Milk Battles: The Red, White and Blues Continue

NAFTA renegotiations are front page news in the United States and Canada. From the dairy industry perspective, it appears that these talks are all about blaming and shaming the other side. Everyone dependent on the dairy industry recognizes that current viability and long-term sustainability are on the line. Should they stay in the industry or pursue another occupation? What side are you on? If your side is declared the winner, what difference will it make to how you manage your dairy operation or how the dairy supply is managed? “

“It’s the Law”

Import laws only seem right if they support what you believe in. Both countries have import tariffs on foreign milk coming into their country. Canadian import laws have not contained details on the importation of difiltered milk. Difiltered milk is allowed for the enhancement of the protein level in cheese and some yogurts in Canada. However, in the US, such enhancement has not been permitted.

“The Market Is Always Right”

American processors saw and took an opportunity to sell difiltered milk to Canadian cheese makers. Canadian producers were frustrated that the importation of this US product was taking what they considered to be their market. In 2017 Canadian producer organizations established an ingredient class of milk (Class 7) that they priced so their processers would buy Canadian milk. US producer associations thought that Canada made a hasty decision and were upset with the lack of notice. Currently the US is considering asking WTO for a ruling on if Canada is subsidizing the skim milk powder, made from the Class 7 milk, on the world market.

“Do We Want Governments to Legislate Dairy Financial Success?”

Through the US Farm Bill and other means, milk production in the US is indirectly financially supported by US governments. In Canada there is a dairy producer – government agreement (aka supply management) to make sure that domestic milk supply does not exceed the domestic demand. Also included in this producer-government agreement are milk pricing according to cost of production and level of importation. Part of the agreement includes that the Canadian government does not financially support its supply management industries. These differing methods of industry-government involvement and roles are front and center in NAFTA renegotiations. The question is – Is there a level playing field? Canadian consumers totally pay for their milk in the store Americans consumers pay in the store and also through their taxes dollars that are allocated to farm support and subsidy programs.

“Overproduction is the Biggest Threat to the Dairy Industry”

Presently there is an excess of milk product in the world. This has resulted in low world prices which depresses the farm gate milk price in countries that base their domestic price according to the world price. The current total US milk production is over 115% of the US consumer demand. Milk presently leaves American farms at well below the cost of production. US producer organizations and governments are working hard to export the surplus, but the low world price means both low returns and added expense for the US. When there is an over-supply of milk, dairy farmers are price takers instead of price setters.

“We Only Want the Rules that We Put in Place. We will Ignore Yours”

What’s best? Regulated or unregulated production? Each system has their benefits and limitations.

Through a producer association – government agreement, since 1971 The Canadian farm supply of milk has matched the consumer demand. The producer associations allocate daily quotas to producers, buy the milk from the producers and sell the milk to the processors. This quota system has provided stability for Canadian dairy producers.

The US has an unregulated system of producing milk. Producers have agreements with their processor. In times of surplus production, processors have three options: they may not pick up the milk; they can pick up and dump the milk; or, in the most drastic situation, a processor can terminate producer contracts. The US has used whole herd buy-outs, government purchase of product and risk insurance programs in times when there have been surplus milk leaving the farms. But none of these vehicles have been long term solutions in providing stability for producers. American dairy producers repeat the cycle every 5-7 years – from boom to selling below the cost of production to bust.

“Can We At Least Agree to Disagree?”

Today the world is awash with talks and negotiations on trade. The trend had been for multi-country agreements. However, currently US President Trump is favoring bi-lateral (country to county) agreements. Questions abound about trade agreements. Are they reciprocal? Are they free? Are they fair? They are never just about milk products only. They are complicated business dealings between countries. And, of course, every country wants the best for their industries and their citizens. US and Canadian milk producers are pawns in the ongoing NAFTA renegotiations. Even though dairy producers may want a win-win, the reality is win a little lose a little is the more likely outcome. If President Trump had not removed (just after his inauguration) the US from the TPP agreement it would have allowed US milk more access to the Canadian market. Canadian milk producers have recently given up over 6.5% of their domestic market share, when Canada signed on to the CET (EU) and CPTTP (Pacific) trade agreements.

“Which Side Are YOU On?”

Dairy producers in both countries have lobbied their politicians so that they can receive support or be the winner. Even though his reasons may not be totally based on producers’ livelihoods, President Trump did stand up for the loss of processor contracts by a few American producers. Likewise, Prime Minister Trudeau has stood by the Canadian supply management system. Asking politicians to solve industry challenges is not always the best route to follow to achieve the optimum long-term solution for dairy producers.

“Misinformation Hurts Everyone”

Both economists and journalists continually study, survey and publish reports comparing the price of fluid milk in stores in the US and Canada. But fluid milk is, at most, only 40% of the milk products that consumers buy. In Wisconsin 90% of the milk is marketed as cheese. Seldom are in-store cheese prices compared. In the US, fluid milk is sold as ‘BST free’ and as ‘unknown’ if BST was given to the cows to increase their production. In Canada BST is not allowed to be used. In using and quoting the comparison of milk products prices in the store, great care should be taken to use accurate facts and to compare equals.

“Milk Production Isn’t Only Based on Border Lines”

The United States and Canada are neighbors, are each other’s largest trading partners and have the longest unprotected border in the world. Sometimes these three facts are lost in the milk mud-slinging.

The US produces twelve times the volume of milk that Canada does. 4% of the US farms produce 50% of the US milk. The top ten (20%) volume states (CA/WI/ID/NY/PA/TX/MI/MN/NM/WA) produce 74% of the US milk and have 64% of the US cows. There are 9.3M cows in 40,000 herds with an average herd size of 234 cows producing 22,500 lbs. per cow. The smallest 25 (50%) volume states produce 5% of the US milk. From 2006 to 2015, 33% of the herds exited the US industry and the total volume of milk shipped increased 20%.

In Canada, two (20%) provinces (QC/ON) produce 75% of the milk and have 69% of the Canadian cows. There are 0.94M cows in 10,800 herds with an average herd size of 87 cows producing 19,500 lbs. per cow. The smallest 5 (50%) volume provinces produce 5% of the Canadian milk. From 2006 to 2015, 30% of the herds exited the Canadian industry and the total quota allocations increased by 20%.

When comparing the United States and Canada, milk production or human population, remember that the US is ten times larger than Canada. Ten times the cows. Ten times the consumers.

“The Daily Push and Pull of Dairying”

No matter whither the US or Canada, we’re looking for dairy farm sustainability. It has always been and always will be a moving target determined strongly by farm gate milk price and feed costs. Farms that can drive up revenue and keep costs under control will be the viable and sustainable ones. Farm ownership and/or farm size do not automatically determine success.

“Can We Identify Where the Front Lines are Currently Located?”

Just now the political rhetoric, the political climate and trade talks are garnering much attention and energy of dairy producers. It is The Bullvine’s opinion that producers need to put the focus on four areas.

“Too Many Generals. Shrinking Troops”
Producers have almost as many producer-directed organizations representing them now as they had when there were four or five times as many producers. With so many it easily becomes a divide and conquer win for processors and politicians. Processors want volume and politicians listen to the loudest noise and count votes. Continuing with local or state/provincial or regional milk selling organizations will continue to stack the deck against dairy producers. Dairy producers need more clout than they have had in the past in price setting.

“Dairy Beyond Borders”
In today’s connected world many items know no borders. Anything that is generic to all producers, processors and retailers needs to be addressed collectively. These can include – consumer awareness and education, food safety, animal welfare and healthy living promotion. In other industries today, the business model is based on mutual benefit. The dairy industry’s future is not one sided or about ’the art of the deal’. Trade talks and agreements are here to stay. The production sector of the dairy industry needs to change from reactive to proactive, when it comes to milk promotion, increasing milk’s share of the food dollar and trade in milk products.

“It’s Time for US Dairy Downsizing”
The US dairy production industry needs to develop ways to: reduce production by 8% immediately; assist farmers faced with bankruptcies, challenged mental health or re-training; change regulations to allow the use of skim milk in the production of new or fortified food products; move to a production-marketing system whereby supply closely matches domestic and foreign demand for milk; and rethink the level of tariffs necessary.

“It’s Time for Canadian Dairy Modernization”
The Canadian dairy production industry needs to implement: a revised system for pricing ingredient milk; consider ways to revise, or at least refine, the supply management system; find further ways for new farmers to be included in quota ownership; refine its milk pricing model; and rethink the level of tariffs necessary.

The Bullvine Bottom Line

There is no need for the United States and Canada to battle about milk. The current situation is a race to the bottom. It should be a climb to sustainability for dairy producers on both sides of the 49^th parallel.

Success for US and Canadian dairy producers will come when progressive, dynamic producers support and lead the necessary changes to have milk supply match the demand. Producer-leaders will need to be visionary and able to bring groups with diverse positions to a mutual benefit.