The Senate Finance Hearing on United States-Mexico-Canada Trade Agreement (USMCA) took place in Washington, D.C., this week. Discussion centred on the importance of North American free trade to U.S. agriculture and the economy as a whole. Agriculture was well represented on the panel by former USDA Ag Secretary Tom Vilsack, who is the current president and CEO of the U.S. Dairy Export Council. When you look at the entire USMCA deal, dairy was a focus of some of the biggest changes in terms of market access and product pricing, especially with the removal of Canada’s Class 7 pricing system.
What Vilsack said
- Exports matter to U.S. agriculture, 20% of U.S. ag income is related to exports.
- Exports of dairy to Canada and Mexico matter. 28% of all food exports go to Canada and Mexico. For many commodities this is the largest and most important market.
- USMCA provides an increased opportunity of US$300 million annually, through increased trade quotas into Canada for cheese, skim milk powder, whey, butter and other dairy products while maintaining duty-free access for the Mexican market. It removes and reforms key trade distorting Canadian pricing policies by removing Class 6 and 7 pricing policies and imposing more trade-friendly discipline on the Canadian supply management system.
Big promises, little return
- The market access that the U.S. has gained into Canada represents a very small portion of U.S. dairy production which makes this more of a idealogical moral victory than substantial increases to profitability for U.S. dairy farmers
- The downside to the Canadian producer is much more than the upside to the U.S. producer according to several dairy experts we have talked to in the U.S. and Canada.
Why Vilsack commentary matters
- He represents the opportunity for common bi-partisan ground. He has been the governor of Iowa, USDA Ag Secretary, and now represents the dairy industry.
- For many Democrats representing dairy states, the dairy changes in USMCA are a must but not the saviour by any stretch. According to Vilsack’s statements today, in 2018 the U.S. lost seven dairy farms a day.
When will the U.S. ratify the USMCA?
- Fall of 2019 at the earliest, based on the summer rest for Congress
- Much of the Democrat opposition is in regards to Mexican labour reforms
- Jim Wiesemeyer, of Pro Farmer, believes that although house speaker Nancy Pelosi is taking her time, ultimately she wants to bring the USMCA to a vote.
Editorial Bottom line
Farmer and ranchers in the U.S. know that they need and want trade, but the White House, the Senate and the House of Representatives continue to disrupt the reliability of agricultural trade with intent or without for political gain and that hurts U.S. agriculture in the long run.
At best, the U.S. solidified its access to Mexico which it had in the NAFTA agreement so the “win” is routinely overstated.
Canada will need a plan for life after the Class 7 marketing system is extinguished of which has not been made public yet.