With U.S. milk prices in the fourth year of a slump due to
chronic oversupply, Fritsche, 58, is unsure whether he will be
able to pass his 30-cow farm onto his sons and grandsons.
"Do you pull the plug? We've been at it for 90 years," he said.
"I'd hate to lose that."
The dairy industry was a sticking point in the contentious
renegotiations of the free trade deal between the U.S., Canada
and Mexico that concluded last month.
U.S. President Donald Trump demanded concessions from the
protected Canadian dairy industry and said on Twitter that
Canada was hurting U.S. farmers with high tariffs. After Canada
gave some ground, Trump claimed a big victory and said farmers
would have more export options.
But Canada opened less than 4 percent of its dairy market to
U.S. farmers - a concessions unlikely to make much of a dent in
U.S. oversupply or improve the lot of farmers such as Fritsche,
producers on both sides of the border say.
The U.S. Trade Representative - which negotiated the new deal
that replaced the North American Free Trade Agreement (NAFTA)
with Mexico and Canada - declined to comment. U.S. Agriculture
Secretary Sonny Perdue said in a statement Friday that the deal
will "crack open" additional dairy access and cited "significant
victories" for U.S. agriculture.
In Canada, the dairy industry is faring much better and
continues to be among the nation's most profitable farm sectors,
allowing most farmers to absorb the concessions' impact. In
addition, Ottawa has promised to compensate dairy farmers for
losses stemming from opening up the industry.
Third-generation Canadian farmers Alain Philippot and Henry
Holtmann are each preparing to bring their children into the
business. They say the concessions sting and will limit growth.
But the country's protectionist system with its higher prices
remains intact.
"I don't think there will be a mass exodus" of farmers, Holtmann
said. "There will be some leaving, but that's because their
business models weren't flexible enough."
DROWNING IN MILK
With Wisconsin alone producing more milk than is consumed in all
of Canada, the additional market access provides little comfort.
The average price that dairy plants pay U.S. farmers for milk
fell from a peak of $25 per hundred pounds (45.36 kilograms) in
2014 to about $16 now, according to the U.S. Department of
Agriculture (USDA).
“The only thing that will help us is less milk or more
consumption of milk,” said Scooter LaPrise, 53, who with his
wife has about 30 cows on one of eight remaining dairy farms in
Rhode Island.
“It’s not going to fix anything,” he said of the revamped trade
agreement. “It’s just something to catch votes.”
(For a Wider Image photo essay on U.S. dairy farmers, see:
https://reut.rs/2JicGyI )
While the more than 40,000 U.S. dairy farms have endured slumps
before, the current price slide has been unusually drawn-out as
milk production increased in recent years despite falling
prices. Per capita consumption of U.S. fluid milk has been
falling steadily since the 1970s, although total dairy
consumption has increased as Americans eat more yogurt, butter
and cheese, according to the USDA.
The new arrangement with Canada likely won't pull U.S. dairy
farmers out of the ditch, said Mark Stephenson, director of
dairy policy and analysis at the University of Wisconsin.
"It does provide a bit more access to Canada," he said. "But
it's pretty incremental change."
PROTECTED MARKET
Canada has been an island of stability in an otherwise volatile
global industry. In July, farmers in the Canadian province of
Ontario received the equivalent of $24.20 per hundred pounds of
milk, about 50 percent more than U.S. farmers collect, according
to data published by Dairy Farmers of Ontario.
That's because Canada manages oversupply by issuing production
quotas to farmers based on domestic consumption, setting prices
according to a formula that factors in farm costs and imposing
high tariffs to keep most imports out.
In 35 years of farming, St. Claude, Manitoba farmer Philippot
has lost money only "a handful" of times.
Since Holtmann and his brother took over the family dairy farm
near Rosser, Manitoba in 1995, they have expanded nine-fold, to
600 cows, which required them to spend about C$14 million to
purchase the right to produce more milk. The system allows
farmers to buy and sell units of production quota - based on 1
kilogram of butterfat per day, or nearly the output of one cow -
which currently fetch close to C$30,000 each at auction in
Manitoba.
In a Statistics Canada profitability measure, dairy farmers'
operating expenses were 77 percent of gross farm receipts in
2015, the latest data available, the healthiest level of 11 farm
sectors.
That statistic does not include debt, however. Canadian dairy
farmers in 2015 held the second-highest liabilities on average
among Canadian farm sectors as well as the third-highest net
worth, according to Statistics Canada.
Farmers say concessions in recent trade deals will strain their
profits and leverage.
Dairy Farmers of Canada (DFC) estimates that the market share
ceded to the United States, as well as in trade deals with the
European Union and Pacific nations, will add up to 18 percent by
2024, worth C$1.3 billion.
"Is it impossible to get over that? No. But it's like losing a
finger, and then another one," said Philippot at his small
68-cow farm.
Canada also agreed in trade talks with the United States to
dismantle a pricing system for the lower-value skim portion of
milk that previously allowed Canadian skim to displace U.S.
ingredients in the production of cheese and yogurt. Philippot
says that move will reduce the prices farmers receive for milk.
Canada's combined concessions could mean reductions to Canadian
dairy farmers' quotas, since production is matched to domestic
consumption, less imports.
Domestic consumption growth, however, estimated at 2 percent
annually by DFC for the next six years, offsets some of the lost
share to imports and mitigates any reduced quotas.
LaPrise expressed admiration for Canada's "really good milk
system."
"When a Canadian dairy farmer wants to retire he sells his quota
and he can retire on that," he said.
'BACK IN THE HOLE'
U.S. dairy farmers have sought additional revenue with second
jobs, harvesting grain and dabbling in genetics by selling cows,
bulls and embryos.
Many farmers couldn't get by without such side jobs, said Julie
Brodeur of West Kingston, Rhode Island. Brodeur and her
brothers, fourth-generation dairy farmers, quit the business in
March after their 70-cow operation stopped generating enough
income to keep the cows fed.
"You borrow some more and then you pay everything off," Brodeur
said. "And you think everything is going good. And then you're
back in the hole."
(Reporting by Julie Ingwersen in Madison, Wisconsin and Rod
Nickel in St. Claude, Manitoba; additional reporting by Humeyra
Pamuk in Washington and Caroline Stauffer in Chicago; editing by
Denny Thomas, Simon Webb and Brian Thevenot)
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