U.S. dairy industry struggling with trade, excess supply

by Ron Sterk
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Ron Sterk

KANSAS CITY — Wisconsin is at the heart of a dairy trade issue with Canada that is in fact part of a much larger trade confrontation concerning dairy and other products. For Wisconsin, from which a third of all its exports go to Canada, and for a select group of dairy farmers, the trade dispute is acute.

The specific issues involve a new milk grade in Canada, Class 7 milk, implemented nationwide March 1, and the export of U.S. diafiltered milk to Canada. The United States and most of the rest of the dairy world contend Canada created Class 7 milk (Class 6 in Ontario) — the lowest grade that includes excess skim milk products (created when cream is separated from whole milk) and thus the “cheapest” class — because strong butter production (thus cream demand) has resulted in surplus byproducts that are being dumped at low prices on the world market, possibly in violation of World Trade Organization agreements. Canada says it created Class 7 to be competitive in the marketplace.

Canada maintains it is not at fault for the U.S. dairy problems.
 

Canada’s Class 7 milk is basically the same as diafiltered or ultrafiltered milk that the United States exports duty free to Canada under the North American Free Trade Agreement (Canada maintains high duties on many imported dairy items, but products with 85% or higher protein are duty free under NAFTA). Creation of the new class has significantly reduced Canadian demand for U.S. diafiltered milk, which is finely filtered with high protein content that has been processed a step beyond nonfat skim milk. It was “invented” in the United States to meet demand mainly from Canadian cheese makers. While not used by U.S. processors, numerous plants have emerged along the Canadian border in recent years to make and export diafiltered milk to Canada. 

The situation became critical when Grassland Dairy Products., Inc., Greenwood, Wis., said in early April it would no longer buy milk from about 75 Wisconsin dairy farmers as of May 1, amounting to about 1 million lbs of milk per day. Much of that milk may be dumped for lack of a buyer. Grassland said it was dropping the producers because it could no longer sell diafiltered milk to Canada at a competitive price due to the new Class 7 milk grade in Canada. There is concern some milk processors in Michigan, New York and other states along the border may follow suit.

 

 
Canada maintains it is not at fault for the U.S. dairy problems, noting its new Class 7 milk accounts for only 1% of U.S. exports to Canada. Instead, the Canadians, and some in the United States, cite ample to excess milk production in the United States, which they say U.S. milk producers have brought upon themselves.

Organizations representing dairy manufacturers and producers in the United States disagree. In an April 13 letter to President Trump, the International Dairy Foods Association, the National Milk Producers Federation, the U.S. Dairy Export Council and the National Association of State Departments of Agriculture urged the administration to tell Canada to halt the new pricing policy and restore imports of the blocked U.S. products, specifically ultra-filtered milk. They also asked President Trump to direct U.S. agencies to “examine a full range of tools that could be used immediately to impress upon Canada in a concrete way the importance of dependable two-way trade.”

U.S. milk production sets new records annually, while fluid milk consumption has steadily declined and competition from other products, including nut “milks,” continues to increase. The U.S. Department of Agriculture in April forecast U.S. 2017 milk production at 217.3 billion lbs, up 2.3% from 2016. Production has increased 13% since 2009, the last year there was a decrease from the prior year.

Of course the trade issue between the United States and Canada is much bigger than diafiltered and Class 7 milk. The United States last week put tariffs up to 24% on lumber imported from Canada. But for at least 75 dairy farmers in Wisconsin, and maybe more before the issue is settled, the issue hits close to home and may put some producers out of business. 

 

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