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Just as U.S. dairy farmers are beginning to climb out of an unprecedented five-year downturn, Canadian farmers fear they will be entering one. Three trade agreements are slated to open up nearly a fifth of Canada’s dairy market by 2024. Under Canada’s strict supply control system, that could either send prices plunging or farmers packing.
The United States abandoned its own supply control system in the early 2000s, but international trade has also made its dairy industry more volatile. First exports boomed. Then came five years of declining milk prices, forcing many smaller farms out of business.
Some U.S. farmers are pushing for controls that, while not as strict as Canada’s, would discourage oversupply and the shift toward larger farms. Such reforms may be unlikely, as the U.S. industry looks poised to rebound.
Canadian dairyman Tommy Faulkner doesn’t envy his U.S. counterparts. He says, “How do you take the country with the strongest agricultural production base in the world and then when you look into it, it’s with people who are barely hanging on with crazy amounts of stress in their lives?”
Standing in her barn outside Cambridge, Wisconsin, surrounded by cows with tags in their ears, Tina Hinchley is growing optimistic that the five-year crisis in America’s dairy industry is coming to an end.
“We are not out of the woods yet,” she says. But “I see blue skies.”
Five hundred miles east, in London, Ontario, clouds of doubt are beginning to form for Canadian dairyman Tommy Faulkner. He and many other dairy farmers worry that three trade deals to open up market access across Canada will flood the nation's carefully balanced milk supply and send prices plunging.
“I don’t think anybody knows [the true impact]. But the impact is not going to be minimal,” he says. “Our government did not think this out. They didn’t plan it. They reacted to international pressure.”
The diverging outlook on dairy in the United States and Canada illustrate the powerful role international trade plays in agriculture. It reshapes industries, concentrates production in fewer and bigger farms. And there are winners and losers no matter whether nations embrace trade, as the U.S. has, or try to protect themselves from it, as Canada has.
Trade also makes agriculture more volatile. Nine months ago, it was the U.S. dairy industry that was gripped with pessimism in the face of an unprecedented five-year decline in milk prices. Now, it’s the Canadians who are worried.
“I don’t think that Canada’s model is sustainable,” says Sylvain Charlebois, scientific director of the Agri-Food Analytics Lab at Dalhousie University in Halifax. “We are in much worse shape than in the U.S. I think we just don’t know it yet.”
More milk ... and more trade
For both nations, the challenge is too much milk. Every year, thanks to better feed and other advances, the average dairy cow produces a little more milk – often more than the annual rise in per capita consumption of milk, cheese, and other dairy products. So in 1972, Canada put in place a supply management system that limits the production of milk to domestic consumption levels as a way to keep prices stable for farmers.
It means Canadians, by many measures, pay more for milk than Americans do. The system also requires keeping foreign dairy products out, including American ones. President Donald Trump railed against Canadian tariffs that reached as high as 270% on some products and scored a victory, at least symbolically, by gaining 4% access to Canada’s dairy market as part of a pending U.S.-Mexico-Canada agreement.
For Canadians, that came on the heels of two other trade deals – the Comprehensive Economic and Trade Agreement with Europe and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership with Pacific Rim countries – that also opened up Canadian dairy.
The Dairy Farmers of Canada estimates that market access represents an annual loss of the equivalent to 8.4% of the country’s milk production. “Adding these concessions to the access already granted under the WTO [World Trade Organization], it is estimated that by 2024, nearly 20% of domestic demand for dairy products will be met by imports,” the group said in a press release in August.
That would mean Canadian farmers either cut back production or exit the business altogether. That exodus has been going on for decades. Even with supply management, Dr. Charlebois points out, dairy farm numbers have plunged from 45,000 in 1972 to some 10,000 today – a whopping loss of more than 3 of every 4 dairy farmers in less than 50 years.
The decline has been even more severe in the U.S. – more than 9 in 10 have disappeared.
Here in Cambridge, Ms. Hinchley is one of the survivors. Even during the downturn, she and her husband, Duane, expanded their herd so they could justify four robotic milkers. Now, instead of her milking nine hours a day with two hired hands, the cows line up to get themselves milked (they get a treat when they do) with just one overseer.
The downturn itself was unprecedented for its length.
U.S. dairy farmers were used to price slumps lasting one or two years, and managed their operations so they would be financially prepared for it, says Mark Stephenson, director of the Center for Dairy Profitability at the University of Wisconsin in Madison. Instead, milk prices fell for five years straight. “We haven’t had that kind of persistent slump,” he says.
The genesis of the change started in the early 2000s, when Congress moved the dairy industry away from strict and expensive supply controls, where the government would buy excess cheese and other dairy products to keep prices stable. Instead, the government began paying farmers only if milk prices fell below a specific level. The prices were low enough that U.S. dairy products became competitive with other nations’. And exports began to soar, particularly to Asia and Latin America.
The dairy industry boomed and expanded to meet that growing international demand. And the beauty of the system was that the prices paid by foreign nations were generally higher than what the U.S. government used to pay to buy up excess cheese, points out Peter Vitaliano, chief economist of the National Milk Producers Federation in Arlington, Virginia.
Weathering the storm
But after 2014, for a variety of economic and political factors, export markets stopped growing, the dairy surplus reappeared, and milk prices began to fall year after year.
Very large dairy farms, typically the most efficient operations, weathered the storm. In the upper Midwest, home to many smaller farms, the blow was much harder. In a single year, Wisconsin lost 10% of its dairy farms, more than twice the usual rate, says Mr. Stephenson of the University of Wisconsin. In Michigan, the drop was 13%.
That turmoil has revived calls for supply controls. For Canadians, peeking across the border, the need is obvious.
“It’s crazy what America has. Their system is not the answer,” says Mr. Faulkner, the Canadian farmer who works at London Dairy Farms, a large 1,200-cow operation his son owns. “The rate of bankruptcy in the U.S. has never been higher, ever in history. ... How does that benefit anybody? How do you take the country with the strongest agricultural production base in the world and then when you look into it, it’s with people who are barely hanging on with crazy amounts of stress in their lives?”
Few, if any, U.S. producers want something as strict as the Canadian system, Mr. Stephenson says. But a proposal that dairy farmers who expand their herd pay a surcharge for the extra milk they produce has gained some adherents.
“I think supply management is important,” says Ms. Hinchley here in Cambridge. “I have a problem with farmers who think milking 10,000 cows in one location is a good thing.”
She’s a member of the Farmers Union, a member organization that has long advocated for supply controls.
But with the outlook for the industry brightening, the pressure for reform may well lessen.
“We haven’t been involved in any efforts,” says John Newton, chief economist with the American Farm Bureau Federation in Washington.
“It’s very difficult to believe that the United States Congress is going to enact, basically, a supply management program for dairy,” says Mr. Vitaliano of the National Milk Producers Federation. “There’s a lot of dairy farmers that are not supportive.”