Wisconsin farmers are not alone in facing the dairy crisis.
But farmers in Canada and Mexico — the nation’s two largest dairy trading partners — are experiencing global trade forces differently.
Operating in a protected system, dairy farmers in Canada benefit from stable milk prices. Those in Mexico, though, have struggled amid a wave of imports from the U.S. Here’s a look at the diary industry in the three countries.
How are farmers’ milk prices determined?
Mexico dismantled its milk price-setting system in 1998, four years after the North American Free Trade Agreement was enacted. Since then, there have been no regulations on the prices processors and others must pay farmers for their milk. Mexican farmers have been getting on average about 20 cents less per gallon than U.S. farmers.
Canada is under a nationwide milk supply management system, which means regional marketing boards such as Dairy Farmers of Ontario negotiate with dairy processors to set prices that aim to cover farmers’ production costs and help ensure them a profit. In other words, farmers act collectively in the process and adjust milk production to meet consumer demand but not exceed it.
In the United States, minimum farm milk prices are set by the U.S. Department of Agriculture using complicated formulas based on the wholesale market value of various dairy products such as butter and cheese. It’s a complex system, and most farmers don’t know what they’ll be paid for their milk until 30 days after it’s hauled off the farm.
What is the country’s trade policy?
Mexico has imported dairy products for at least a half-century. But the country gradually pried open its market to U.S. and Canadian dairy imports after NAFTA was enacted 25 years ago. In the past decade, dairy imports, mostly from the U.S., have increased dramatically. The Mexican government estimates a third of the dairy consumed in the country has been imported. Farmers and economic researchers say that has driven down prices paid to farmers for their milk. Those in favor of open borders say consumers in Mexico benefit from lower prices and more competition.
Canada is much more protective of its dairy industry — allowing only a limited amount of imported products duty-free or at low tariffs. Anything above that is are subject to steep tariffs, for example, 245% on cheese or 298% on butter. Canada’s system has been criticized in trade negotiations with the United States and other countries for being protectionist, but some U.S. farm groups have eyed it with envy for the stability it provides.
U.S. dairy exports have more than quadrupled in the last 15 years. Now, about 16% of dairy products are sold abroad, and at times, that’s enough to tip the whole industry. In 2018, the World Trade Organization said Canadian dairy tariffs averaged nearly 249%, compared with the United States’ 17%. Despite Canada’s trade barriers, the United States runs a significant trade surplus with its northern neighbor and its much smaller dairy industry.
How are small farms faring?
Milk prices received by Mexican farmers have been dropping (when adjusted for inflation) in the last decade, and many small and medium farms have felt the pain. From Mexico’s traditional dairyland of Altos de Jalisco to the state of Veracruz, many Mexican producers have quit farming, are struggling to get by or are thinking about reducing their herds. Many say that, with the current prices, they are unable to invest in new equipment, better feed or improved animal genetics to become more efficient and productive. In addition to dairy imports that drive down the price of their milk, small Mexican farms face high interest rates, lack of access to credit, scarce training programs and technical support, poor infrastructure and competition from less-expensive products that imitate dairy.
Overall, Canadian dairy farmers are doing pretty well. Their supply management system levels out the highs and lows of milk pricing that have hammered farmers in other countries for years, allowing them to make long-term investments in their operations. In 2018, the average net income of dairy farms in Canada was approximately $130,000 (U.S. currency) and although Canada has lost many small farms over the years, supporters of its system say the rate of loss has been less than in the United States.
Small dairy farms in the United States, especially, have struggled in an industry increasingly driven by large operations with greater efficiencies. Wisconsin has been losing dairy farms at the rate of more than two a day, most of them small, family-run businesses. Some farmers have been hemorrhaging money — or barely breaking even — for five years. The loss of farms, and the impact on businesses and communities that rely on an agricultural economy, isn’t likely to be reversed.
What about consumers?
Mexico’s median after-tax household income is about one-third of the U.S., but a gallon of regular milk is more expensive in a Mexican supermarket than in the U.S. Cheaper products that imitate milk and cheese by mixing milk components — often imported — with vegetable oil and other ingredients are common in Mexico’s stores. Products imitating milk can have a poorer nutritional quality, including less calcium and protein. Some say these products can supply good nutrients at an affordable price. But farmers say such marketing misleads consumers into thinking the products are the real thing. Farmers are concerned that those products are displacing more nutritious dairy products.
Canadian consumers pay more 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, according to the Montreal Economic Institute. Canada’s dairy supply management system especially hurts low-income families, the institute says.
U.S. consumers benefit from a wide range of dairy product prices, including fresh milk that is about 50% cheaper than in Canada. But diets have changed, and milk faces a tidal wave of new competitors. Beverage companies, seeking to please a multitude of palates, have flooded the market with sports drinks, energy drinks, plant-based sodas, fruit juices and designer coffees. Just in the last half-dozen years, the average grocery store has added nearly 600 new beverage options to its coolers and shelves, according to Dairy Management Inc., a nonprofit funded by government-mandated payments from dairy farmers to promote milk products.