A new trade agreement has been reached between the United States, Mexico, and Canada. As part of the agreement, our neighbors to the north will eliminate the restrictive policies that have impacted Wisconsin’s dairy farmers.
In a recent statement, Gov. Scott Walker said, “This is a big win for Wisconsin’s dairy farmers. This new deal will open up Canadian markets for our dairy farmers, eliminate certain tariffs, and eliminate Canada’s protectionist trade policies related to ultra-filtered milk that targeted Wisconsin dairy producers.”
Warren Graeff, Agriculture Banking Market Manager, PNC Bank, provided this commentary to WBA:
“The Trump Administration delivered a modernized North American trade agreement (think a revision to NAFTA) ahead of the imposed deadline late Sunday night. The United States – Mexico – Canada Agreement or USMCA as it is known will bring an end to months of negotiations.
Ultimately the news appears friendly to the US dairy industry. As part of the new, 16-year agreement, the Canadian government has agreed to eliminate Class 7 milk. Additionally, American dairy producers will have increased access to Canada’s dairy market.
The increased access to the Canadian market comes through tariff rate quotas (TRQs) that phase in over the course of 19 years. For instance, it looks like the US will be able to ship 2,084 MT of cheese to Canada tariff-free in the first year the agreement is in force with half the cheese being for industrial use and half for retail.
The Canadian government will oversee issuing import licenses to companies in Canada who wish to import US dairy products at the zero percent tariff rate. It’s possible some of the import licenses will be allocated to entities in Canada who aren’t interested in importing product but will sit on their licenses to keep others from importing product.
Once the formal agreement is approved by Canada’s Prime Minister and Mexico’s President (likely in the next 2 months), it will have to undergo a 60-day review process by Congress and would likely be enacted sometime in 2019.
US dairy futures are mostly steady to firm, although there was no major market move following the news. We see this announcement as supportive for dairy futures across the board to kick off October. Although it’s debatable as to how much impact trade wars and tariffs have on US dairy markets, after having spent the better part of the last 12 months seemingly rolling back global trade the USMCA is absolutely seen as a step in the right direction for the US global dairy trade.”