October 14, 2016

Trade Deals—The Potential For Big Profits and Big Losses

 |  By: Jim Dickrell

Last week’s release of an Informa Economics study of the trade effects of the loss of generic cheese names sent a shudder through the U.S. dairy industry.

U.S. dairy farmers could lose $59 billion over 10 years if the use of generic cheese names, known as Geographical Indications (GIs), is restricted by trade agreements. The full impact of such an agreement would be a decline in milk prices of up to $1.77/cwt.

The main trade agreement at issue is the Transatlantic Trade and Investment Partnership (TTIP). That negotiation between the U.S. and the European Union (EU) is currently on tenuous ground for a variety of reasons. But inclusion of GI restrictions would have a devastating impact on U.S. dairy farmer income.

Common cheese names such as parmesan, gorgonzola, asiago and feta are being targeted by EU trade negotiators, and even more common names such as mozzarella and provolone could eventually be at risk.

Such restrictions are already likely having an impact in agreements the EU has made with South Korea and Canada, says Jim Mulhern, president and CEO of the National Milk Producers Federation.

A second report  also released last week, this one by USDA, points out some potentially really good news from another trade agreement, the Trans Pacific Partnership. Both presidential candidates are opposed to the deal, saying it will ship U.S. jobs to Asia. What’s not debatable is that USDA and the American Farm Bureau Federation (AFBF) say TPP in a good deal for dairy farmers.

USDA calculates TPP will generate anywhere from $150 to $300 million more in dairy exports, while allowing in $38 to $97 million in dairy imports. By the time TPP is fully implemented in 2032, U.S. dairy exports could increase by $1.8 billion, imports by $350 million. AFBF estimates the net impact of TPP on dairy trade is about $130 million per year.

One of our presidential candidates also wants to tear up the North American Free Trade Association (NAFTA) agreement and start over. USDA’s assessment: U.S. dairy trade with Mexico has climbed nearly six fold since NAFTA was signed in 1993. In 20 years, our dairy trade with Mexico has climbed to $1.6 billion.

So dismissing trade deals like TPP and NAFTA out of hand is bad for business. But trade negotiations also require vigilance, as the warnings from the Informa Economics study point out.

The fate of the U.S. dairy industry, now exporting 15% of its production and more importantly two out of every three pounds of new production, is tied to trade. To state the obvious: Trade deals done right are our future. Trade deals done wrong, our demise.