Tuesday, October 2, 2018

"New NAFTA" won't stop the pain for Wis dairy farmers

In light of dairy exporters not being able to sell some of their product in other countries due to Trump trade wars, the surprising news over the weekend of a new proposed agreement between the US, Canada and Mexico grabbed an extra amount of attention. Especially given that the new agreement will reportedly allow a portion of Canadian dairy markets to be opened to American producers.

The new agreement certainly was needed news for a Governor who’s already losing voters in the suburbs, and can’t afford to lose any more in rural Wisconsin if he wants any chance of staying in office.

But let’s not go overboard here. This analysis from Bloomberg News indicates that not much should change with the new agreement.
Despite the new name (the U.S.-Mexico-Canada Agreement, or USMCA) dropping any references to trade, let alone freedom, the tariff rates on imports from Canada and Mexico are still a mass of zeroes. The main new element — the abolition of a variety of milk Canada introduced last year to support its domestic dairy industry — is ultimately an anti-protectionist move. The main old element is some fiddling around Nafta’s rules on automotive trade which, as we’ve argued previously, aren’t likely to change much….

Consider the agreement on dairy. The milk variety that Canada has agreed to discontinue — known as Class 7 milk — has been in existence for barely 18 months, and its opponents include not just U.S. trade negotiators but also Saputo Inc., one of Canada’s largest processors.

More to the point, milk products comprise an almost infinitesimal share of the trade relationship between the two countries, accounting for about $364 million, or 0.06 percent, of each-way flows. Peat, pasta, polystyrene, paper and prefabricated buildings all account for a greater value of U.S. imports than Canada’s entire dairy industry, and it’s a similar picture in the opposite direction.

It’s not unlike the deal reached with automobiles, where the tariff-free quota imposed on Canadian products — if Trump pursues global levies on imports — is high enough to give Ontario’s plants leeway for a 30 percent volume increase and still have room to spare.
While Wall Street had large-company stocks in the DOW rally to record highs over the last couple of days on the thought that maybe there will be fewer Trump trade wars in general, smaller companies in the Russell 2000 dropped by more than 1% on both Monday and Tuesday. And that seems to give a hint on who may be helped or not from USMCA.

In addition, the new agreement hasn't seemed to do much for the low dairy prices that have been plaguing farmers throughout the country, and especially in Wisconsin. Cheese and most types of milk futures have barely budged off of their lows in the last 2 days, and in fact, cheese futures for December dropped to their lowest point yet today.

So the overall situation for dairy farmers is still not good, especially in a state that has been losing large numbers of dairy farms over the last year.
Wisconsin's dairy industry has been hammered in trade disputes with Mexico, China and Canada, putting farms already in trouble at even greater risk.

Saddled with still-low milk prices, debt and high operating costs, thousands of dairy farms have folded. Wisconsin lost 500 in 2017 alone, according to state records, and about 430 closed in the first eight months of this year.

The problem has been compounded by a sharp decline in farm-milk prices that's now in its third year and has spread across the country.
Farm cooperatives have urged members to think twice about adding more cows to their operations when the marketplace is awash in milk. Some have even offered incentives for members to quit farming altogether.
And while Scott Walker may try to take advantage of good headlines today, let’s not forget that he and the rest of WisGOP have supported many of the things that are making dairy farmers struggle so much today.

This includes major deregulation of CAFOs and doing the wishes of other members of the Dairy Business Association, which has led to the overproduction and low prices that are killing small farmers.

Until that structural problem is solved, and we stop having a state government that prefers the campaign donations of Big Ag over an agricultural policy that tries to keep smaller farmers in business, Wisconsin dairy farmers are going to continue on a downward spiral. That'll be true whether it's NAFTA, USMCA, or whatever other trade deal the US is under.

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