You’re busy – milking cows, managing employees and getting ready for winter. With that in mind, Progressive Dairyman looks at issues in the news impacting you and your dairy business. In recognition of your time, we’ll attempt to summarize recent events or actions making dairy headlines and reported in our weekly digital newsletter, Progressive Dairyman Extra.
Then we’ll try to put that news into perspective and briefly describe how it might affect you.
U.S.-MEXICO-CANADA TRADE AGREEMENT
What happened?
On Sept. 30, trade negotiators struck a deal to revise what was formerly called the North American Free Trade Agreement (NAFTA). It’s now called the U.S.-Mexico-Canada Agreement (USMCA). Most U.S. dairy organizations cautiously hailed the agreement as a victory.
What it did
The agreement requires Canada to dismantle its Class 7 milk price system within six months of USMCA implementation. Initiated in 2017, the Class 7 system economically slammed the door on a $100 million U.S. export market for ultrafiltered (UF) milk into Canada and ultimately forced termination of milk contracts for some U.S. dairy farmers. (Whether that market is again viable for UF milk processors in the U.S. remains to be seen.)
The Class 7 system also gave Canadian exporters a competitive advantage in exporting skim milk powder. Under the agreement, Canada will reclassify the products and ensure the price for skim milk solids used to produce nonfat dry milk, milk protein concentrates and infant formula will be set no lower than a level based on the U.S. price for nonfat dry milk.
The agreement also provides U.S. dairy with modest improvements in access to Canadian dairy markets (Canadian dairymen might argue the access is more than modest.) U.S. dairy products will gain access of up to 3.59 percent of the Canadian market, phased in over six years, and then increase at a rate of 1 percent per year for the next 13 years.
During that period, Canada will phase in new tariff rate quotas affecting fluid milk, cheese, cream, skim milk powder, butter and cream powder, concentrated and condensed milk, yogurt, whey and other products. The U.S. will provide reciprocal access for imports of Canadian dairy products through first-come, first-served tariff rate quotas.
Both Canada and Mexico have free trade agreements with the European Union, and those agreements restrict the use of common names (for example, feta and Parmesan) when marketing some dairy products. The agreement prevents further restrictions on generic names, including “mozzarella,” “cheddar,” “provolone” and others, and establishes geographical indications policies.
What it did not do
The agreement did not eliminate existing retaliatory tariffs on U.S. agricultural goods, including dairy products headed to the leading U.S. dairy export market, Mexico. Negotiations are underway, but there is no indication of how long the tariffs will remain in place. Failure to eliminate those tariffs could overshadow most everything else.
What’s next?
Canadian dairy producers are angry, but both Mexico and Canada are expected to sign the deal before the end of 2018. Given politics, U.S. ratification is not as clear, and the speed of its approval may depend on whether Democrats control either the Senate or House (or both) after the November elections. Members of Congress can’t amend the text, but they can impact implementation. U.S. Senate Majority Leader Mitch McConnell (R-Kentucky) said a formal Senate vote won’t come until early next year.
FDA PRIORITIZES ‘DAIRY’ LABELS
What happened?
U.S. FDA Secretary Scott Gottlieb has pledged to prioritize the agency’s dairy food labeling oversight. FDA published a notice in the Sept. 28 Federal Register, requesting public comment on the use of names of dairy foods in the labeling of plant-based products.
Gottlieb said use of terms like “milk” or “cheese” in marketing plant-based dairy alternatives may be misleading consumers into thinking the products are nutritionally equivalent. Many plant-based products also lack the “standards of identity” established by regulation, which require certain components and ingredients in these foods.
What’s next?
The FDA has made it clear they want to hear from consumers and others – not just lobbying organizations – impacted by the use of dairy terms in marketing plant-based products. That includes dairy producers. The deadline to submit comments is Nov. 27. Find comment procedures here (Use of the names of dairy foods in the labeling of plant-based products).
DAIRY REVENUE PROTECTION
What happened?
Sales of federally subsidized milk revenue insurance endorsements under the new Dairy Revenue Protection (Dairy-RP) program started on Oct. 9. Dairy producers in each state or zone have a different Dairy-RP premium level, based on state or zone risk factors. Initial indications show Minnesota has the lowest premiums, while California has the highest.
What’s next?
Dairy farmers have until mid-December to purchase first-quarter 2019 coverage and can continue to purchase coverage for subsequent quarters thereafter.
What are the trends so far? Admittedly, we have a small sample size at Progressive Dairyman’s deadline.
As of Oct. 22, 444 dairy producers had filed applications, according to the USDA’s Risk Management Agency (RMA) website. Leading states were: Wisconsin, 124; Idaho, 70; Washington, 39; Michigan, 38; and Minnesota, 34.
Of those applications, 89 quarterly endorsements had been purchased, covering 850.3 million pounds of milk. Leading states in which dairy producers purchased quarterly endorsements were in: Wisconsin, 21; Idaho, 15; and Michigan and South Dakota, 11 each.
All but one of the endorsements was purchased at the 95 percent coverage level; the other was at 90 percent. Total premium costs on purchased endorsements were about $3.2 million, with USDA RMA subsidies covering about $1.3 million of that.
The learning curve remains steep. According to Ryan Yonkman, vice president at Rice Dairy LLC, curiosity in the program is running high, and educational efforts remain a critical step.
“There certainly is a lot of natural skepticism about the program and some incorrect assumptions on how much a person can protect, how often and on the overall flexibility they have in the program,” Yonkman said. “Once we walk them through how it really works, it becomes pretty clear this is a venue they will want access to when it comes to managing their milk price risk.”
According to Robin Schmahl, AgDairy LLC, there’s early interest in the program, but most dairy farmers remained guarded. Schmahl agrees many producers are still struggling with their understanding of Dairy-RP, a problem complicated by the fact many are fighting weather challenges in the middle of fall harvest.
“They know it is insurance but need to be able to see what level of coverage might work best for their operation, and that will take time,” Schmahl said. “Many want to give it some time to see the difference between coverage choices and how that affects premium.” 
Follow Progressive Dairyman online and in future issues as we publish recommended risk management strategies utilizing Dairy-RP, the futures market and other tools.
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Dave Natzke
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- Progressive Dairyman
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