Trade negotiators from 12 countries signed a Trans-Pacific Partnership (TPP) trade agreement on Oct. 5, but it will be some time before you see any changes in trade actions.
First, all 12 nations must ratify the agreement. In the United States, Congress may not even take up the bill until late 2016, according to Western United Dairyman lobbyist Charlie Garrison in a member newsletter. That will be in the midst of 2016 Presidential campaigning, or after the election.
If all 12 nations do ratify the pact, it will take decades to fully enact many provisions in the agreement.
U.S. is in the middle
The U.S. was basically as protectionist in the 1970s as Canada and Japan are today, said Andrew Novakovic, Cornell University dairy economist. But now we are more than halfway towards becoming as pro-trade liberal as New Zealand and Australia.
The turning point was the Uruguay Round agreement that gave us the World Trade Organization and was concluded in 1986. When we negotiated the NAFTA agreement, we quickly agreed with Canada to keep dairy as strictly national industries. When we negotiated the TPP, we approached it with the attitude we had more to gain as a dairy exporter (to Canada and elsewhere) than we had to fear as a dairy importer (from New Zealand).
It appears the middle-ground approach will continue with TPP. Jim Mulhern, National Milk Producers Federation (NMPF) president and CEO, said U.S. dairy interests sought a balanced agreement.
“We did not want an imbalanced agreement, where we see more access to our market than we were able to gain in access for U.S. dairy products into other countries,” Mulhern said. “It does look like there is some semblance of balance based on what we know. But the devil is in the details and we need to see what those numbers look like.”
Those numbers are not big round percentages, Mulhern explained, but the balance of tariff line-items representing many products.
“Different products have different impacts on milk prices,” he said. “We were looking for access into Canada, Japan and other countries in fluid milk, various cheese products, butter, yogurt, whey and other dairy products. On imports, our main focus was protecting the market in fat-based products – cheese and butter – which have the biggest impact on farm milk prices.”
Among the unknowns are when changes take effect, and the growth in market access.
“This is an agreement that will be phased in, in some cases, over 10, 20, 25 or even 30 years,” Mulhern said.
Canadians and New Zealanders, exporting 0% and 95%, respectively, both found the TPP agreement a tough pill to swallow.
Farmers from Quebec invaded Ottawa, peacefully protesting to keep a supply management system intact. According to Canadian government documents, the country added 3.25% access to dairy markets, on top of the 10% currently available. It remains unclear how this affects other countries, and when it takes effect.
“We obviously would have preferred that no additional market access be conceded in the dairy sector,” according to a release from Dairy Farmers of Canada president Wally Smith.
In New Zealand, they were upset in an opposite direction, seeking fewer trade barriers and a more liberal agreement.
John Luxton representing New Zealand’s dairy farmer group, DairyNZ, and attended the final two rounds of talks. Luxton, who retired as chair Oct. 13, came away frustrated the U.S., a producer five times the size of New Zealand, would not allow more open market access.
“Unfortunately, the leadership of the National Milk Producers Federation seems to have been looking in the rear-vision mirror, instead of looking to lock proper rules in the TPP to allow U.S. dairy to continue to expand its international competitiveness and its export sector,” Luxton said in an e-mail to Dairy Herd Management.
“The outcome of the agreement is of very poor quality, as it cements in continuing protectionism in dairy,” Luxton said. “We are not frightened of competition and believe that U.S. dairy will in the future regret their leadership missed this opportunity to put in place a high quality agreement to allow their own industry to really expand internationally.”
However, NMPF’s Mulhern disputes it was that simple.
“We came into these negotiations looking for fewer tariffs across the board,” Mulhern said. “We said in the beginning, if all 12 countries that are part of TPP agree to eliminate dairy tariffs, we will do likewise. We pushed very hard in the negotiations, on Canada and Japan in particular, to open their markets.
“I understand New Zealand’s frustration, but our focus was on our farmers and our industry,” Mulhern said. “We were not going to allow a situation where the U.S. would become a dumping ground for the excess production in New Zealand. From what we’ve seen so far, that was not the result.”
The future is coming, slowly
Is this the best way to do trade agreements? Or should tariffs go away immediately?
“How do you take a bandage off?” Novakovic asked. “Should you rip it off right away, or pull it slowly as mom blows on it? You can make a debate for both.
“What I am confident of is, before the 20- to 30-year agreements on the TPP are up, we’ll sign two to three more agreements,” he said. “The big deal is that we decided whether to stay where we are, or go south or north. We chose a direction together and are heading there.”
For California, with port access and plenty of milk, knowing exactly what the future holds for cooperatives and processors is important. It’s Dr. Serhat Asci’s job to help determine what it might look like. Dr. Asci, a dairy economist at Fresno State University, developed a model to look at the general trends of the TPP agreement.
While details are still needed, information so far shows TPP will benefit the U.S., with a growing world population driving the benefits. Populations are expected to grow rapidly in several countries affected by the agreement, possibly by as many as 25 million people in the next five years.
“We have built into the model both the economies and growth of economies of the many countries involved in the market,” Asci said. “We cannot just say what potential this agreement has based on today’s trade numbers and populations, but instead what they might look like 10 to 20 years from now.”
For the western U.S. dairy industry, changes may also have a different impact due to California’s potential inclusion in the Federal Milk Marketing Order (FMMO) system.
“California has bigger problems than everything related to TPP,” Novakovic said. “But if the FMMO works out for them, it is going to hurt their ability to move nonfat dry milk (NFDM), and much more so for whey proteins. If California comes into the FMMO, they will lose the price advantage they have under the state system. Washington, for example, will have price parity for NFDM with California.”
What should you change?
For cooperatives and processors, especially in states bordering Canada, there may be opportunities and threats as a result of the agreement.
“For example, Northern New York is a long haul from Boston and New York City, but a short drive to Montreal,” Novakovic said. “At the same time, some Canadians see an opportunity to sell high-value artisan cheese into the U.S.”
Novakovic said Canadian farm milk prices averaged 18% higher than the U.S. from 1991 through 2000, and 62% higher since then.
The agreement touches 40% of the world. Does that mean individual farmers need to do anything different?
“No,” said Novakovic. “Keep doing what you’re doing, keep thinking ahead, and continue to focus on what’s going to make you a successful producer based on your own business plan. This agreement doesn’t provide a new strategy. I wouldn’t buy another 1,000 cows based on this agreement alone.”