March 25, 2017

Dairy Exports Rely on NAFTA Negotiations

 |  By: Anna-Lisa Laca

When Jim Mulhern, president and CEO of the National Milk Producers Federation, and his counterparts Tom Vilsack, CEO of USDEC and Michael Dykes, CEO of IDFA, left on their trip to Mexico earlier this month they had one goal in mind: commit to a loyal partnership between U.S. dairy and Mexico. One giant piece of that puzzle is the North American Free Trade Agreement which President Trump has vowed to open for renegotiation.

Mexico is a critical trade partner for the U.S. dairy industry. In fact, according to Mulhern, it’s worth $1.2 billion per year.

“Mexico is also the largest export market for U.S. soy, corn and pork,” Mulhern told AgriTalk host Mike Adams.  “We wanted to be sure that our counterparts in Mexico understand our commitment to the market.”

Mulhern said that through the history of NAFTA, the U.S. has worked closely with the Mexican dairy industry to build consumer demand as well as domestic infrastructure. Since the start of NAFTA, milk production in Mexico has improved 60%. That growth, while considerable, is still not enough to meet consumer demand which is why imports continue.

According to Mulhern, Mexico is “concerned about having all of their eggs in one basket” and is looking at other countries that could provide them the same goods they currently get from the U.S. That includes opening and continuing talks with two significant competitors to U.S. products, New Zealand and the European Union (EU).

“Keep in mind that Mexico is already engaged in free trade agreements with the EU,” Mulhern said. “The EU is the largest dairy exporter in the world.”

The reason Mexico has become such an important market for the U.S. is both proximity and our ability to export goods there tax and duty free. Currently, countries like the EU have only a small amount of product they can export to the country without paying tariffs. The U.S. has unlimited tariff-free access.

“If they provide that to other countries, we will be competing with other countries,” Mulhern said.  “Given the excess product the EU has they would be able to dump that product into Mexico.”

One influence the EU could also have is with regard to geographical indications on cheese products. Canada has changed labeling policy to remove geographical indicators and the U.S. is encouraging Mexico to not follow suit.

Mulhern said the trio’s message of commitment was well received by Mexican dairy officials. What happens with New Zealand will be an indicator of how much Mexico values their partnership with the U.S. “What happens with New Zealand and Mexico will be telling on our relationships,” Mulhern says. 

The Canada Conundrum

Mexico isn’t the only priority in the NAFTA renegotiations. The biggest hurdle for the dairy industry with the current NAFTA agreement is Canada.

“The concern of the U.S. dairy industry is huge issues with Canada that we hope would be addressed in a revision of NAFTA,” Mulhern said. “Up until now Canada has not been a strong and willing partner.”

Dairy leaders are fired up over a change in Canada’s milk pricing policy, implemented in Ontario last year, which is intended to slash milk imports from the U.S. The policy, which is slated to be used by other Canadian provinces this year, will allow the country to sell dairy ingredients below cost in international markets, obviously creating heartburn for U.S. dairy exports.

“It’s important to remember that trade agreements have to have win, wins,” Mulhern said. “That will be the challenge going forward in these negotiations. It’s important that as we move forward we strike the right balance.”

Dairy industry leaders are supportive of re-working the decades old trade deal, but say it must be done carefully.

“Our goal is to strengthen NAFTA,” Mulhern said. “Any agreement that is more than 20 years old can be updated. Ideally the U.S., Mexico and Canada will walk hand in hand across the finish line.”

Listen to Mulhern on AgriTalk Radio below.