NAFTA and the Implications for U.S. Dairy

 

The North American Free Trade Agreement (NAFTA) agreement series continues our focus on commodities with a look at trade in dairy and dairy products. In 2016, nearly 40 percent of all U.S. dairy product exports made their way to our NAFTA partners, but recent moves by the governments of the United States, Mexico and Canada could lead to a change in the important Mexican and Canadian markets. A recent Market Intel article Canada Closes Door on U.S. Dairy Farmers reviews the recent concern in the dairy industry related to ultra-filtered milk.

 

 

The importance of NAFTA to U.S. dairy farmers cannot be overstated. In recent years,

dairy exports to Canada and Mexico averaged nearly $2 billion per year and accounted for 30 to 40 percent of all dairy exports. For comparison, in 2016 only 2 percent and 8 percent of U.S. dairy exports flowed to EU-28 and China respectively. 

 

Since NAFTA’s implementation, dairy product exports to Canada and Mexico have totaled approximately $21 billion and increased by more than 500 percent from pre-NAFTA levels. The primary dairy products exported include non-fat dry milk, cheese, milk proteins, whey, butter and milkfat. The U.S. also imports a variety of dairy products from Canada and Mexico. These products include processed dairy foods, specialty cheeses, and butter valued at $691 million in 2016.

 

The net trade balance (exports minus imports) in dairy products with NAFTA members has grown from several hundred million dollars per year to more than $1 billion each year. The cumulative trade balance in dairy products stands at $12 billion in favor of U.S. dairy farmers and dairy product manufacturers, Figure 2. 

 

It is on the back of NAFTA that the U.S. now exports nearly 15 percent of its annual milk production – equivalent to one day’s worth of milk production each week. Dairy industry economists will point out that the value of milk in the U.S. reached a record high in 2014 due to these export opportunities.

 

 

A new NAFTA could be even better for dairy. For example, under the Trans-Pacific Partnership, Mexico and Canada would have provided new market access for fluid milk, cheese, butter, powder and other dairy products. These gains would occur on top of market access already available and would have provided a boost to dairy farm revenue. In addition to new market access, Canada’s National Ingredients Strategy aimed at ultra-filtered milk could be addressed in a modernized NAFTA.

 

Certainly, there are other areas where NAFTA can be improved. Despite overall smooth trade between partners and adherence to existing NAFTA and WTO rules, a modernized NAFTA could serve as a model for future trade agreements the U.S. may enter. Agricultural related issues that weren’t negotiated a quarter century ago could be revisited in a modernized NAFTA. These non-tariff issues, which include biotechnology, sanitary and phytosanitary measures, and an intellectual property chapter on geographical indication, would establish more formal terms of trade in those regulatory areas.