Canadian trade policy change hits dairy farmers hard

By MaryBeth Matzek
MAA Editor

When Canada abruptly changed its dairy trade policies last month, Grassland Dairy Products Inc. lost $100 million worth of its annual business.
The Greenwood, Wis.,-based dairy processor previously sold the equivalent of 1 million pounds of milk each day to Canada. After a Canadian buyer said it would immediately stop purchasing from Grassland due to new dairy regulations, family-owned Grassland quickly looked for ways to incorporate some of that 1 million pounds of milk into its operations. The company was able to find use for some of it, but not all. On April 1, Grassland sent a letter to several dozen milk producers informing them that after May 1, it would no longer purchase their milk.
“That’s the last thing you want to do as a company. You don’t want to hurt any of the farms,” said Goedhart Westers, vice president of business development at Grassland. “There was nothing wrong with those farmers. There was nothing wrong with their milk. We just had no place for it.”
The largest independent butter producer in the United States, Grassland purchases milk from more than 600 Wisconsin dairies.

Grassland and other dairy processors that sell to Canada were taken by surprise in February when the Canadian Dairy Commission began to roll out a special Class 7 milk price category for Canadian milk that covered the production of skim milk powder, milk protein concentrate and ultrafiltered milk. The move was designed to stop imports of U.S. milk by creating a milk price so low that Canadian dairy ingredient companies can easily beat world market prices, including the products from Grassland, Westers said.
He said there was talk for about a year that Canada would make changes to its pricing policies, but since the move would violate NAFTA no one expected them to move ahead on the policy.
“This is an example of how one country’s protectionist dairy policy can affect the industry around the globe,” Westers said. “The U.S. has complained, the European Union and New Zealand have complained.”
Canada’s move also meant a whole production line at Grassland is now sitting idle. “It will take a while to find new places for our milk products,” Westers said. “You can’t fill this kind of gap overnight. We are also working with our producers to help them find new buyers for their milk.”
Despite losing $100 million in annual sales, Grassland has been able to keep all of its employees as it looks to drum up new business for its idle production line. That’s in contrast to many other manufacturers who cut their workforce when sales declined.

Grassland not alone
The U.S. Dairy Export Council said dairy manufacturers, such as Grassland, had built long-term sales of ultra-filtered milk into Canada since the liquid milk protein ingredient normally used in cheesemaking can enter Canada duty-free under NAFTA. Multiple processors in both Wisconsin and New York have told their producers that they can no longer accept their milk, according to the council. As one of the larger producers, Grassland has generated the most publicity.
“Canada’s protectionist dairy policies are having precisely the effect Canada intended: cutting off U.S. dairy exports of ultra-filtered milk to Canada despite long-standing contracts with American companies,” said Jim Mulhern, president and CEO of National Milk Producers Federation (NMPF). “American companies have invested in new equipment and asked dairy farmers to supply the milk to meet demand in the Canadian dairy market. This export access has suddenly disappeared, not because the market is gone, but because the Canadian government has reneged on its commitments.”
The NMPF, the U.S. Dairy Exports Council and the International Dairy Foods Association have called on the federal government and governors from northern states to take immediate action against Canada for violating its trade commitments.
“Our federal and state governments cannot abide by Canada’s disregard for its trade commitment to the United States and its intentional decision to pursue policies that are choking off sales of American-made milk to the detriment of U.S. dairy farmers,” said Tom Vilsack, president and CEO of the U.S. Dairy Exports Council and the former U.S. Secretary of Agriculture.
While farm families in the Northeast and Midwest are suffering the immediate consequences of the loss of Canadian markets, Vilsack said “thousands more will suffer if Canada persists in using its programs to distort the global milk powder markets so critical to tens of thousands of American dairy farmers.”
While Wisconsin politicians, including Gov. Scott Walker and the state’s Congressional delegation, have all voiced their opposition to Canada’s moves, Westers said he thinks Canada will not change its mind.
“I don’t think Canada will reverse their action, which is why we are working so hard right now to find alternative markets for our products and helping our producers find new buyers for their milk,” he said. “A lot of processors are in the same position. All of our plants are running very hard right now and have plenty of milk.”