It's not a good time to be a dairy farmer in the United States.
It hasn't been for a while. Milk prices have dropped below
the cost of production for four years in a row
and thousands of dairy farms close every year.
Advances in technology and genetics
mean that smaller numbers of cows
can produce greater amounts of milk. Too much milk.
Tidal waves of milk in the American market lower prices,
leaving some farmers to just dump thousands and thousands of
unprofitable gallons. Similar stories have played out
in Australia and around the European Union. But
it's by no means universal. Dairy farmers struggling in
Wisconsin and Michigan just have the peak across the northern border to
see how different their lives could be.
Dairy production ramped up during World War II and the subsequent
reconstruction of Europe. But that demand dried up by the mid to late
1950s. By the 1960s, many countries were
overwhelmed with excess dairy products. Some countries started
subsidizing their dairy farmers directly. Even today, one study
estimates that dairy subsidies cost American tax payers about
$20 Billion dollars every year.
Often in Canada we say, "you know Americans pay twice for their
milk; once at the supermarket and another time through their taxes."
But not Canada. Instead, Canada implemented a
three part supply management system that empowered their
dairy farmers. Here's how it works: the first
part controls production. To sell their products, Canadian dairy
farmers must have a quota, or a license to produce a
set amount of milk. Basically, provincial marketing agencies
predict how much dairy products Canadian consumers will buy
that year. And it uses those numbers to set the quotas. Farmers buy
more quotas or sell off their existing quotas, depending on how
much they expect to produce. So these quotas prevent overproduction
of dairy. Which in turn prevents prices from
spiraling downwards.
The second part guarantees minimum prices for Canadian dairy farmers.
Imagine that: from one year to the next, the price of cow feed jumped by 20 percent.
Normally, that would cut into a dairy farmer's profits. In Canada
however, milk marketing boards in each province negotiate
with milk processors to set a minimum price
that takes into account these price fluctuations. So farmers are compensated
relative to their costs each year.
The third and final part of the supply management system takes aim at
foreign dairy. Every year Canada imports an allotted
amount of foreign dairy. Typically,
around 10 percent of its total domestic market, with
low or no tariffs. After that, tariffs shoot up
Sometimes up to 300 percent. This prevents foreign dairy
from flooding the market and encourages Canadians to buy Canadian
products. So this is how Canada tries to keep its
dairy farmers in business. It has a vested interest in
doing so, as the industry is the backbone of many rural communities.
Providing more than 220,000 jobs and
nearly $20 Billion to Canada's GDP in 2015.
Some Canadians dislike this system, arguing that consumers pay
more for dairy products than elsewhere. Whats more,
some critics of the program in Canada argue that the government props up
dairy farmers more than it should, resulting in an average income for
dairy farmers of exceeding $160,000 dollars,
and what one agricultural experts calls, "a sense of entitlement by
the sector", which has a powerful lobby at both the Federal and
Provincial level. However,
a 2017 Neilson study showed Canada's milk prices are on
par with prices from similarly developed nations. And
at least one public opinion poll puts Canadian support for the system
at about 75%. "If you value the
qualitative as opposed to mere the quantitative I
think you'd opt for the Canadian system over the
American one, because the lifestyle
that rural people in Canada lead is much, much, much more
robust, than the rural lifestyle of people in the US".
Internationally though, Canada's system has fewer fans.
Since the 1980s, Canada's trading partners have repeatedly demanded
they lower their dairy
defenses, with some calling into question the legality of the
quota system under World Trade Organization laws.
The fight over milk between the US and Canada has played out
in free trade agreements from the mid 1990s onward.
It revolves around how much of Canada's domestic dairy market
will be filled by tariff free imports from the US.
Under NAFTA, the figure is disputed. One USDA official
told CNBC, "that no US dairy
exports to Canada were tariff free under NAFTA".
But other experts cite the figure at around 1% - 3%.
During negotiations for the Trans-Pacific Partnership, the Obama
administration secured 3.25% of the Canadian market
without tariffs. However,
President Trump pulled out of that agreement in January 2017. The President
sees Canada's system as deeply unfair to American dairy
farmers in Wisconsin, and other border states.
So during the talks the renegotiate NAFTA, he threatened
to leave Canada out of the agreement, and impose steep tariffs on
cars if they didn't offer dairy concessions.
Those threats worked. Under the USMCA:
NAFTA's replacement, 3.59% of Canada's
total domestic dairy market will be comprised of imports from the US,
without tariffs. After that, the
tariffs kick in once again.
"We think it's a great deal, obviously US, Mexico,
Canadian deal, its good for agriculture. I think its
good for the US economy. I think President Trump, achieved
most if not all the objectives that we had to begin with".
This agreement has infuriated some Canadians, with farmers worried
for their future, and some consumers calling for a boycott of American
dairy products. For all the fanfare around the deal though,
some American dairy experts argue that the effects will be modest.
The US already had 3.25% access
under the TPP before they pulled out. And the difference between that and the
USMCA amounts to only an estimated $70 Million dollars
more for the American dairy industry. And besides,
it's unclear if
access to Canada's relatively small market
can make a dent in the US's massive milk surpluses.
The US has a huge dairy trade surplus with Canada,
which was already increasing prior to
USMCA negotiations. To put the
size of the problem in perspective; Wisconsin
alone produces more milk than all of Canada.
"I think for any country, to actually put their faith
in dairy exports is a panacea to,
you know, huge oversupply of dairy production,
as the Americans have done, I
think its a really, really rum game. I think it's a tsunami
washing across the US, with no home.
So, what are you gonna do?"