Every $1 of U.S. dairy products exported to Mexico generates $2.50 of economic activity in the U.S., according to the U.S. Dairy Export Council.
Mexico is the top customer for U.S. cheese. When the country retaliated against U.S. steel import tariffs this summer by raising tariffs on American cheeses, it squashed a long-awaited rebound for American dairy prices.
“In today’s dairy economy, exports are critical,” said Tony Banks, a commodity marketing specialist for the Virginia Farm Bureau Federation. “Dairy farmers are selling in an international market, and each of the past few significant declines in U.S. farm milk prices have been the result of a disruption in dairy exports.”
In the 2008-2009 economic recession, U.S. dairy prices plummeted because foreign customers stopped buying, Banks explained. When the world economy recovered, dairy exports hit a record in 2014. The following year, the U.S. dollar gained value on the world market, making American dairy exports more expensive and pushing down sales.
“The dairy industry expected that decline would bottom out this spring, and we would begin to see a modest price recovery going into this fall,” Banks said. “But the situation with tariffs and negotiations to amend the North American Free Trade Agreement have helped to stall any price recovery so far this year.”
In June, Mexico imposed a 15 percent tariff on fresh cheese and grated, shredded or powdered cheeses, as well as a 10 percent tariff on hard and semi-hard cheeses from the U.S. Those tariffs rose to 25 percent for the first category and 20 percent for the second category by July 5.
Last year 75 percent of the cheese exported to Mexico came from the U.S. Mexico accounts for 28 percent of all U.S. cheese exports, and under the current NAFTA trade agreement both the volume and value of U.S. cheese exports to Mexico have nearly tripled in the past decade, according to the U.S. Dairy Export Council.
The recent trade dispute with Mexico also is giving the European Union an opportunity to take away market share from the U.S., Banks said. “So all those factors have stalled any increase we might have anticipated in U.S. dairy milk prices.”
Declining exports are not the only factor hurting U.S. milk prices. The supply of U.S. milk continues to grow at a rate of up to 1.5 percent annually, Banks said. Meanwhile, domestic milk consumption has been dropping for more than a decade. And the U.S. dollar is relatively strong against other world currencies, which is having a negative impact on all U.S. farm exports.
“While the vast majority of Virginia milk is consumed here and in other states, the ongoing issues with trade are having a negative impact on the prices that dairy farmers receive,” Banks explained. “Dairy farmers, like all U.S. farmers, are hoping these trade disputes can be wrapped up soon.”