All told, 75 of Grassland Dairy Products patrons received this letter on April 1.
Don’t place any blame on Grassland. It essentially had no choice as it lost a market that consumed almost a million pounds of milk each day. Even though other Midwest and Northeast co-ops and processors that sold ultra-filtered milk to Canada may not have shed farms, these businesses still have to find new homes for milk and the resulting dairy products.
In creating a new category called Class VII, Canada used its National Ingredients Strategy rules and its quota system to shut down trade between the U.S. and Canada. For Grassland, this category had grown into a $100 million trade opportunity over 10 years with millions invested in new equipment. Now, those state-of-the art plants will sit nearly idle.
Is this fair?
Most who follow trade rules from the World Trade Organization do not believe so. That’s especially true if you have a U.S. perspective and ultra-filtered milk with protein destined to fortify cheese.
“ . . . losing this business . . . it means we might have to scale down,” said Goedhart Westers, vice president of business development for Grassland, in a February 24, 2017,Bloomberg News interview. That prediction was on target as Grassland let dozens of patrons go with a 30-day notice letter on April 1. It left dairy farmers scrambling to find a new home for their milk with markets already overflowing. This will be no easy task for these farms.
It’s about market access
Trade remains a hot button issue as the North American Free Trade Agreement (NAFTA) discussions pick up momentum in the U.S., Canada, and Mexico. Key to the matter are the words free and, of course, fair.
The Montreal Economic Institute suggests that negotiators propose a Canadian-U.S. swap in which the U.S. gets access to dairy markets while Canada gains entry to softwood timber. The Canadian dairy lobby, especially those in Ontario and Quebec, would beg to differ, and Canada’s latest action on shutting down dairy trade speaks volumes. With that in mind, the Montreal Economic Institute’s idea has a long road before implementation. Let’s be clear on the role of trade.
Canada needs the U.S.
The U.S. needs Canada.
But Canada might just need America even more.
Canadian agricultural exports to the U.S. is big business and represents 30 percent of the country’s agricultural trade, reported J.P. Gervais speaking at the Canadian Dairy XPO in early April. Overall, when looking at the entire basket of goods and services, Canada ships 75 percent of all its exports stateside.
Emotional roller coaster for farms
If you are among the dozens of U.S. dairy farmers looking for a new home for milk, this is a tough situation, especially when milk supplies are abundant. It reminds me of a fateful day in early May 1989.
Our family was milking cows at 5 a.m., yes 5 in the morning, when three different dairy co-ops or processors walked into our barn before 6 a.m. All of them wanted our farm’s milk, as the state was milk deficient at that time. That was the good news.
The bad news, the prior evening Kasson Cheese, a private dairy plant, filed for Chapter 11 bankruptcy protection. Not only had our family and 219 other dairy farm families just lost our milk market, we would not be paid for April milk. That’s right, as unsecured creditors dairy farmers were last in the line for money. And we just lost 8 percent of our revenue for the year right smack in the middle of planting season.
To add insult to injury, state government officials had not enforced a long-standing bonding law and Kasson did not have state bonds to cover milk checks. That started a three-year journey in which the Wisconsin legislature eventually paid out 50 cents on the dollar as it admitted some responsibility.
I know firsthand because my father wrote letters every month for many years to resolve the issue . . . and I was his typist. It may be that event that launched my writing and editing career as a high school sophomore.
Losing one’s market is extremely difficult. It will take a great deal of energy for all the Grassland patrons to find a new home for their milk.
(c) Hoard's Dairyman Intel 2017
April 10, 2017