A 19-year tariff phaseout has unlocked Central America’s dairy market, but melting ice cream and EU rivals threaten gains. Will farmers seize the moment or stall?
Summary:
The CAFTA-DR trade deal, finalized after nearly 20 years, boosted U.S. dairy exports from $40 million pre-2006 to $441 million by 2025, thanks to the complete removal of tariffs. This expansion has made Central America an essential market for American dairy, particularly in cheese, milk powders, and whey. However, exporters still face non-tariff challenges like high port fees in Nicaragua, approval delays in El Salvador, and competition from the EU and New Zealand. As U.S. dairy farmers adapt to these hurdles, they must invest in technology and forge co-op partnerships to stay competitive.
Key Takeaways:
- U.S. dairy exports surged to $441 million following the full implementation of the CAFTA-DR trade deal.
- Cheese exports dominate the CAFTA-DR dairy trade, leading with over half of the market share.
- While tariffs have been eliminated, non-tariff barriers such as high port fees and lengthy approval processes remain challenges.
- The CAFTA-DR region is now the third-largest market for U.S. dairy exports, emphasizing its significance.
- Global competition is intensifying, with rival trade deals potentially impacting U.S. market share.
- Dairy farmers must adapt strategies based on farm size to leverage export opportunities and remain competitive.
- Future growth will depend on expanding into new markets, adopting technology, and strategic policy negotiations.
- Small and medium farms may rely on cooperative agreements to achieve export success.
- The demand for advanced technology, such as blockchain for product tracking, may pose financial challenges for smaller farms.
Six CAFTA-DR countries fueled a 1,117% surge in U.S. dairy exports since 2006. Central America now ranks as the third-largest market for American milk, cheese, and whey
At midnight on January 1, 2025, U.S. dairy tariffs vanished across Central America under the fully implemented CAFTA-DR trade deal, capping a 19-year phaseout that supercharged exports from $40 million pre-2006 to $441 million today. Cheese shipments charge $238 million annually, with milk powders ($120M) and whey ($35M) rounding out a market critical to absorbing America’s growing milk surplus.
| Category | 2006 Exports | 2023 Exports | 2025 Projections | Growth (%) |
|---|---|---|---|---|
| Cheese | $34m | $238m | $264m | +595% |
| Milk powders | $3.2m | $120m | $135m | +3,650% |
| Whey products | $2.8m | $35m | $48m | +1,150% |
| Total | $40m | $441m | $527m | +1,217% |
How CAFTA-DR Reshaped Dairy Trade
The agreement, negotiated by the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC), began lowering tariffs in 2006. This slow-but-steady approach allowed farmers to adapt:
- Cheese exports surged by 595%, representing 54% of the CAFTA-DR dairy trade.
- Milk powders supported Guatemala’s $2.1B bakery industry growth.
- Whey became a staple in 72% of regional animal feed mixes
Jaime Castaneda from NMPF highlighted that the patience invested in CAFTA-DR led to a tenfold increase in dairy exports over the 19 years. “But tariffs alone aren’t magic—trust took 7,000 farm visits and 19 years of problem-solving.”
The payoff? Central America now ranks as the third-largest U.S. dairy export market, trailing only Mexico and Canada.
Zero Tariffs ≠ Smooth Sailing
| Country | Tariff Status | Key Non-Tariff Barrier | Avg. Delay/Cost |
|---|---|---|---|
| El Salvador | 0% since 2025 | Facility registrations | 72 days |
| Nicaragua | 0% since 2025 | Port inspection fees | +$42k/shipment |
| Guatemala | 0% since 2025 | Labeling disputes | 21% rejections |
| Dominican Republic | 0% since 2025 | Quota administration | +$15k/compliance |
However, despite the achievement, exporters now face new challenges:
- Nicaragua’s 33% port fees increased shipment costs by $42,000 per shipment in 2024.
- El Salvador’s 72-day approvals: Delays tripled since 2023
- Canada’s retaliatory 25% border tax puts $578 million in annual U.S. dairy sales at risk due to Canada’s retaliatory 25% border tax.
“My ice cream melted in Costa Rican customs last month—$12,000 gone because paperwork ‘wasn’t shiny enough,’” says Idaho farmer Kaitlyn Voeller. USDEC’s Sarah Schmidt notes progress: “We’ve resolved 14 non-tariff barriers since July 2024, but it’s Whac-A-Mole. For every successful resolution, three new issues arise, creating a continuous cycle of challenges.”
Global Rivals Race Ahead
While U.S. farmers celebrate CAFTA-DR, competitors gain ground:
| Competitor | Recent Trade Deal | U.S. Dairy Risk |
|---|---|---|
| EU | Japan FTA (87k-ton cheese quota) | \$1.3B loss by 2030 |
| New Zealand | Vietnam 45% tariff cuts | Whey share ↓ 8% |
| Canada | Retaliatory 25% border tax | \$578M at risk |
Sarah Schmidt warns that the EU is making agreements while the U.S. is still in discussions. “If we delay discussions with Kenya and Indonesia, we risk losing a generation of farms.”
Farm Size Dictates Strategy
With U.S. milk production hitting 227.2B pounds in 2025 (USDA), survival hinges on exports:
- Small farms (50–500 cows): Pool through co-ops like Dairy Farmers of America’s new Guatemala contracts
- Mid-sized (500–5K cows): Target niches like Honduras’ 340% rise in artisanal cheese demand
- Large operations (5K+ cows): Invest in dedicated plants, e.g., Lupino Farms’ $220M Texas facility
Ben Strauss, an Ohio dairy farmer with 180 cows, credits his farm’s survival to the strategic decision to sell 40% of his milk to CAFTA-bound gouda cheese products. “But for $3,000 per heifer, margins vanish faster than morning fog for dairy farmers.”
Navigating the Future: The Crucial Decade for Milk’s Survival
- The USDA aims to target new middle-class consumers in Asia by 2030 and capture a share of the 2.1 billion potential customers in CAFTA-adjacent markets like Colombia.
- Tech Upgrades: Costa Rican buyers now require Blockchain shelf-life tracking systems, which cost $15K each. However, 83% of small farms cannot afford this upgrade.
- Policy conflicts are escalating, with battles over Canada’s border tax, the EU’s Philippines dairy pact, and ongoing negotiations with Kenya and Indonesia.
Castaneda emphasizes that while CAFTA-DR marks a significant milestone, the crucial task now is to shape the future to prevent being overtaken by competitors proactively.
Learn more:
- U.S Dairy Industry Pushes for Enhanced Trade Policies to Boost Exports and Strengthen Supply Chain
- How Cheese Exports and China’s Demand are Powering the US Dairy Economy in 2024
- Global Dairy Trade: Key Insights Every Dairy Farmer Should Know
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