Dick Groves
Editor, Cheese Reporter

 

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Trade Agreements Will Boost US Dairy Exports, And Imports

The Office of the US Trade Representative recently released its annual report detailing foreign barriers affecting US exports of dairy and other products and services, and the report serves as another reminder that the US could increase its dairy exports to a number of foreign markets if only it weren’t for these nasty barriers.

Of course, the US has done quite well despite all of these barriers, which (as detailed in the story beginning on page 14 of this week’s paper) range from Canada’s cheese compositional standards to Uzbekistan’s excise taxes on imported food products. Last year, US dairy exports reached a record high $7.1 billion.

The US is currently negotiating two major trade agreements which hold considerable potential to increase dairy exports even more in the future. These are the Trans-Pacific Partnership agreement and the Transatlantic Trade and Investment Partnership.

But they also hold the potential to increase dairy imports in the future. After all, trade is a two-way street, and liberalized trade will, in all likelihood, mean more products moving into the US from foreign markets as well as more US products moving overseas.

A good example is the TTIP, being negotiated between the US and the European Union. At first glance, this agreement holds considerable potential for US dairy exports, for at least a couple of reasons.

First, the US currently runs a huge dairy trade deficit with the EU. In 2014, EU dairy exports to the US were valued at almost $1.5 billion, while US dairy exports to the EU were valued at $125.5 million.

Put another way, the EU accounted for less than 2 percent of US dairy exports, but the EU accounted for almost 49 percent of US dairy imports (both on a value basis). In other words, dairy trade between the US and the EU is somewhat imbalanced.

Second, as the USTR’s report points out, the US faces several obstacles to increasing its dairy exports to the EU, including EU export certification requirements, EU somatic cell count requirements, and geographical indications. So if and when a TTIP agreement is finalized, we could see a pretty healthy increase in US dairy exports to the EU.

But the US could also see a pretty healthy increase in dairy imports from the EU, even from the current lofty heights of those imports. That’s because trade barriers, like trade itself, are also a two-way street.

Just to cite one example here: of the $1.5 billion in EU dairy products that the US imported last year, about two-thirds of the value was for cheese imports and the other third was mainly for products such as casein, caseinates, milk protein concentrates and butterfat products.

Conspicuously absent from that list are products such as yogurt. But that could change after a TTIP agreement is reached.

At least two European dairy groups, the European Dairy Association and Eucolait (the European Association of Dairy Trade) made this observation about the Grade A Pasteurized Milk Ordinance (PMO) in a recent draft position paper: “The Grade ‘A’ Pasteurized Milk Ordinance (PMO) is perceived by many as the main sanitary barrier as it affects EU exports of most types of dairy products.”

Because of the differences between the EU and US regulatory systems, production models and plant designs, it is “extremely difficult” for EU establishments to get Grade A approval, the EDA and Eucolait stated. They hope that mutual recognition of the EU and US food safety systems, including Grade A, can be achieved in the context of the TTIP negotiations.

And if that happens, the US can expect to see more EU dairy products such as yogurt being exported to the US.

Then there’s the TPP, which the US is negotiating with roughly a dozen countries, one of which happens to be the world’s largest dairy exporter (New Zealand), another of which happens to be one of the world’s largest dairy importers (Japan), and yet another of which happens to be Canada.

The US and Canada already enjoy pretty significant two-way trade in dairy products. Last year, Canada was the third-largest US dairy export market on a value basis, trailing only Mexico and China. Meanwhile, Canada was the 11th largest exporter of cheese to the US (on a volume basis) and the number two exporter of other dairy products (on a value basis).

A final TPP agreement could increase this two-way trade between the US and Canada to even higher levels.
Dairy trade between the US and New Zealand is more of a one-way street. New Zealand does rank as the 12th largest US dairy export market on a value basis, but New Zealand accounts for less than 2 percent of US dairy exports

New Zealand last year was the seventh-largest source of US cheese imports on a volume basis, accounting for 4.3 percent of those imports; and was by far the largest source of other dairy product imports on a value basis, accounting for almost 42 percent of those other dairy imports.

It’s difficult to imagine New Zealand not gaining further inroads into the US dairy market under a TPP agreement. It’s also difficult to imagine US dairy exports to New Zealand rising all that much, given that New Zealand’s population is only about 4.4 million people (about 1.3 million less than Wisconsin’s population).

US dairy exporters continue to face a number of barriers in foreign countries. And dairy exporters in a number of foreign countries continue to face barriers to the US market. Trade agreements should reduce these barriers, leading to greater US exports and imports. DG


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