Andrew Novakovic, the EV Baker Professor of Agricultural Economics in Cornell University’s Dyson School of Applied Economics and Management, explains how the recent developments in U.S. dairy exports to Canada are threatening dairy farms in New York and Wisconsin.
“Dairy plants in New York and Wisconsin have been challenged to keep up with expanding milk production across the Great Lakes region of the U.S. for several years. One market opportunity that was developed recently took advantage of a loophole in what is otherwise a very tightly controlled dairy trade agreement between the U.S. and Canada.
“U.S. manufacturers discovered that they could sell ultrafiltration, or UF milk to Canadian cheese makers through a loophole in our trade agreement. Canada and its provinces quickly reacted to defend their border and producers from this invasion of U.S. milk ingredients and have now adjusted their system to allow their cheese makers to buy the same kind of product at a competitive price within Canada.
“This has left two companies in New York and one company in Wisconsin with a significant amount of milk that now must find new markets at a time when plants are awash in milk and struggling to find break-even marketing outlets.
“When the original agreement, preceding NAFTA, was negotiated in 1987 both countries had highly protectionist dairy policies and quickly agreed to very limited trade of milk and dairy products. Moreover, the agreement did not anticipate new dairy products that would become available as new technologies created new opportunities. One such product uses UF which is capable of removing water and creating a concentrated milk that is well suited to increase the efficiency of cheese making.
“In addition, the Canadian government has an elaborate system that controls milk production in exchange for higher prices to farmers. Cheese makers in Canada have the capacity to produce more cheese and can sell it, but they are constrained in how much milk they can buy from Canadian dairy farmers.”
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