It took Kevin Ellis more than two years to navigate China’s trade barriers and win approval to export $25 million worth of dairy products from Central New York to the world’s most populous nation.
His persistence paid off in June 2018 when China allowed Cayuga Milk Ingredients — a $101 million milk processing plant on the edge of Auburn — to send its first two shipping containers of skim milk powder to Shanghai.
But before the cargo ship arrived, the trade war President Donald Trump started with China hit home in Central New York: The Chinese announced they would impose retaliatory tariffs of 25% to 40% on U.S. dairy exports.
“When the tariffs went in place, we actually had our first shipment on the water,” said Ellis, chief executive officer of Cayuga Milk Ingredients.
“To go from New York to Shanghai is about 32 days, so we were able to clear the goods before the tariffs hit,” Ellis said. “But there wasn’t a repeat order because the tariffs basically made our product uncompetitive.”
Now the company, stung by the loss from China and uncertainty the trade war has caused in the global dairy industry, has decided to delay the centerpiece of a planned $89 million expansion.
The expansion would increase production at Cayuga Milk Ingredients by 35%, creating up to 80 new jobs, Ellis said. The company had planned to buy an extra 700,000 pounds of milk per day from local farmers.
The setback is the latest example of the toll the U.S. trade war in China is taking on Upstate New York.
As the international battle continues with no end in sight, the impact has trickled down from big corporations to small businesses and family farmers who are increasingly dependent on the global economy.
At Cayuga Milk Ingredients, the decision to delay the expansion will affect some 28 farmers at 30 locations across Central New York who are counting on new export markets to keep their farms in business.
The lost opportunity comes at a time when Upstate New York dairy farmers are fighting for survival.
New York lost almost 20% of its dairy farms between 2012 and 2017, according to a U.S. Department of Agriculture five-year census published in April.
Overall, the state had about 2,100 fewer farms in the latest census, the largest drop in more than two decades, according to the New York Farm Bureau.
With no end in sight to the trade war between the U.S. and China (the world’s two largest economies), some already struggling farmers may see little reason to stay in business, said Lauren Williams, associate director of national affairs for the New York Farm Bureau.
“I think it doesn’t help when the outlook doesn’t look bright,” Williams said.
Trump has slapped tariffs on about $550 billion worth of Chinese imports since July 2018, attempting to force structural changes in China’s state-directed economy and address unfair trade advantages.
The Chinese responded with about $90 billion in retaliatory tariffs on American goods sold to customers in China, including American dairy products.
Before the start of the trade war, China bought about $24 billion worth of food and agricultural products from the U.S. each year.
The two sides declared a truce on new tariffs this month after trade negotiations in which China agreed to increase its purchases of American farm products. The Trump administration did not disclose details on the timeline, price or products that would be included in an interim deal.
Back in Central New York, the uncertainty is starting to wear on farmers like Kelly O’Hara, whose family’s Oakwood Dairy sprawls across 4,000 acres in the towns of Aurelius and Springport in Cayuga County.
O’Hara is one of the 28 farmers who own a piece of neighboring Cayuga Milk Ingredients. He’s the second largest shareholder of the company with a 15% stake.
“We’ve been successful with operations, but we’ve kind of been the victim of global markets and politics,” said O’Hara, who employs 35 people on a farm with 2,000 cows and 1,800 replacements.
“All of these retaliatory tariffs have affected our price of milk,” O’Hara said. “We saw a reduction about five or six months ago when they announced the next level of tariffs.”
The 9% decrease in milk prices was the latest blow as dairy farmers cope with a third consecutive year of depressed milk prices, O’Hara said.
Price supports from the federal government don’t even begin to make up for the losses. After futures prices for milk dropped by $1.30 per hundred weight this year, the USDA agreed to make up only 16 cents per hundred weight on a small percentage of O’Hara’s milk.
“The government price supports have not even been able to cover 10% of our losses and the effect that lower milk prices have on the farms,” O’Hara said. “So, we just try to get as efficient as possible, and cut costs where we can. But animals have to be fed and employees have to be paid.”
O’Hara said he has been forced to suspend capital investments on the farm and restrict purchases of new equipment.
“In turn, that’s less money in our local economy with equipment dealers and car dealers and other people we buy from,” he said.
To raise cash this summer, he decided to sell valuable timber from wood lots on his land for the first time in 20 years. But even the price of the timber he sells has declined because Chinese retaliatory tariffs have taken a toll on lumber companies that sell American hardwoods.
O’Hara sells his timber to Gutchess Lumber in Cortland, the subject of a separate story about the Chinese trade war reported last month by Syracuse.com | The Post-Standard. The company was forced to furlough or reduce hours for its 500 employees after China imposed retaliatory tariffs of 20% to 25% on U.S. hardwoods.
O’Hara, like many American dairy farmers, had counted on exports to China to make up for flat to sagging sales at home.
The trade war brought any growth to a grinding halt, according to the U.S. Dairy Export Council, a group that represents the trade interests of American dairy farmers.
When the Chinese retaliated against U.S. tariffs by imposing their own 25% tax on U.S. dairy imports in June 2018, it meant that American producers could no longer compete with other global dairy producers.
The cost of skim milk powder that Cayuga Milk Ingredients shipped to China increased from $2,200 per metric ton to $2,750 with the tax. The tariff is paid for by Chinese importers, who easily avoided it by buying from nations in the European Union and other countries.
Dairy exports from the U.S. to China plummeted by 48 percent from September 2018 through August 2019 as the full impact of the tariffs hit American dairy producers, said Alan Levitt, the council’s vice president of market analysis and communications.
“You had this huge growing market, the biggest import market in the world, buying more of what we make,” Levitt said. “Not only did we lose one of the top markets, but we lost the opportunity to grow with them.”
China, with a growing middle class of about 400 million people, has developed an increasing appetite for westernized diets that include more burgers and pizza and dairy products, Levitt said.
“It’s so unfortunate,” Levitt said of the lost opportunity for American dairy farmers. “Over the last two years, China has accounted for two-thirds of the growth in world trade. The sooner we can get this resolved, the better it is for exporters… In the short term, it’s been kind of devastating.”
Farmers from across the nation have shared their concerns with members of Congress and the Trump administration, Levitt said. But so far, the effort has made little difference.
“Unfortunately, in the U.S. it’s not dairy that’s driving the trade war,” he said. “We’re sort of collateral damage.”
Levitt said the dairy industry has depended on exports as part of its growth strategy for the last decade.
Ellis, the CEO of Cayuga Milk Ingredients, said local farmers had the same strategy when the plant opened in 2014, touted as a “miracle in a cornfield.” The farmer-owners viewed the plant as a way to open new markets and have more control over the profit they earn from their milk.
Today, the plant has $133.7 million in annual sales, employs 74 people and has an annual payroll of more than $5.8 million. The average employee wage is about $65,000 per year.
To keep the plant running at full capacity, Ellis said, he has been forced to become more flexible to adjust to changes in export markets. The company exports about 60% of its dairy products.
Ellis said he doesn’t want to experience a repeat of what happened with China, so he has set a new rule: The company won’t make more than 25% of its total sales to any one country, region or customer. Cayuga Milk Ingredients now exports to 77 countries around the world.
“I’m not going to live and die with one country,” Ellis explained.
If the trade war with China is resolved, he said, the company would add the planned ultra-high temperature pasteurization line. It would allow liquid milk to be packaged in sterile, hermetically-sealed packages that keep milk fresh for months, allowing for shipment overseas without refrigeration.
Ellis said his experience with the trade war has only solidified his view that American politicians have forgotten about people like him and the farmers he works with.
He voted in the 2016 election but left the presidential ballot line blank because he didn’t support Trump or Hillary Clinton.
Asked if he had any advice for President Trump about ending the trade war, Ellis said he understands why China’s trade practices are a concern. But he said “tweetstorms” from the president won’t resolve the issue.
“Knowing the Asian culture and Chinese culture like I do, the way the administration is going about is wrong,” Ellis said. “These people are all about saving face. They don’t take kindly to being publicly shamed.”
Source: syracuse.com
