Dairy, wheat score wins in revamped NAFTA

By Sean Ellis

Idaho Farm Bureau Federation

POCATELLO – The U.S. dairy industry is one of the big winners in the revamped North American Free Trade Agreement.

That’s good news for Idaho’s farming economy because dairy accounts for about a third of the state’s total farm cash receipts. Idaho’s dairy operations brought in $2.5 billion in farm cash receipts last year, according to USDA data.

This nation’s wheat industry also fared well in the United States-Mexico-Canada Agreement (USMCA), which was announced Sept. 30 and, if ratified, will replace the 24-year-old NAFTA.

Wheat, which brought in $417 million in cash receipts in Idaho last 2017, is the state’s fourth largest farm commodity, behind dairy, beef cattle ($1.8 billion) and potatoes ($955 million).

U.S. potato and beef cattle industry leaders said their industries didn’t gain anything from the new agreement, but they also didn’t lose any of the favorable trade terms they enjoyed under NAFTA.

But the dairy industry was a clear winner in the USMCA.

Under the new agreement, Canada will provide new access for U.S. dairy products, including for fluid milk, cheese, cream, butter, skim milk and powder, and that nation will also eliminate its tariffs on whey and margarine.

The agreement provides U.S. dairy products access to an additional 3.6 percent of Canada’s dairy market. The U.S. exported $619 million worth of dairy products to Canada in 2017.

Canada will also eliminate its Class 7 milk pricing system, which the U.S. dairy industry has charged allows that nation to undercut U.S. sales of certain milk products in Canada and dump surplus concentrated milk proteins onto global markets in direct competition with U.S. exports.

According to U.S. dairy industry leaders, Canada’s class 7 milk is a subsidized class of Canadian milk (including butter and milk power) that is used to stop the import of concentrated milk proteins from the United States. Concentrated milk proteins are used in a variety of products, including protein-fortified beverages and foods, weight management products and sports nutrition products.

Idaho Dairymen’s Association Executive Director Rick Naerebout said addressing Canada’s Class 7 pricing system was the top goal of the U.S. dairy industry in the NAFTA renegotiation.

“It was a good announcement for U.S. dairy,” he said. “It appears we got what we wanted with the agreement.”

The U.S. dairy industry didn’t gain a tremendous amount of new access to Canada, Naerebout said, “but we do get some incremental gains and that is a positive thing.”

Parma dairyman and Darigold board member Allan Huttema said getting Canada to eliminate its Class 7 pricing system is a positive, “but we still let (Canada) maintain a bunch of the market they stole up front.”

“It’s not as huge a win as it could have been but we’re still happy that dairy was addressed in this new agreement,” he said. “Overall, I would call it a win.”

Getting Canada to eliminate its Class 7 milk pricing system and allow some additional market access to U.S. dairy products were two important objectives of the U.S. dairy sector, according to a joint news release by national dairy industry organizations.

“Maintaining dairy market access in Mexico and improving market access into Canada were (International Dairy Foods Association’s) top priorities during the talks to modernize the North American Free Trade

Agreement,” IDFA President Michael Dykes said in the news release. “This new agreement will preserve our vital partnership with both countries and allow the U.S. dairy industry to seek more export opportunities.”

Canada also agreed to grade U.S. wheat imports in the same manner it grades Canadian wheat. According to U.S. wheat industry leaders, U.S. wheat currently shipped to Canada is automatically downgraded to feed wheat, the lowest classification, which also brings the lowest price.

Idaho Grain Producers Association Executive Director Stacey Katseanes Satterlee said the U.S. wheat industry has been working to resolve that issue for a long time.

“We’re pleased to see that as part of the announced changes,” she said. “It’s a huge thing for U.S. wheat growers.”

The current NAFTA agreement is critically important for U.S. wheat farmers who depend on the enormous Mexican market that NAFTA built, “But it did have room for improvements, particularly on grain trade with Canada,” the National Association of Wheat Growers and U.S. Wheat Associates said in a joint news release.

Canada’s grain grading system automatically designates U.S. wheat as the lowest grade simply because it is foreign, the release stated, which “means U.S. farmers producing the highest quality wheat arbitrarily get less value for their crop.”

“We will follow the implementation of this commitment closely to ensure U.S. farmers can finally have reciprocal access to the Canadian market,” the wheat organizations stated.

For the U.S. potato industry, nothing has changed under the new agreement, Idaho and national spud industry leaders said.

“There is nothing in it that directly touches upon potatoes at all,” said Pat Kole, vice president of legal and government affairs for the Idaho Potato Commission.

The U.S. potato industry had hoped the new agreement would address American spud farmers’ desire to ship fresh potatoes into all of Mexico. U.S. fresh potatoes are currently only allowed within 26 kilometers (15.5 miles) of Mexico’s border with the United States. 

That issue is tied up in a Mexican court and it was not addressed in the USMCA, said John Toaspern, chief marketing officer of Potatoes USA.

The new agreement also does not change anything for the U.S. beef cattle industry, said Idaho Cattle Association Executive Vice President Cameron Mulrony.

“There was no major change or affect on the beef industry,” he said, adding that was the message U.S. cattlemen were sending all along on the NAFTA re-negotiation: “Don’t hurt a good thing.”

U.S. beef products already enjoyed basically unfettered access to Canada and Mexico under NAFTA, said Leann Saunders, president of Where Food Comes From, a third-party food verification and certification company that has a lot of beef customers.

“The good news is that will continue under the new trade agreement,” she said. 

Under USMCA, the U.S. will allow 9,600 metric tons of refined sugar from Canadian sugar beets into this country annually, according to Luther Markwart, executive vice president of the American Sugarbeet Growers Association.

The current agreement on sugar between Mexico and the U.S. will remain the same under USMCA, he said.

Idaho sugar beet farmers brought in $305 million in farm cash receipts last year, ranking that crop as the No. 6 Idaho farm commodity.

The U.S. imports about 3 million metric tons of sugar a year so the 9,600 metric ton amount won’t have an impact on U.S. sugar farmers, Markwart said, especially since that could easily be offset by reducing the amount of sugar allowed into the U.S. from Mexico by that same amount.

“Yes, we took a little hit, but it doesn’t amount to much and it’s nothing to worry about,” he said.

A U.S. Trade Representative fact sheet on the USMCA said, “While agriculture has generally performed well under NAFTA, important improvements in the agreement will enable food and agriculture to trade more fairly and to expand exports of American agricultural products.”

Canada is the top destination for U.S. agricultural products, with $22 billion worth of U.S. ag products shipped there last year, and Mexico is third at $18 billion, behind China ($21 billion).

Mexico and Canada combined purchase 28 percent of all U.S. food and agricultural export in 2017, according to the U.S. Trade Representative’s office.

American Farm Bureau Federation officials said the new trade agreement not only locks in existing market opportunities with Mexico and Canada, but it builds on those trade relationships in a number of key areas.

“Trade is critical to agriculture, especially trade with our two closest neighbors,” said AFBF President Zippy Duvall. “The USMCA builds on the success our farmers and ranchers have seen from NAFTA.”

“Agriculture has always come out well under NAFTA,” Satterlee said. “In theory, agriculture will continue to do well under the USMCA with our trading partners to the North and South.”

The agreement is expected to be signed by the three nations by the end of November, but it still needs to be ratified by Congress and it also does not yet result in the lifting of the retaliatory tariffs Canada and Mexico imposed on U.S. products, including many agricultural commodities, as a result of U.S. tariffs on steel and aluminum imports.

In an Oct. 1 tweet announcing the USMCA, President Donald Trump said the agreement “solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our farmers and manufacturers, reduces trade barriers to the U.S. and will bring all three great nations together in competition with the rest of the world. The USMCA is a historic transaction.”

According to a U.S. Trade Representative fact sheet, Canada will also provide new access for U.S. chicken and eggs and increase its access for turkey.

The new agreement also, for the first time, addresses standards for biotechnology “to support 21^st Century innovations in agriculture,” according to the USTR fact sheet. “The text covers all biotechnologies, including new technologies such as gene editing….”

According to the USTR, the three nations agreed to several provisions to reduce the use of trade-distorting policies and the agreement includes enhanced rules for science-based sanitary and phytosanitary measures.