In April, Grassland Dairy Products, located in Greenwood, Wisc., notified its producers they had until the end of the month to find a new processor. The quick announcement was due to a sudden and drastic change to Canada’s milk policy with a little-known dairy product called ultra-filtered milk. The class is used for cheese production in Canada and encourages Canadian producers to buy certain types of milk products domestically. Grassland wasn’t the only processor forced to drop its customers.
Fifty-eight dairies of those operations were in Wisconsin. The notice left farmers in Wisconsin, New York and Minnesota scrambling and trying to find a new home for their milk.
“No farmer is in the business of dumping milk,” said Goedhart Westers, vice president of business development with Grassland Dairy Products. “No processor is in the business of dumping milk. That’s a sad day for all of us.”
Westers said Grassland Dairy Products has talked with the Trump administration, U.S. Agriculture Secretary Sonny Perdue and many dairy groups since the spring. Westers said “nothing has changed” with Canada’s milk policy and half of ultra-filtered milk imports from the United States despite the company’s efforts to change Canada’s policy.
“We are still in the same course as we were before,” said Westers. “It has a far bigger affect than just Grassland.”
No movement is the very reason why Westers say this has the potential to happen to other processors in the future.
“I think this could happen to any other processor,” said Westers. “We are still in the same boat as we were four or five months ago. The potential for it to happen again [to any processor] is definitely there.”
Westers said Canada is not showing many signals it wants to work with the U.S. anytime soon with changing its policy. Quotas in five Canadian providences went up 5 percent on July 1. More quotas on its country’s milk mean additional growth.
“They do this to meet their butter needs, but at the same time, it has made them even [longer] on skim milk,” said Westers. “That is exactly the product we were exporting. By increasing the milk supply, there’s even less of an incentive to work with [the United States] with increasing our market access to Canada.”
The situation has put dairy trade in the global spotlight, and President Donald Trump pushed back. He grabbed headlines when he slapped a 20 percent tariff on Canada’s softwood lumber due to the dairy trade dispute earlier in the year.
An international coalition of 10 dairy organizations, including three dairy groups from the United States, signed letters as a call for action in June asking their country’s trade ministers to fight the disruption. Big milk producing areas like New Zealand and the European Union penned its country’s name, too.
“Canada has been adopting policies that run counter to our longstanding agreements and upending what has until recently been a mutually beneficial trade relationship,” said Tom Vilsack, president and CEO of the U.S. Dairy Export Council. “Our trade agreements must be honored and not ignored-or worse-by our closest neighbor.”
Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, Madison said it would take years going through world trade courts to challenge Canada before the case could be heard.
“If [Canada] ups quotas to produce more milk in Canada and they start exporting product under that new class of milk, I think they’re very vulnerable to a WTO challenge,” said Stephenson. “That’s already happened maybe 12 years ago and [Canada] lost that case. If Canada does nothing more than create this new class of milk and price it low but keep all of that product to Canada, [it could be a different outcome].”
Westers said he’s hopeful.
“[Grassland Dairy Products thinks] there’s a very solid case,” said Westers. “We believe it can be successful. We think the WTO has an easy ruling on that one but in the meantime, we need to take care of milk on our farms.”
Westers said the company is advocating for more capacity space and changing some domestic Food and Drug Administration (FDA) regulations to get more cheese on the market and find a use for ultra-filtered product domestically.
The current regulations have stipulations for the U.S. of where ultra-filtered product can be produced and transported.
Rep. Vicky Hartzler (R-MO), is one member of the House Committee on Agriculture, urging the FDA to evaluate ultra-filtered milk in the U.S. to allow its use in standardized cheese without the need for special labels.
“Current FDA rules on the use of UF milk for cheese making are inconsistent and confusing to the domestic dairy industry and stifle product flexibility and innovation,” said Hartzler in her letter to Stephen Ostroff, M.D. acting FDA commissioner. “The inconsistency and uncertainty of these regulations is discouraging domestic cheese manufacturers from utilizing UF milk in their plants,” said Hartzler.
The International Dairy Foods Association (IDFA) said in a press release it’s been nearly 20 years since it joined other organizations on a push to use ultra-filtered milk in all types of cheese.
Westers said a change to the domestic policy could make cheese production more efficient and more uniform. It could allow the cheese plant to buy more milk as well.
“We looked at streamlining some FDA regulations around the use of U.S. milk in cheese production,” said Westers. “Right now, the regulations aren’t very clear on what cheese can be used and the label associated with it. It will put us in a position where we can take on more milk again.”
Meanwhile, the North American Free Trade Agreement (NAFTA) will be renegotiated between Mexico, Canada and the United States. President Trump announced his goals for the agreement in a multi-page document. The president listed changes the Administration wants to see with trade and agriculture.
However, dairy was not part of the NAFTA negotiation between the United States and Canada when it was implemented in 1994.
“It certainly was with Mexico but Canada said, ‘Dairy is off the table for NAFTA,’” said Stephenson. “You actually have to go back to the 1987 negotiations with the World Trade Organization.”
Many in the dairy industry hope the renegotiations will include policies for milk. Mexico is the largest buyer of U.S. dairy products. Westers said the number one goal is to make sure trade is not disrupted with Mexico, especially for the sake of the United States dairy industry.
“Mexico is our key trading partner,” said Westers. “We need to increase market access. With Mexico being a bigger buyer, that’s good for all of us. What Canada has done with the U.S. with regulations is completely contrary to NAFTA.”
Yet, Stephenson said there isn’t just a glut of total milk on the global market, domestically in states like Wisconsin.
“Wisconsin has increased its milk production a good deal,” said Stephenson. “Since about 2004 or 2005, we have increased milk production [in Wisconsin] to about 8 billion pounds of milk annually.”
He said some products, like cheese, sit in storage.
“Many of the cold storage facilities don’t’ have any more capacity,” said Stephenson. “It’s going to have to be sold or moved out. It’s hard for me to understand at least how we maintained relatively high cheese prices, even with inventories building like they are.”
Yet, Stephenson said a small percentage of ultra-filtered milk product is produced in Wisconsin.
“It may sound like a fair amount of milk and it’s not insignificant,” said Stephenson. “It still is roughly 1 percent of the volume of milk in Wisconsin and what [the state] lost in terms of those sales.”
That 1 percent loss cost Jefferson, Wisc. producers Emily and Gerald Chwala their dairy, Chwala-T Acres. They sold out after they were dropped by Grassland Dairy Products in the spring. They had one offer to be picked up by a processor, but the couple said the potential deal had no premiums and the Chwala’s were asked to pay hauling costs.
“Older people that are in better financially maybe than we are, maybe they could hang on taking a loss every month,” said Emily. “But we couldn’t do that.”
They are now getting by raising a neighbor’s cattle.
“I like cattle, but they ain’t like having your own,” said Gerald Chwala.
Until a solution is found with trade, producers and industry leaders will continue to search for more markets, and improved relationships outside of U.S. soil.