Talk to Wisconsin dairy farmers about the ground-shifting events in their industry and it’s striking how rarely the new trade deal with Canada comes up.
That might surprise anyone who’s heard the dairy liberalization in the new North American trade agreement — which gave U.S. producers a bit more access to Canada’s tightly controlled dairy market, and limited the Canadian sector’s ability to export dairy products to the U.S. — described as a major development.
The 2018 deal has been characterized that way on both sides of the border: by Canadians unhappy with the new NAFTA, and in the U.S. by President Donald Trump as he campaigns in Wisconsin, a key presidential election swing state and dairy-producing region.
It could soon heat up again as a political issue. The U.S. has hinted its first lawsuit against Canada under the new pact might involve dairy, as Democratic and Republican politicians have written letters accusing Canada of unfairly implementing the deal in a way that discriminates against U.S. farmers.
But right now, down on the farm, based on conversations with American dairy operators of different political stripes, trade with Canada ranks low on the hierarchy of priorities.
America’s huge dairy sector generates tens of billions in revenue each year and regularly deals with abrupt and brutal price swings that dwarf the few hundred million in new revenues expected from Canada.
“It’s a drop in the bucket,” said Sarah Lloyd, a Democrat and dairy farmer who lives two hours west of Milwaukee, describing the new Canadian market access.
A third-generation dairy farmer near Kenosha, who voted for Trump in 2016 and said he probably will again, Dave Daniels, said the new pact might help the overall market a bit.
But, “On my own bottom line it’s probably not going to make a lot of difference,” he said.
Lloyd Holterman said he’s heard detailed opinions about this agreement in one place — in Canada, when he visits for dairy conferences.
“They seemed to know more about it [in Canada] than I knew. [Farmers there] were upset … so I figured we probably got the better end of the deal,” said Holterman, who prefers not to divulge his voting intentions
“I don’t know how big a deal it was, really. … That’s a small [market in Canada].”
Dairy farmers in Wisconsin have considerable political power this year.
Why Trump needs Wisconsin farmers
Wisconsin, a swing state, will be decided not just by whether Trump wins a majority of votes in the rural, milk-producing areas — as he almost certainly will.
The other factor is whether Trump racks up enough of a lead here to offset his likely deficits in urban areas, like Milwaukee and Madison.
And the dairy deal with Canada is central to Trump’s re-election message here.
In speeches last month in different parts of the country, Trump promoted the new NAFTA as a turning point — he said, in one, that Canada used to take advantage of the U.S. when it came to dairy, “but not anymore.”
At the Republican convention, his daughter Ivanka described the president constantly asking about dairy when getting briefed on the NAFTA negotiations: “[He would say], ‘Don’t let down those dairy farmers I met in Wisconsin. I don’t want them to like this deal; I want them to love it.”
Even if the Wisconsin farmers have limited expectations for the agreement, they do appear to like the fact a deal has been made. The industry is craving stability after a wild few years, and this pact helps in that regard.
More than half of U.S. dairy farms shut down over the last two decades and 2018 and 2019 were some of the hardest years on record.
The destabilizing forces included a dramatic plunge in prices. Whole milk prices dropped 33 per cent from 2014 to 2016, then remained low for years. Milk consumption has also declined. And there’s never-ending pressure to keep growing, keep innovating — or die.
“Highs, lows, highs, lows,” said Daphne Holterman, Lloyd’s wife, describing the unpredictability of U.S. dairy prices.
The Canada deal brought some benefits.
What the new NAFTA does
American farmers were happy it set limits on Canadians’ ability to sell protein powders on world markets: they argued that Canada was damaging the entire industry by dumping excess product at artificially low prices.
That’s the issue that first caught Trump’s attention in 2017 when dozens of Wisconsin farms lost their contract with a processor who couldn’t compete with what they perceive to be non-market Canadian rates.
“That hit Wisconsin pretty much right in the jaw,” Daniels said.
The agreement also gave Americans more access to dairy sales in Canada, which tightly controls the supply and prices of dairy products.
The U.S. International Trade Commission, tasked by Congress with analyzing the effect of American trade agreements, estimated that the pact would increase U.S. dairy output by a mere 0.1 per cent.
It suggested exports to Canada would grow $227 million a year — which is an increase of exports to Canada of one-quarter to one-half of recent estimated annual volumes. That’s a significant change for Canada.
But it’s closer to pocket change for the U.S. American dairy farms generated approximately $40 billion in cash receipts last year.
A price plunge, then a pandemic
Dairy was hit hard by the commodities bust that sent prices plunging in the mid-2010s, touching everything from oil to food crops.
Then just as things seemed to be picking up after last year, the pandemic struck. Purchases froze up at schools, restaurants and workplaces, which account for nearly half of U.S. dairy consumption.
“The cows didn’t get the memo that said, ‘Hey, we’ve got COVID, slow down,'” said Mark Stephenson, a dairy-markets expert at the University of Wisconsin.
“We had a lot of milk that needed to be processed, that needed to have a home. And it’s not like corn — you obviously can’t keep it in the bin for a while, until you find a sale. It has to go.”
Farmers have long had to innovate, or get out of the business. Daniels and the Holtermans describe how they’ve merged their farms with partners, pooled their resources to buy better machines, and done everything from breed longer-living cows to installing equipment that cut the cost of feeding and veterinary services.
Lloyd Holterman said business is now picking up again. He got twice as much revenue last month as in May — people cooking at home are now using more butter, milk and cheese, and products originally destined for commercial establishments are being repackaged for home use.
“[Tough times are] an opportunity to get better,” he said. “When things are really good, you get sloppy. … So we’ve actually done pretty well through the downturn.”
But he concedes the constant pressure to innovate can be tough.
“Our system of dairy production is brutal. It’s brutal. Nobody feels sorry for anybody that goes broke,” Holterman said. “That’s the way business is here. … The positive side is we have high quality and cheap prices.”
Some American farmers, including Sarah Lloyd, wish their industry were a bit more stable and are pushing for the U.S. to adopt Canadian-style controls on prices and supply volumes.
But the Holtermans and Daniels doubt that idea will fly in the U.S.; they say they prefer the less-regulated American system, arguing it encourages competition and innovation.
The big export market: Mexico
Another way U.S. farmers have survived the lean years is by expanding trade: export volumes have grown, over a generation, from negligible amounts to 18 per cent of total U.S. dairy production.
The largest market by far for U.S. dairy exports is Mexico, with Canada second.
Wisconsin dairy farmers were more worried that the bigger market to the south might slip away, amid tensions between Trump and Mexico, and his threats to rip up NAFTA.
“There was some offensive things said about Mexico as a country,” Lloyd Holterman said. “They, rightly, took offence to that.”
But a representative of the U.S. dairy lobby in Washington said the new trade with Canada should make a difference. She said a tiny change in markets can have a ripple-effect on prices.
Now, said Shawna Morris, vice-president for trade policy at the U.S. National Milk Producers Federation, people will be scrutinizing whether Canada, in fact, lets more dairy in.
She and others were concerned that Canada has, in past trade agreements and in this one, made it too difficult for foreign companies to access new import quotas, leaving them unused.
Fair market access for our dairy industry was a key pillar of the #USMCA. I’m calling on @USDA and @USTradeRep to hold Canada and Mexico accountable for their trade commitments to Iowa’s dairy farmers. pic.twitter.com/WddUf9Bbos
— Joni Ernst (@SenJoniErnst) August 27, 2020
“It’s about fairness for us,” Morris said.
“The U.S. negotiated really hard for this. It’s not full access to the Canadian market. It’s nowhere even close to it. But we definitely want to make sure we get what we thought we had on paper.”
So does this deal help Trump win Wisconsin again? Trump carried the state by a margin of one per cent last time, and polls show him behind now.
Daniels says it’s going to be tough.
What he hears from people in his area is that those who voted for Trump last time will vote for him again; he suspects, however, that Democratic turnout will spike in cities from its low 2016 level.
“It’s going to be a pretty slim margin if he does [win],” Daniels said.
Lloyd Holterman said he likes what Trump has done on taxes and deregulation. He assumes the state will be a tossup, with the vast majority voting as they did in 2016.
But “I can’t even predict,” he said. “48 hours is an eternity.”