USA TODAY US Edition
In Canada and Mexico, a tale of two dairies
US trading partners face differing fortunes amid crisis
Alfredo Gutiérrez wakes up some nights so worried about how to keep his family’s dairy farm going that he can’t get back to sleep.
A decade ago, he had high hopes for growing the business, located in Polotitlán, two hours north of Mexico City. He and his father designed and built a milking parlor for 250 cows. His brother, Ricardo, started a small artisan cheese plant on family land.
The plan was for Alfredo to run the farm and Ricardo to use the milk for his cheese.
Today, the outdoor cattle pens are half-empty; some cows had to be sold to buy feed for those that remain. Gutiérrez says the $1.17 he receives for a gallon of milk doesn’t meet his costs. His 75-yearold father regularly dips into savings to cover the losses.
His brother’s business lasted seven years, undone by a 13% interest rate on his loan, competition from cheap products imitating cheese and several clients who didn’t pay him.
Gutiérrez is discouraged about the future of small dairy farms across Mexico.
“One sees this more as romanticism, because as a business, no,” he says.
About 2,700 miles north, in Canada, Norman McNaughton’s 54-cow operation is thriving. The fifth-generation dairy farm sits on the edge of London, Ontario, surrounded by freshly built homes, condos and golf courses. It sports a new barn and a robotic milking system.
His cows milk themselves when they feel like it. One at a time they stroll up to the milking station, nudge open the gate and step inside. A robotic arm swings
down, sanitizes each teat and attaches laser-guided suction cups to extract the milk. The cow munches on a snack dispensed by the machine as an incentive.
If something goes wrong, McNaughton gets an alert on his smartphone.
McNaughton runs the farm with his 28-year-old son, Mike. Its success, he says, is a tribute to Canada’s milk supply management system. Under it, the amount of milk that farmers produce is limited to keep the supply in line with consumer demand. Milk prices are set to cover production costs and provide farmers with a nice profit.
“Our system isn’t perfect. But it does have stability,” McNaughton says.
Wisconsin and its battered dairy farmers sit in the middle, eyeing the stability of Canada, wary of a future that looks more like Mexico.
At a time when transformative change is upending the United States dairy industry and family dairy farms in Wisconsin are dropping at a rate of more than two a day, Mexico and Canada are virtual opposites. Yet the fortunes of U.S. dairy are intertwined with those of its closest neighbors and two largest export markets.
Trade flows, or trickles
Twenty-five years ago, the North American Free Trade Agreement rewrote the rules of trade between the three countries. The new U.S.-MexicoCanada Agreement, intended to replace it, has been signed by all three countries’ leaders and has been ratified by Mexico's legislature, but it hasn't yet been ratified by the legislatures of the United States and Canada.
Mexico’s borders are open to free trade, which has meant a flood of imports, primarily from the United States. Mexican farmers say the imports drive down the prices they receive for their milk. They are also hurt by products that imitate real milk and cheese – often made with imported dairy components, like powdered milk or whey.
Mexico is the largest buyer of U.S. dairy, last year accounting for nearly half of all U.S. exports of powdered milk and 28% of exported cheese. The value of U.S. dairy exports to Mexico in 2018 was $1.4 billion – eight times higher than when NAFTA took effect in 1994.
The Mexican government estimates dairy imports equate to a third of the national dairy consumption. Powdered skim milk is by far the biggest import.
Mexico buys eight times more powdered skim milk than it produces, according to United Nations and Mexican government data. And Mexican farmers get paid about 20 cents less per gallon of milk than U.S. farmers.
The solution, many farmers say, involves the government limiting imports or, at least, making sure that products destined for social programs come only from Mexican farms.
In contrast, Canada allows only a small amount of imported products into the country duty-free or at low tariffs. Higher amounts are subject to steep tariffs – 245% on cheese or 298% on butter – essentially shielding Canadian farmers from foreign competition.
Critics say the system results in Canadian consumers paying higher prices for dairy products. A gallon of milk that on average sells for $2.90 in the U.S. would cost about 50% more in Canada. Cheese, butter and yogurt also are more expensive.
Many U.S. agriculture officials simultaneously want the Canadian market more open while brushing aside blame for the problems in Mexico.
“The beneficiaries of this system are the consumers in Mexico because they have access to products that are reasonably priced,” says Tom Vilsack, president and CEO of the U.S. Dairy Export Council and agriculture secretary under President Barack Obama.
But in Mexico, where the median after-tax household income is less than one-third of what it is in the U.S., fresh milk and other dairy products can be too expensive for many consumers. And low-cost products imitating milk and cheese are pervasive – be it in remote village markets or at big urban retailers.
Canadian dairy farmers say if it weren’t for the protectionist philosophy, their country would see a deluge of cheaper milk from the United States, which has an overproduction problem.
“The U.S., with just the amount of milk it spills every day, could supply the Canadian market,” says Wiens, with Dairy Farmers of Canada.
René Fonseca, general director of the National Chamber of Milk Industrial Companies, sees no scenario in which Mexico would shift to a more protectionist policy.
“Here, as a country, we took a route of openness and liberalization. That was the bet. And when you make a bet of such nature, it’s total.”
Canada’s system has come under fire in trade negotiations with the U.S. and other countries for being protectionist.
In April 2017, President Donald Trump weighed in after U.S. dairy farmers, including about 60 from Wisconsin, were shut out of a segment of Canada’s dairy market. Three of the top milk-producing states – Wisconsin, Michigan and Pennsylvania – helped elect the president in 2016.
“We will not stand for this. Watch!” Trump tweeted.
Under the U.S.-Mexico-Canada Agreement that followed, Canada would keep supply management but give the U.S. a bit more access to its dairy market.
Some U.S. farm groups say adopting something similar to Canada's approach would prevent the glut of milk production that has suppressed prices and undermined farmers’ income.
Difficult choices in Mexico
Alfredo Gutiérrez, the Polotitlán farmer, plans to keep just 15 to 20 cows and feed them better to increase their daily milk production.
He is also switching to other livestock. He has purchased some lambs and plans to raise more, along with some beef cattle. Reducing his dairy herd is the only way he sees to save the family farm.
His brother isn’t even in the country anymore. Seeing no future in Mexico, he headed to Wisconsin and now works as head cheesemaker at Door Artisan Cheese in Egg Harbor.
Gutiérrez is happy for him, but it hurts too.
When he can't sleep, Gutiérrez heads to the woods on his land.
There he tries to walk away the worries.