level, where the milk is turned into cheese and other processed dairy products, ERS estimates that each billion dollars of exports generates 3,150 jobs. Click to tweet.

• Our exports in 2014 supported 22,300 jobs at the manufacturing level. Click to tweet.
  

• This, in turn, generated additional economic activity of nearly $25 billion. Click to tweet.

To best understand the level of importance that exports have today for the U.S. dairy industry and farmers in particular, a key barometer is the percentage of incremental milk solids going to support U.S. dairy exports. From 2003 through 2014, total U.S. milk production increased by nearly 35.7 billion pounds. Over that time, 61 percent of the increase in U.S. milk solids produced was required to supply U.S. dairy product exports. 

Methodology: How the study came up with $8.3 billion impact

An important factor in that growth has been the expansion of free trade agreements.

The current study by USDEC and NMPF, which found that free trade agreements had an $8.3 billion impact from 2004 to 2014, “provides strong evidence of the progress and growth that can be achieved for the U.S. dairy industry with expanding trade agreements," said Shawna Morris, USDEC vice president, trade policy.

The $8.3 billion impact "was an estimate of the increased dairy farmer gross income due to the incremental expansion of demand that stemmed from all the free trade agreements," said NMPF economist Peter Vitaliano. "This estimate includes the effects of the additional sales from the expanded exports and the higher milk prices that resulted from the additional sales. We also took into account the somewhat offsetting additional milk production that resulted from the higher prices. which attenuated the price impact. That had a somewhat offsetting reduction in domestic demand that resulted from the higher prices.

The table below shows our dairy trade balance with key U.S. FTA partners over the past two decades, going beyond the previous 2014-2014 estimates. In each case, agreements have shown substantial, sometimes dramatic, increases.

U.S. Dairy Export Growth with FTA Partners Over Two Decades

Mobile phone users: Turn screen horizontal to view full chart.

Risks of negotiating FTAs

While FTAs have clearly been beneficial to U.S. dairy exports, it is important to point out that there are potential risks that need to be considered whenever negotiating a new trade agreement.

"What the industry needs are well-negotiated agreements," said Shawna Morris, USDEC vice president, trade policy.

If poorly negotiated, trade agreements can distort trading opportunities by failing to sufficiently remove barriers to U.S. exports, a risk that is heightened in the context of the potential to expand access to the U.S. market in a manner that is disproportionate to that granted to U.S. dairy exporters.

Given exports’ critical importance to the U.S. dairy industry and the dairy industry’s contribution to the U.S. agricultural and manufacturing economy, it is vital that U.S. negotiators prioritize the removal of tariff and nontariff barriers to U.S. dairy exports and tackle any expansions of U.S. dairy imports in a manner that is proportional to the export gains secured for our industry.

As USDEC and NMPF fully analyze the Trans-Pacific Partnership (TPP) agreement and continue to work on the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations, the report provides a benchmark on the success of past trade packages.

Risks of avoiding FTAs

While FTAs are difficult to negotiate and get approved by the U.S. Congress, there is potential downside to avoiding them. 

“Without continued effort to expand our market access in new places, we run the risk of losing market share as our trading partners forge ahead with their own agreements that address their tariff and nontariff concerns while at the same time putting the U.S. at a disadvantage,” said Castaneda. “Continued cooperation between the industry and trade negotiators, helping to draft and negotiate agreements, will lead to better outcomes.”

While the future, as always, is not crystal clear, the report by USDEC and NMPF definitively shows that well-negotiated Free Trade Agreements can increase U.S. dairy competitiveness and increase sales in markets around the world.

Next in this series: "Six Countries Where Free Trade Agreements Deliver Big Impact for U.S. Dairy Exports."

Learn more about Free Trade Agreements for the U.S. dairy industry:

• Pros and Cons of TPP for U.S. Dairy Industry
• Statement from NMPF and USDEC on Release of Full Text of Trans-Pacific Partnership Agreement
  
• U.S. Dairy Industry Needs to See TPP Details
• 3 Ways U.S. Korea Trade Agreement Has Helped U.S. Dairy
• Trade Agreements Deliver for the U.S. Dairy Industry

To download a printable pdf version of the joint report by USDEC and NMPF on the impact of free trade agreements, click here. 

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The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.