Mexico’s borders are open to free trade, which has meant a flood of imports, primarily from the United States. Mexican farmers say the imports drive down the prices they receive for their milk. Image by Mark Hoffman. Mexico, 2019.
Alfredo Gutiérrez wakes up some nights, so worried about how to keep his family’s small dairy farm going that he can’t get back to sleep.
A decade ago, he had high hopes for growing the business, located in Polotitlán, two hours north of Mexico City. He and his father designed and built a milking parlor for 250 cows. His brother, Ricardo, started a small artisan cheese plant on family land that would produce gourmet products with hints of nutmeg, rosemary or perhaps a taste of red wine.
The plan was for Alfredo to run the farm and Ricardo to use the milk for his cheese.
Today, the outdoor cattle pens are half-empty; some cows had to be sold to buy feed for those that remain. Gutiérrez says the $1.17 he receives for a gallon of milk doesn’t meet his costs. His 75-year-old father regularly dips into savings to cover the losses.
His brother’s business lasted seven years. Undone by a 13% interest rate on his loan, competition from cheap products imitating cheese and several clients who didn’t pay him, the cheese plant now sits idle, its floor strewn with discarded furniture and equipment.
Gutiérrez is discouraged about the future of small dairy farms across Mexico. Many have been handed down for generations, part of a cherished way of life. Now, their owners lose money or barely break even.
“One sees this more as romanticism, because as a business, no,” he says.
Some 2,700 miles north, in Canada, Norman McNaughton’s 54-cow operation is thriving. The fifth-generation dairy farm sits on the edge of London, Ontario, surrounded by freshly built homes, condos and golf courses. It sports a new barn and a robotic milking system.
His cows milk themselves when they feel like it. One at a time they stroll up to the milking station, nudge open the gate and step inside. A robotic arm swings down, sanitizes each teat and then attaches laser-guided suction cups to extract the milk. The cow munches on a snack dispensed by the machine as an incentive to cooperate.
If something goes wrong, McNaughton gets an alert on his smartphone. Sometimes he can solve the problem by sending commands. He can also tap into a live video stream and see whether it’s serious enough to drop what he’s doing and head to the barn. The robot’s manufacturer in Germany also can look in to see what’s happening.
McNaughton runs the farm with his 28-year-old son, Mike. Its success, he says, is a tribute to Canada’s milk supply management system. Under it, the amount of milk that farmers produce is limited to keep the supply in line with consumer demand. Milk prices are set to cover production costs and provide farmers with a nice profit.
“Our system isn’t perfect. But it does have stability,” McNaughton says.
Countries’ Fortunes Intertwined
Wisconsin and its battered dairy farmers sit in the middle, eyeing the stability of Canada, wary of a future that looks more like Mexico.
At a time when transformative change is upending the United States dairy industry and family dairy farms in Wisconsin are dropping at a rate of more than two a day, Mexico and Canada are virtual opposites.
Yet the fortunes of U.S. dairy are intertwined with those of its closest neighbors and two largest export markets.
Twenty-five years ago, the North American Free Trade Agreement rewrote the rules of trade between the three countries. The new U.S.-Mexico-Canada Agreement, intended to replace it, has been signed by all three countries’ leaders and has been ratified by Mexico’s legislature, but it hasn’t yet been ratified by the legislatures of the United States and Canada. Even if that happens, improvements for the U.S. dairy industry would be modest.
Mexico’s borders are open to free trade, which has meant a flood of imports, primarily from the United States. Mexican farmers say the imports drive down the prices they receive for their milk. They are also hurt by products that imitate real milk and cheese — often made with imported dairy components, like powdered milk or whey. Lack of access to credit, high interest rates, scarce training programs and technical support, and poor infrastructure compound the problems.
From the state of Veracruz on the east coast to Jalisco on the west, owners of many small and medium-sized farms are exiting the business. Like their neighbors in the U.S., they are often unable to expand their herds or modernize equipment at a time when success increasingly depends on the efficiencies that come with larger size and technologies.
Alberto Ruíz sold his dairy herd in Tizayuca, Hidalgo, to a couple of larger operations about two years ago. His father had started it with 180 cows brought in from Wisconsin and Canada. The business, which had once reached about 650 cows, was losing the equivalent of about 10 cents per gallon of milk.
Ruíz now owns a real estate and construction business, but the loss of the dairy operation hurt deeply.
“You feel powerless, you feel the failure, you feel hatred, that because of a situation beyond you, you are bankrupting the family business that was in your hands,” he says.
In contrast, Canada allows only a small amount of imported products into the country duty-free or at low tariffs. Higher amounts are subject to steep tariffs — 245% on cheese or 298% on butter — essentially shielding Canadian farmers from foreign competition.
Without supply management, “many Canadian family farmers would simply go out of business,” the trade group Dairy Farmers of Canada says.
But many farmers carry high debt, and the system that protects them also constrains their growth and makes it very costly to get started.
“We have a huge debt load, no question about it. But we will chip away at it. We see a future,” McNaughton says.
Wisconsin farmers, many desperate and barely hanging on, may look north of the border with envy. But they need to look south as well.
“In the midst of our own struggles in the U.S., we usually don’t think about the farmers in other countries who we pushed underwater in an attempt to save ourselves,” says Kara O’Connor, government relations director for Wisconsin Farmers Union.
“If we do think about our Mexican counterparts who have lost their farms, we steel ourselves with the idea that ‘it’s just the cost of doing business’ or ‘they needed to get more efficient like us.’ ”
Mexico Largest Buyer of U.S. Dairy
Mexico has imported dairy products for at least a half-century. But even with production growing at an annual average rate of 1.3% over the past decade, the country isn’t close to producing enough milk to meet its demand for dairy. There aren’t enough cows, given that the production per animal is less than it is in the U.S.
But imports have grown significantly in the last decade, pouring into the market after tariffs disappeared as part of NAFTA.
Álvaro González, president of the National Front of Producers and Consumers of Milk, a farmers association, says the Mexican government has traded the interests of its dairy farmers for the interests of its manufacturing industry, which benefits from open borders.
“For us, it’s the worst thing that could have happened,” he says.
Mexico is the largest buyer of U.S. dairy, last year accounting for nearly half of all U.S. exports of powdered milk and 28% of exported cheese. The value of U.S. dairy exports to Mexico in 2018 was $1.4 billion — eight times higher than when NAFTA went into effect in 1994.
The Mexican government estimates that dairy imports equate to a third of the national dairy consumption. Powdered skim milk is by far the biggest import. It is made by evaporating liquid milk until it’s dry and is used as an ingredient in food products.
Powdered milk has a much longer shelf life than liquid milk, and unless it’s mixed with water to make regular milk, it doesn’t need to be kept cold. Consumers can find it useful if they don’t have refrigerators — not uncommon in Mexico.
Mexico buys eight times more powdered skim milk than it produces, according to United Nations and Mexican government data. And Mexican farmers get paid about 20 cents less per gallon of milk than U.S. farmers.
A 2016 study by researchers at Universidad Autónoma de Coahuila found that since the late 1990s, prices paid to Mexican farmers for milk adjusted for inflation decreased in correlation to the increase in imports. Companies that used powdered milk as a raw material for their products benefited, as did distributors and retailers.
Farmers were the big losers.
“If the imports of large amounts of powdered milk and dairy byproducts continue, the price of fresh cow milk … will continue to be affected, causing the bankruptcy of more producers,” the study warned.
The solution, many farmers say, involves the government limiting imports or, at least, making sure that products destined for social programs come only from Mexican farms.
Supply Management Levels Out Prices
Canadian dairy farmers have little of the risk that Mexican farmers — or American ones, for that matter — accept as a part of daily life.
Supporters of Canada’s supply management system say it levels out the highs and lows of milk prices that have hammered farmers in other countries for years, allowing them to make long-term investments in their operations.
“You can go to the bank and say here’s what my income will be for the next 12 months,” says David Wiens, a dairy farmer from Manitoba and vice president of Dairy Farmers of Canada.
McNaughton’s new robotic milking machine is a luxury born of that confidence in the future. Dairy farmers say about half of the new farms built in Canada now have robots, reducing the need for hired help and lessening the workload on farm families.
“We like being in the barn,” McNaughton says. “We just don’t like milking cows.”
In 2018, the average net income of dairy farms in Canada was about $130,000 in U.S. dollars, according to the data firm Statista. That’s probably on the high side, according to farmers, but Statista said “there is a long-term upward trend in dairy farm net income,” with an increase of more than $26,000 (U.S.) on average since 2013.
“Supply management allows the farmer to receive a fair share of the consumer dollar, which often doesn’t happen in an unregulated environment,” Wiens said. “I look at it as a very civilized way to run an industry, getting back to the disciplines of production controls.”
Critics say the system results in Canadian consumers paying higher prices for dairy products. A gallon of milk that on average sells for $2.90 in the U.S. would cost approximately 50% more in Canada. Cheese, butter and yogurt are also more expensive.
If Canadians could buy dairy and poultry products from the United States without high tariffs, the average household would save $438 per year, says Vincent Geloso, a researcher with the Montreal Economic Institute.
The system especially hurts low-income families, according to Geloso.
“A one-dollar increase in the price of milk or chicken means much more to a household earning $25,000 a year than it does to someone earning $100,000,” he says. “Supply management actually has the effect of pushing many Canadians close to or below the poverty line.”
Low-Cost Alternatives Pervasive
Many U.S. agriculture officials simultaneously want the Canadian market more open, while brushing aside blame for the problems in Mexico.
“The beneficiaries of this system are the consumers in Mexico because they have access to products that are reasonably priced,” says Tom Vilsack, president and CEO of the U.S. Dairy Export Council and U.S. agriculture secretary under President Barack Obama.
“That’s the whole point of trade. It provides choice, and competition leads to reasonably priced food.”
But in Mexico, where the median after-tax household income is less than one-third of what it is in the U.S., fresh milk and other dairy products can be too expensive for many consumers. And low-cost products imitating milk and cheese are pervasive — be it in remote village markets or at big urban retailers.
On the shelf of a typical Bodega Aurrera discount store — owned by American retail giant Walmart — 50-ounce cartons of Nutri are decorated with a cartoon of a friendly dairy cow and smiling children.
Until recently, the product was known as Nutri Leche, a word combination that implies “nutritious milk.” Next to Nutri stands a similar product, branded as “Forti Leche,” which suggests “strong milk.”
Both products are in the store’s dairy section, but neither is real milk. They contain cheaper vegetable oil, milk components and other ingredients. They have less protein and calcium than real milk — ingredients that are especially valuable for children and women.
At the bottom of the carton, the packages state they are dairy products with vegetable oil and added vitamins. But many farmers think the marketing of these and other products suggest the contents are fresh milk or the products they imitate, such as cheese.
Grupo LALA is the largest player in the Mexican dairy market, according to market research company Euromonitor International. The processor was founded by farmers in 1949 and sells all kinds of dairy products.
It also manufactures Nutri and other products that imitate dairy under the brand Nutri Leche, which it refers to in its most recent annual report as “a highly successful national brand that is designed to attend to segments of the population of medium and low socioeconomic level.”
Ramiro Pérez, executive director with the Association of Dairy Development in neighboring Guatemala, says that since LALA landed in his country about a decade ago, products imitating dairy are pouring into the market, just as they did in Mexico. “Those products do supply some nutrients, but they are displacing dairy products, which have a higher nutritional quality,” Pérez says.
Grupo LALA representatives declined to say whether powdered milk from the U.S. is in its Nutri Leche products. Research done at the Technologic University of Central Veracruz indicates that powdered milk from Dairy Farmers of America, Land O’Lakes and Darigold has been used in the company’s products. All are American businesses owned by co-ops or farmers.
Stan Ryan, Darigold’s CEO, wouldn’t confirm whether it supplies LALA, but says his company delivers quality products that meet high standards.
He says cheaper products that mix milk components with vegetable oil can have a beneficial impact in many underdeveloped economies. In a world where hundreds of millions are undernourished, those products can deliver low-cost energy and nutrition.
“Delivering nutrition at lower cost around the world is a good thing,” he says.
When compared based on the amount of protein and calcium, though, the Nutri products that imitate milk can be more expensive than the real thing. For instance, a glass of milk can cost about 25% more than a glass of Nutri, but carries 50% more calcium.
René Fonseca, general director of the National Chamber of Milk Industrial Companies, an association of Mexican dairy processors, doubts that consumers would drink more fresh milk if products imitating milk and other dairy disappear.
“You are going to take away the possibility of many sectors that are consuming dairy at an affordable price,” he said.
Production Limits Help in Canada
In Sault Ste. Marie, Michigan, a corner of the Upper Peninsula that borders Canada on two sides, dairy farmer David Bell says he’d be living in a better world if his farm were just 10 miles to the north.
“I’ve seen Canadian farms firsthand. … The cows have the best of the best. On my farm, I’ve had to delay maintenance, put off purchases and cut back on minerals, bedding and protein in the feed because of low and unpredictable milk prices,” Bell says.
“Low dairy prices don’t just affect me. … What happens to the neighbors and the young people I hire, the local feed mill, the implement dealer, the veterinarian? And then there are the parts that are harder to see, like the stress farmers face.”
Under supply management, every dairy farm in Canada has a certain amount of market share — called quota — that determines how much milk it can produce. Farmers can buy and sell quota, though it’s very expensive, sometimes the equivalent of $40,000 or more per cow, and the amount available is limited.
Farmers can only produce up to a certain amount of milk based on how much quota they’ve acquired. They can be penalized for exceeding the limit, and they might have to sell cows to remain in compliance.
Some farmers take out millions of dollars in loans to buy quota because it’s the only way they can expand their herds.
Regional milk marketing boards, which represent farmers, negotiate with dairy processors to set farm milk prices — aiming to cover production costs and ensure a profit.
It’s a give-and-take process, according to supporters.
“They don’t just pull a number out of a hat and say ‘That sounds good. We’re all going to make a million dollars,’ ” says Bruce Muirhead, a University of Waterloo history professor who has done extensive research on supply management.
Quota can be transferred between family members when the farm is passed from one generation to the next, and there’s a program for new farmers that provides a certain amount for free.
Canadian dairy farmers say if it weren’t for the protectionist philosophy, their country would see a deluge of cheaper milk from the United States, which has a chronic overproduction problem. The dairy industry in the U.S. is more than four times bigger than in Canada.
“The U.S., with just the amount of milk it spills every day, could supply the Canadian market,” says Wiens, with Dairy Farmers of Canada.
Quota Systems Vulnerable
Canadian dairy farmers say for years they’ve lived with the threat that supply management could be abolished, though there hasn’t been the political will to do it, especially in Ontario and Quebec where dairy farming is a revered way of life. There’s also a similar system for poultry farming in Canada.
Still, the systems are vulnerable, according to Geloso of the Montreal Economic Institute.
“There will be a point where farmers are so few in numbers, and the costs to consumers have become so high, that a politician will come along who’s willing to throw these farmers under the bus,” he says.
For Mexican farmers, the transition into an open market system was rough.
González, the head of the farmers’ association, says that when the Mexican government used to set milk prices, farmers received more than half the final price of fluid milk. Now, absent any government regulation on prices, they get about one-third. He blames milk processors and retail chains.
Fonseca, the official with the dairy processors, says blaming processors is misplaced. Processors, he says, don’t have a high profit margin. Packaging is a substantial cost, he says, and supermarket chains can push hard to reduce their prices.
Whatever is to blame — and it likely is a combination of factors — Fonseca thinks the solution wouldn’t come from restricting imports. If imports of dairy products were limited or taxed, in theory, that would drive up prices for dairy products in Mexico. But those prices, in turn, would drive down consumption.
He sees no scenario in which Mexico would shift to a more protectionist policy.
“Here, as a country, we took a route of openness and liberalization. That was the bet. And when you make a bet of such nature, it’s total,” he says.
Canadian System Called Protectionist
Canada’s supply management system arose from the 1960s as a solution to overproduction and low prices. Even critics say dismantling it now could be devastating for farmers.
“If you didn’t compensate them, it would be like stealing their house,” Geloso says. “Most dairy and poultry farmers paid a significant sum for their quotas and even took out mortgages to acquire them. They hoped to capitalize on the higher prices consumers must pay, and then perhaps to sell their quota to the next player.”
But Canada’s system has come under fire in trade negotiations with the U.S. and other countries for being protectionist.
In April 2017, President Donald Trump weighed in on the issue after U.S. dairy farmers, including about 60 from Wisconsin, were shut out of a segment of Canada’s dairy market. Three of the top milk-producing states — Wisconsin, Michigan and Pennsylvania — helped elect the president in 2016.
“We will not stand for this. Watch!” Trump tweeted.
Under the U.S.-Mexico-Canada Agreement that followed, Canada would keep supply management but give the U.S. a bit more access to its dairy market.
Some U.S. farm groups say adopting something similar to Canada’s approach would prevent the glut of milk production that has suppressed prices and undermined farmers’ income.
“There needs to be a balance somewhere along the line,” says Patty Edelburg, a dairy farmer from Amherst Junction, Wisconsin, and vice president of the trade group National Farmers Union.
“We can’t cookie-cutter what Canada has done with its system … but I definitely think there’s something we could do to balance supply with demand,” Edelburg says.
Her 350-acre farm milks 120 cows. She and her husband, Gary, acquired it in 2008 after working on other farms. They both have animal science degrees from the University of Wisconsin-River Falls.
Although milk prices have improved some in recent months, Edelburg says it could take a long time for farms to recover from the yearslong downturn — and that’s provided prices don’t sink again.
“Holy cow, there are a lot of bills that have accumulated,” she says.
Canada’s system is not without flaws, cautions Gordon Speirs, a former Canadian dairy farmer who now milks about 2,100 cows in Brillion, Wisconsin.
He and his wife, Cathy, had a 150-cow dairy farm in Red Deer, Alberta. Buying quota to expand their herd would have been difficult and expensive, so they decided to head south even with the challenges of starting over in a country where farmers’ milk prices aren’t guaranteed.
“If we had stayed in Canada, I figured we needed a couple of million dollars to fill our barn that we’d already built. Or, we could take the equity we had gained and move to a place that had more of a free-market economy. It was a philosophical as well as financial matter of free market versus socialism, basically,” Speirs says.
There were other downsides to Canada’s system, according to Speirs.
“I can tell you that it doesn’t run as smoothly as they would like you to believe. Seemingly every year they are trying to change the rules … to deal with overproduction or underproduction,” he says.
Even with the protections afforded by supply management, Canada has lost small dairy farms. But it’s been at a slower rate than in the U.S., according to the system’s supporters.
Without supply management, the Canadian government would have to provide “a substantial level of subsidization” to help farmers endure the ensuing price fluctuations, Dairy Farmers of Canada says.
Mexico Experiment Failed
There was a time when Mexico was more protective of its dairy farmers.
In a heavily touted experiment in the late 1970s, it lured urban farmers who raised cows in a residential area of Mexico City to new farms in an agricultural business complex in Tizayuca, Hidalgo. Funded by the Interamerican Development Bank, the experiment worked for years under governmental control and subsidies. It even included a fluid milk plant, breeding center and other necessities.
But about three decades ago, the government pulled out and sold the processing plant, which was later repurposed. Some farmers started their own milk processing plant and brand, but they failed. Lacking land to grow their own corn, with milk prices losing ground to inflation, many farmers quit.
Mauricio Ramos was part of the community of farmers. He and his brother used to own a farm that employed 25 workers and had more than 700 cattle.
For Ramos, the roughest times came in 2007. He was selling his milk to a cheesemaker, he says. But the prices were low and sometimes he couldn’t sell it, so he had to throw away thousands of gallons. He decided to close the farm and sell his cattle to pay off loans he had taken to expand.
Today, the farm buildings in Tizayuca are in disrepair and the roads have broken down into little more than dirt paths. The old tight sanitary controls are nonexistent and the former center where the calves were raised is almost empty.
Ramos’ brother is in the state of Veracruz, tending to about three dozen cattle they own. His wife, he says, lives in the U.S., cleaning homes to help pay for their children’s college education. He may follow her. He has tried to contact dairy farmers he knew in the U.S. to ask if they would offer him a job.
But they are no longer in business.
Showcase Operation in Canada
In Mount Elgin, about 35 miles west of London, Ben and Elly DeBeer did leave their homeland — in this case Holland — in 1999 to start farming careers. Today, they milk 480 cows on their farm, and they built a new barn and milking parlor less than two years ago.
The DeBeers’ farm is a showcase operation. The outside of the barn, trimmed in forest green and white, has tall windows akin to a modern office building. Inside the lower-level lobby, the floors are polished to a mirror shine. The name “Compass Dairy Farms” is etched into a floor grate.
At the top of the stairs, there’s a spacious conference room suitable for a company board meeting. Next to it is the farm office. A large set of windows, spanning the length of the conference room, provides a bird’s eye view of the milking parlor below.
That parlor is a testament to innovation and cow comfort. At milking time, each cow steps aboard what looks like a giant playground carousel. A farm worker cleans the cow’s udder and slips on milking cups.
As the carousel turns, ever so slowly, more cows climb aboard. When the cows reach a certain point and they’ve finished milking, a worker removes the udder cups. The cows step off the carousel and return to the barn where they can take a nap on a bed of deep, soft sand.
The entire process takes about 12 minutes. As the carousel turns, the cows munch on food, give each other gentle nudges and offer moos of recognition. “I think they really like it,” Ben DeBeer says.
The DeBeers operate their rotary milking parlor about four hours a day, in the morning and the evening a couple of hours each. On an American farm with similar equipment, it would probably run eight hours or more, accommodating many more cows. But the DeBeers’ herd size is limited by the supply management system.
“Not everything’s a win with quota, but in general we’re very happy to have it,” DeBeer says.
Canada is more than capable of meeting its own dairy product needs and opening the door to more imports is an unneeded threat, according to Canadian dairy farmers.
“Nothing against U.S. farmers, but I wish all their milk wouldn’t come here,” DeBeer says.
Difficult Choices in Mexico
Over in London, McNaughton, 55, says the robotic milking system that he and his son invested in was meant to keep Mike engaged with dairy farming for years to come. Otherwise, Norman says, he’d be thinking about selling his quota and retiring.
“It’s a multimillion-dollar investment, but my son has bought himself a way of life,” McNaughton says.
It’s also the kind of investment that small and medium-size Mexican dairy farms can barely imagine.
Rubén Ibarra knows the only way to keep his 190-head farm in Los Altos de Jalisco is to grow.
He built a new section in his barn for 120 cattle, but now the low price of milk isn’t leaving him enough profit to invest in more animals. Soon he will have to make a decision about whether to keep the farm open or sell.
“If I don’t grow, I disappear, so it’d be better to sell,” he says.
Alfredo Gutiérrez, the Polotitlán farmer, plans to keep just 15 to 20 cows and feed them better to increase their daily milk production — now short of 5 gallons per animal, about 60% of an average Wisconsin cow.
He is also switching to other livestock. He has purchased some lambs and plans to raise more, along with some beef cattle. Reducing his dairy herd is the only way he sees to save the family farm.
His brother isn’t even in the country anymore. Seeing no future in Mexico, he headed to Wisconsin and now works as head cheesemaker at Door Artisan Cheese in Egg Harbor.
Gutiérrez is happy for him and, frankly, relieved there is one less mouth for the farm to feed.
But it hurts too. Gutiérrez and his mother explain they are a close-knit family, that having Ricardo so far away was never part of the plan. In a broken voice, his eyes watering, he says, “We were very close.”
When he can’t sleep, Gutiérrez leaves his house in the night and heads to the woods on his land.
There he tries to walk away the worries.
Source: pulitzercenter.org
