Some companies dropping contracts with dairy farmers amid glut. New Canadian rules have cut off exports of some milk products. By Lydia Mulvany and Jen Skerritt.
The U.S. dairy industry is appealing to President Donald Trump for help after Canadian companies halted some imports, exacerbating a glut of milk on the American side of the border and forcing one of the country’s biggest butter producers to scrap supply contracts with farmers.
Some U.S. dairy companies say that in the past week, they’ve lost all their Canadian sales of ultrafiltered milk, a concentrated ingredient used to boost protein content in cheese and yogurt. That’s due to a new policy rolled out in recent weeks that incentivizes Canadian processors to buy domestic supplies.
The Canadian move violates trade commitments between the two nations, according to industry organizations including the U.S. Dairy Export Council and National Milk Producers Federation. In a statement on Wednesday, the groups urged the Trump administration to take immediate action.
The lobbying from the dairy sector comes at a sensitive time for U.S.-Canada trade relations. Trump, who was elected with the help of strong rural support, has pledged to renegotiate the North American Free Trade Agreement to help U.S. industry. But his rhetoric has sparked concern among farmers that Nafta member Mexico may seek alternative sources of agricultural imports such as corn.
Grassland Dairy Products Inc. in Greenwood, Wisconsin, said it has lost Canadian business valued at as much as $100 million annually in the last week, and notified dozens of farmers that it can’t take milk deliveries beyond the end of April. Cayuga Milk Ingredients in Auburn, New York, said it also lost all of its Canadian exports, a source of about 30 percent of overall sales.
“I kind of do hope that people renegotiating Nafta use this to their advantage to get something back for America,” Cayuga Chief Executive Officer Kevin Ellis said. “It’s a huge loss for dairy farmers across the country, so we need something back from the Canadians. I think we need our pound of flesh out of them.”
Canada’s new pricing mechanism, known as the Class 7 program, was introduced in February, said Isabelle Bouchard, a spokeswoman for Ottawa-based Dairy Farmers of Canada, which represents 12,000 farms. Imports of U.S. ultrafiltered milk have caused an estimated C$231 million ($172 million) in annual losses for Canadian companies, according to the group. She said other factors, such as the stronger U.S. dollar, may influence Canadian processors’ buying decisions.
“No new tariffs have been created that would restrict USA access to the Canadian market,” Bouchard said in an email. “The problem is not Canada’s dairy system, the problem is that there is too much milk produced in the USA, which is not Canada’s fault.”
The Canadian Dairy Commission didn’t immediately respond to requests for details of how the Canadian system works. The U.S. dairy industry has complained about a lack of transparency. The mechanism is administered by individual provinces, which have have been issuing notifications throughout March, according to Shawna Morris, vice president of trade policy at the National Milk Producers Federation.
While the Trump administration has done some work on the issue, the U.S. dairy industry wants to see more effort, and to “convey to Canadians the importance of trade going both ways,” Morris said.
Class III milk futures have tumbled 13 percent this year on Chicago Mercantile Exchange.
During the last so-called spring flush in May and June of last year, the amount of milk wasted or used for animal feed in the northeastern U.S. exceeded 75 million pounds, the highest recorded in government data going back to 2000. Supplies are forecast to expand this year. Oversupply is particularly acute in the mid-east and northeast.
Losing large sales of ultrafiltered milk is therefore particularly at this time of year, said Goedhart Westers, vice president of business development at Grassland, the Wisconsin dairy company. At Cayuga in New York, Ellis said he’s been getting offers of free supplies, but had to turn them down.
“There was no way, we are absolutely full,” he said.