How Trade Conflicts Could Impact the Dairy Industry

By Craig Foltz on August 23, 2018

With every tweet US President Donald Trump seems to be escalating more trade conflicts among formerly-trusted US trading partners. With these conflicts escalating and spreading from China to Canada to Mexico to Turkey, it’s fair to ponder what the likely fallout will be for the dairy industry.

Citing an unfair trading balance, the US government has implemented a series of tariffs on numerous products, the most impactful being steel and aluminum. Canada, China, Mexico and the EU have all responded with retaliatory tariffs of one kind or another.

It’s impossible to consider trade conflicts microscopically. Within each conflict there are too many variables. Regardless, the US-initiated tariffs on steel, aluminum and other products are impacting business in unexpected ways.

Just the hint of a trade war sends shockwaves through markets and sends currencies tumbling. But beyond the initial wave of uncertainty, are there any clear impacts on the dairy industry?

Milk War

Very recent reports of trade issues aren’t actually the beginning of these conflicts. In 2017, the “Milk War” between Canada and the US first appeared. At the heart of this conflict were some changes to Canada’s pricing in ultra-filtered milk, effectively taking US farmers out of the market. These pricing changes were largely the product of Canada’s dairy supply management system (which guarantees Canadian famers a stable price and thus steady income). The US Government claimed these pricing changes were unfair.

In fact, dropping this supply management system, was a concession that Canada had made in order to be part of the now-stalled Trans Pacific Partnership Agreement (TPPA). However, once the Trump Administration pulled out of the TPPA, Canada dropped their concession.

Broadly speaking, however, the dairy spat between Canada and the US is not indicative of a more widespread issue, this is an issue that has been simmering on and off for decades and was just brought to light by Trump’s typically blunt tweet storms.

Collateral Damage

The larger context for the impact of trade conflict on the dairy industry is still not certain. One thing is clear though: a healthy global economy is very supportive for dairy production, particularly in developing countries (where most of the new demand is coming from). While far from perfect, free trade agreements, in general, are good news for the larger players of any given industry; while trade wars typically (like military wars) only result in damaging outcomes for both sides.

While the products facing tariffs are not directly related to the dairy industry, there are indirect impacts in terms of packaging, machinery and logistics which could all result in higher prices for retail dairy products around the world.

Already the Chinese market appears to be looking elsewhere to source their dairy products. This signal is potentially good news in the short run for other dairy producing countries, but this good news is underpinned with uncertainty. How long will China look outside the US for dairy products? The risk is that China returns to the US dairy market leaving other countries holding a glut of supply which they can’t unload. A scenario that would negatively impact dairy markets worldwide.

Ultimately, these current disputes are probably little more than peripheral distractions for the dairy industry, but any disruption to the market as a whole could have wide ranging impacts on dairy market worldwide.

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Author: Craig Foltz

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