NAFTA ‘absolutely essential’ for U.S. dairy industry

Dairy executive fears U.S. could lose Mexican market share to New Zealand and EU

Excerpts from testimony by Stan Ryan, president and CEO of Darigold and the Northwest Dairy Association, to the U.S. House Ways and Means Subcommittee on Trade, July 18.

As we look at how to ensure we can continue a positive track record of export sales supporting farms and good jobs back here at home, NAFTA, and the ongoing discussions pertaining to modernizing it, is essential to that goal. Mexico is by far the leading export market for U.S. dairy products while Canada clocks in at No. 2, although a sizable portion of U.S. product shipped to Canada is for further processing and ultimate re-export outside of Canada, including back to the United States.

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Last year the U.S. shipped $1.2 billion worth of dairy products to Mexico, up from just $124 million in 1995. Mexico is likewise one of Darigold’s top global markets.

For much, if not all, of this we have NAFTA to thank. Mexico now is the U.S.’s largest export customer, by far. Sales to Mexico are roughly triple those to China, our third-largest export market, demonstrating just how irreplaceable the Mexican market is. For example, in 2016 Mexico accounted for 47 per cent of U.S. exports of non-fat dry milk, 31 per cent of cheese, and 38 per cent of butterfat. Before NAFTA and before Mexico joined the predecessor to the WTO (the GATT) the only dairy-related U.S. exports to Mexico were some non-fat dry milk shipments for government feeding programs and a small number of breeding cattle.

NAFTA has been the driving force behind this remarkable growth and is the reason the U.S. share of Mexico’s total dairy imports is 73 per cent today. Total U.S. dairy exports support some 100,000 jobs in the U.S. and our exports to Mexico support roughly a quarter of them. Preserving those sales is therefore essential not only to our farmers, but also to the workers in companies supplying inputs and services, and downstream processing plant jobs such as those at Darigold, as well as cities with large port facilities heavily dependent on trade such as Seattle. While particularly important in Darigold’s West Coast neck of the woods, those jobs are in virtually every state in the country.

Without NAFTA, the duty-free access we enjoy into Mexico could evaporate and be replaced by WTO Most-Favoured Nation (MFN) tariff levels. These are the rates that other major dairy exporters are currently required to pay. On an applied basis, Mexico’s over-quota MFN tariffs can currently reach as much as 45 per cent for skim milk powder and 60 per cent for cheese (with even in-quota rates for cheese applied at 45 per cent). Mexico has the right, however, to raise its MFN rates to considerably higher over-quota tariff levels of 125 per cent for both powder and cheese.

Changes to that preferential tariff situation would dramatically undermine a core advantage of U.S. suppliers as the only major dairy supplier to Mexico currently benefiting from free trade. As we speak, Mexico is negotiating with the European Union (EU) which is actively working to secure its own preferential access to the Mexican market while New Zealand and Australia discuss with Mexico how to move forward with the Trans-Pacific Partnership with the remaining countries. Conceivably, all three of our major competitors could see improved access to the Mexican market in the coming years.

That is what makes NAFTA absolutely essential for our industry — it currently provides Darigold and other U.S. exporters with uniquely preferential access to the Mexican dairy market and looking forward is the vehicle the U.S. will need to ensure that we remain competitive in that market should Mexico decide to use its ongoing FTA discussions with major dairy-exporting nations to open up new inroads to its market for them.

Because of NAFTA and Mexico’s commitment to a mutually beneficial trading relationship, we currently have very few trade problems with Mexico in dairy — it is our goal to use these discussions to help keep it that way. NAFTA has enabled the development of a partnership with Mexico that’s benefited not only the U.S. dairy industry, Darigold and its farmers and workers, but also the Mexican dairy sector.

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