When the North American Free Trade Agreement (NAFTA) was ratified back on Jan. 1, 1994, President Clinton was in the White House, Forrest Gump was talking about boxes of chocolates and World Dairy Expo had just celebrated its 25th year. Dairy exports were at roughly 3 percent of production and there was a groundswell of support for a formal supply management program to do something with the oversupply of milk.
Fast forward 23 years and, while there’s no Clinton in the White House, exports have jumped to around 15 percent of milk production, the U.S. accounts for nearly 75 percent of Mexico’s dairy imports and Canada is the second largest consumer of U.S. dairy products. NAFTA has been good for U.S. dairy producers.
This article is being written on the eve of NAFTA negotiations, so as you’re reading those discussions have been going on for some time. News reports have no doubt kept you informed.
But are you paying attention? Should you even care? After all, you don’t have control over milk price so why should you care about global markets?
Actually, it’s because you don’t have control that you should care. Production keeps rolling along at 1.5 to 2 percent growth. Processing capacity is maxed out. The U.S. needs export markets, especially with its two largest trading partners.
In some respects change is already happening. Mexico is looking for new trading partners to create diversity in its supply chain, realizing that putting as much as 75% of their milk products in one basket has inherent risk. Canada’s national ingredient strategy has locked the U.S. out of a market built by U.S. processors and made them a competitive player in world powder markets.
Both of those events are big deals for the U.S. If Mexico decides to buy more products from the EU or New Zealand, that cuts into U.S. market share. Most experts agree that Mexico won’t leave the U.S. hanging, given the advantages to doing business with their closest and largest neighbor, and U.S. exports to Mexico so far in 2017 are higher than they have been in the past two years.
With regard to Canada, shutting off the market for ultra-filtered milk has had regional impacts, but a more widespread impact could come in their more competitive position in the global dairy ingredient marketplace. While it’s good to have competition, inordinately low cost or unfair competition is a problem.
With the tenuous balance between export demand and growing supply, now more than ever your milk check is directly impacted by global markets. That’s what makes NAFTA negotiations so important, and why these next few weeks and months could have a critical impact on the future of your milk check.