Growing the export market for U.S. dairy products is essential for strengthening dairy prices, industry experts said last week.
“One factor that will make the difference between recovery and continued crisis are dairy exports. This is a critical issue,” said Marin Bozic, assistant professor in dairy foods marketing economics at the University of Minnesota.
U.S. dairy production has shown growth through efficiencies and better genetics. That growth—at about 1.8 to 2 percent per year—is outgrowing the U.S. population rate, which is growing at about 0.8 percent per year, according to Bozic.
“Our ability to produce milk just from genetic improvement is advancing faster than the domestic market,” Bozic said last week at the Dairy Experience Forum in Minneapolis.
There are two ways to address that surplus, Bozic said. One way is to reduce the number of cows in the United States. The other way, he said, is to increase exports.
However, retaliatory tariffs are restricting dairy exports and limiting exports.
Retaliatory tariffs have softened dairy prices in the last 6 months, said former U.S. Agriculture Secretary Tom Vilsack, president and CEO of the U.S. Dairy Export Council.
“Clearly the imposition of tariffs has impacted the futures market in dairy rather significantly. We’ve seen over 6-month period a decline of roughly $1.2 to $1.3 billion in value on the futures market. So those who price the market are suggesting and indicating that we might have a more challenging environment the last 6 months of this year than we had the previous 6 months,” Vilsack said.
Tariffs hit cheese sales
The retaliatory tariffs imposed by Mexico largely hit the U.S. cheese market, where the United States once had a financial and logistical advantage, Vilsack said. Mexico put tariffs of up to 25 percent on U.S. cheeses. There were no tariffs on U.S. cheese going into Mexico previously under NAFTA, Vilsack said. But the retaliatory tariffs changed that.
“The financial advantage is basically gone because the retaliatory tariffs basically take us up to where our competitors are,” he said.
Vilsack said the retaliatory tariffs don’t put the United States at a financial disadvantage, but it means that the United States relies more heavily on the logistical advantage of the proximity to Mexico and the ease of exporting products there.
Vilsack said the trade wars have made Mexico more aware of its reliance on the United States—about 75 percent of the country's dairy imports come from the U.S.—and they’re looking at other countries to see where they might be able to source those products.
“Our competitors are gaining an edge due to new free trade agreements while the U.S. agriculture sector takes a step back while the federal government pursues aggressive negotiation strategies to open markets for industrial goods and services,” Bozic said.
In other retaliatory moves, China announced tariffs against a list of products, including a 25 percent tariff on most U.S. dairy products, according to the U.S. Dairy Export Council. Canada has imposed retaliatory tariffs of 10 percent on U.S. yogurt.
A lift from NAFTA
The dairy industry is hopeful that the Trump administration will conclude NAFTA renegotiations soon. That would lift retaliatory tariffs in Mexico and potentially open the market in Canada, Vilsack said. “I think that would spur additional confidence and potentially additional business opportunity,” Vilsack said.
The export growth will be vital to the U.S. dairy industry, Bozic said. “They (dairy farmers) have to be aware that we will have to rely on export markets in the next few years in a way that we have never before,” he said.