The new U.S.-Japan trade agreement could provide a much-needed lift to the demand for U.S. dairy products. Agriculture Secretary Sonny Perdue’s statement on the recently signed agreement suggests that U.S. cheese and whey products will see a phased elimination of tariffs currently imposed by Japan. When it comes to cheese, that’s substantial — Japan is the world’s largest cheese importing country.

This is a significant long-term positive development as these products currently face tariffs in the 30 to 40 percent range. Although the phase out of tariffs may take many years to unfold, and the exact timing of the elimination is not yet publicly available, the long-term benefit is important for U.S. dairy producers.

A strong market to get stronger
At the moment, Japan is one of our top 5 destinations for U.S. dairy exports. In 2018, the value of U.S. dairy exports to Japan totaled $270 million and further growth has occurred thus far in 2019.

The Japanese market represents around 5 percent of the total U.S. dairy export value. U.S. exports of cheese to Japan totaled over 73 million pounds in 2018 and represented nearly 10 percent of total U.S. cheese exports. Also, 74 million pounds of U.S. whey was delivered to Japan in 2018.

U.S. milk production is on pace to grow by nearly 29 billion pounds during the 2010 decade. That is on top of the nearly 27 billion-pound growth experienced in the first decade of the 2000s and well above the nearly 19 billion-pound growth experienced over the 1990s. Accelerating U.S. milk production growth requires stronger demand if milk prices are to remain at reasonable levels and trade is the crucial piece of the demand puzzle.

A long-term view
The low profitability period the U.S. dairy industry has recently experienced reminds us that the balance between milk supply and demand was out of balance and required lower milk prices to move the surplus milk supplies. Although we are often focused on today’s economic situation in the dairy industry and the U.S.-Japan trade agreement won’t be an immediate help to the demand outlook, this agreement will eventually provide a boost to demand that will help balance out growing U.S. milk supplies.