Dairy Industry Needs USMCA
The United States-Mexico-Canada Agreement (USMCA) would benefit many commodity groups throughout the United States. For instance, free trade with Mexico and Canada is worth $1.8 billion to the beef industry, and the pork industry has exported $700 million worth of product to Canada and Mexico. However, one industry that the USMCA would benefit the most within Iowa is the dairy industry.
I recently had the opportunity to attend a roundtable event with former U.S. Secretary of Agriculture Tom Vilsack, and he stressed the importance of the USMCA to protect farmers and their resulting exports. Regarding dairy exports, Mexico and Canada are the two biggest markets for these products from the U.S. In 2018, the U.S. exported $1.4 billion in dairy products to Mexico and $731 million in dairy products to Canada. There are many people across the country that are dependent upon this industry for their livelihoods, including many people in Iowa.
Secretary Vilsack is now the president of the U.S. Dairy Export Council, and he has stressed the importance of the USMCA to the dairy industry. Canada currently restricts imports of dairy products using tariff-rate quotas, which can be as high as 315.5%. Canada also adopted their Class 7 milk price classification to address their surplus skim milk supplies that came along with the strong demand for butter within the country. Class 7 includes skim milk components that are used when processing dairy and made it so skim milk products were cheaper to produce within Canada. Thus, the U.S. lost their exports of high protein, ultra-filtered milk to Canadian cheese and yogurt processors. Ultra-filtered milk exports to Canada have also decreased from $107 million in 2015 to $32 million in 2018. This is hurting thousands of dairy producers across the U.S.
With the USMCA, Canada would eliminate the Class 7 pricing six months after the USMCA is first enforced. The USMCA would also ensure that Canada has more transparency regarding their laws and regulations on how they price their milk, their processing margins, and their yield factors.
The U.S. currently dominates the dairy market in Mexico. In fact, dairy products from the U.S. accounted for 80% of Mexican dairy imports in 2018. The dairy market in Mexico keeps increasing, which makes it attractive to many U.S. competitors. The U.S. relies upon the Mexican market to keep their export numbers high. Passage of the USMCA is necessary to protect the U.S. advantage in the Mexican market.
Dairy exports create a lot of jobs within Iowa and benefit the state’s economy as a whole. There are 1,501 Iowa jobs created by dairy exports, which generates $118 million. The Iowa dairy industry also has a $323 million impact on Iowa’s economy. The demand for Iowa dairy products is increasing, so it is vital that there is tariff-free trade among the countries in North America to ensure that trade-supported jobs are maintained.
Secretary Vilsack has stressed that ratification of the USMCA by Congress could provide momentum to reach new agreements with China, which has recently placed retaliatory tariffs on U.S. dairy exports. Because of these tariffs, exports to China have dropped by more than 40% in the first quarter of 2019 compared to the same quarter last year. The U.S. needs to resolve this dispute so dairy exporters can effectively compete within the Chinese market.
Clearly, the USMCA is vital to keep the U.S. dairy industry exports and profits high. We need our members of Congress to ratify the USMCA now.