Dairy CEOs: No Victory Yet

Praising USMCA Deal, Dairy Exporters Still Hurt by Mexican Tariffs and Label Battles

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Canadian milk rests on a store shelf. The new North American trade deal will give U.S. dairy producers more opportunity to sell into Canada, but retaliatory tariffs are restricting dairy products going into Mexico, the top market for U.S. dairies. (DTN photo by Elaine Shein)

OMAHA (DTN) -- A group of leading dairy exporter praised potential increased access to Canada on Wednesday, but called on the Trump administration to drop steel and aluminum tariffs that have hurt dairy exports into Mexico, the top export market for products such as cheese.

Leaders from the International Dairy Foods Association are in Washington, D.C., to talk to lawmakers about trade, including the new North American free trade agreement -- the United States-Mexico-Canada Agreement (USMCA) -- and the importance of getting the Trump administration to drop the Section 232 tariffs against Mexico.

With the overall dairy industry exporting 15% of total production, getting more market access to Canada and dropping the Class 7 dairy pricing system in Canada are both going to provide more potential access to the Canadian market, said Michael Dykes, CEO of IDFA, in a call Wednesday morning with reporters. "We think it brings some certainty to the market to have a trilateral agreement," Dykes said.

But Dykes added that Mexico is the top destination for dairy exports, taking up roughly 25% of all U.S. dairy exports. Exports to Mexico have reduced dramatically since the U.S. placed tariffs on aluminum and steel from several countries, including Mexico, which responded with a 25% tariff on dairy products. "Those tariffs have placed us at a disadvantage in the marketplace," Dykes said.

Stan Ryan, President and CEO of Seattle-based Darigold, said his cooperative has 500 dairy farmers stretching throughout the Northwest into Montana. As much as 40% of the cooperative's production is exported as well. Ryan was pleased with the deal the Trump administration struck on dairy, but noted it was difficult to achieve.

"We're glad to be where we are. We're glad of the outcome of the USMCA," Ryan said.

The deal boosts U.S. market access into Canada's domestic market by 3.59% with some specific tonnage quotas for various products. Ryan said more details are needed on enforcement and preventing "technical workarounds" like the Class 7 program that had limited U.S. milk products going into Canada. "We have got a lot more to do with this before we get ahead of ourselves," Ryan said.

David Ahlem, CEO of Hilmar Cheese Co., employs 1,400 people in California and Texas plants and draws milk from 200 dairies. Roughly one third of the company's products are exported. He praised the new trade deal, "but in my opinion, we're not ready to take a victory lap yet." Ahlem added, "We really need to move past it, and we really urge the administration to remove the 232 tariffs on steel and aluminum."

Ahlem added, "As long as 232 retaliatory tariffs are still in place, then we can't enjoy the benefits of a modernized NAFTA."

Beyond the Mexican tariffs, dairy exporters say another issue they face is the limitations on cheese names that Mexico now has in place because of a trade agreement with the European Union. The new USMCA includes a side letter allowing common names for most cheeses, but does not include popular cheeses such as "asiago" or "parmesan." These European Union "geographical indicators" risk shutting U.S. exporters out of dairy markets they created.

"That has become very problematic for us labeling cheeses that had become very common names around the world," said Jim Sartori, CEO of Sartori Cheese out of Wisconsin, which has 600 employees and draws milk from 145 dairy farms.

Sartori said "asiago" cheese is popular in Mexico, but his company may have to come up with an alternative label unless the U.S. can get Mexico to add that cheese to the list of common names in a side letter to the trade deal. Sartori noted, "Producers in the United States make more asiago than they do in Italy." He added, "We would like to see more cheeses protected in that letter as well."

Dairy leaders also noted that the EU continues working on other trade deals with a "gross overuse" of geographical indicators that will effectively shut U.S. products out of the market.

"The EU has just done a better job of negotiating and the U.S. has just been reactive," Sartori said.

The Chinese tariffs have also restrained U.S. exports of products such as whey. China retaliated against the U.S. with tariffs on some products in the 35% range, while adding 15% to 20% tariffs on other dairy products in late September as well. Ahlem said Hilmar spent two years working to sell whey products in China but saw some sales canceled this summer while the products were already being shipped. This could cause longer-term problems once tariffs are lifted in trying to get back into the market.

"What's happening now is our customers are asking, 'Can we depend on you?'" Ahlem said.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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Chris Clayton