U.S. dairy exporters are losing money as they try to maintain their hard-won footholds in the Chinese market amid the rising tariffs resulting from President Donald Trump’s trade war.
Some U.S. exporters – sellers of relatively low-cost nonfat dry milk powder – have already had to give up, but many who depend on China to buy whey, cheese and other pricier products are hanging on for now, says U.S. Dairy Export Council (USDEC) President and CEO Tom Vilsack.
It’s a tough situation that’s only degrading as U.S. companies lose ground to competitors in Australia, Europe and New Zealand.
“The supplier of that product is eating what would have otherwise been profit in order to maintain the market,” Vilsack told Agri-Pulse in an interview. “The impression I got from folks is that it wasn’t something they could continue to do for a long period of time.”
But U.S. companies will continue selling to China as long as they can, despite having to essentially pay the tariffs themselves in order to keep their customers.
It was in early July when China retaliated against U.S. tariffs on $34 billion worth of Chinese goods. While the U.S. tariffs – aimed at punishing the Chinese for appropriating U.S. intellectual property – were placed mostly on high-tech products and machinery, China hit back on U.S. agricultural goods.
Chinese tariffs on U.S. dairy range from 27 percent (whey) to 45 percent (buttermilk).
Vilsack, a former USDA secretary for President Barack Obama, recently attended an annual meeting of the China Dairy Industry Association, where about 300 of the country’s largest importers and processors gather and listen to foreign sellers make their pitches.
Perhaps smelling blood in the water as U.S. exporters suffer under the tariffs, Australia and New Zealand sent their ambassadors to the event, where they took the stage to talk about the reliability, sustainability and affordability of their countries’ dairy products.
“Obviously, they see an opening that this situation has created and that’s why it’s important for everybody in this country to understand the price that dairy farmers could potentially pay if these tariffs remain in place for very long,” Vilsack said. “I think if we get this resolved in a reasonable period of time, then we won’t be faced with significant market share loss, but if this lingers into 2019, then (China) is going to figure out alternatives and that’s going to impact all of American agriculture.”
Damage is already being done, but if the trade war with China does not end, it’s going to get much worse, according to a new Informa analysis paid for by USDEC.
The U.S. exported $577 million worth of dairy products to China in 2017. Before the trade war erupted, that was expected to rise to $610 million this year, but now the total is seen dropping to $519 million, according to the analysis.
That could be seen as only about $91 million in losses, but the damage is actually far worse when considering the expected overall reduction in farm gate revenue, an Informa economist explained. The tariffs and export losses have been pushing down prices and raising operating costs to store unsold product, he said.
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U.S. dairy exports to China have been rising steadily for the past 10 years – about 150 percent from 2007 through 2017 – but that trend will sharply reverse if the trade war does not end, Informa concluded, estimating that U.S. exports to China will sink to just $162 million worth of product in 2019.
Farm gate revenues are expected to drop by about $1 billion in response to the Chinese tariffs, according to the report.
"We've spent years cultivating overseas markets, and those investments are slowly eroding," said Jaime Castaneda, USDEC's senior vice president. "We are losing market share, and once it's lost, it is very hard to reclaim.”
New Zealand and the European Union won’t have a hard time taking away U.S. market share, according to the Informa report.
“With the relatively small share of the Chinese market that the US holds, adverse impacts to Chinese consumers due to the tariffs can be mitigated by increased imports from other major suppliers that have established trade routes into China,” the economists concluded. “While somewhat higher prices for products containing dairy will be experienced in China due to the tariffs, the desired impact to the US dairy sector that China intends with the tariffs is achieved while minimizing the harm to Chinese consumers.”
That’s exactly the kind of result China was likely looking for – pain for U.S. producers without too much discomfort for Chinese consumers.
The Trump administration, in an attempt to lessen the pain for U.S. farmers and ranchers, unveiled about $6 billion (half of what could be at most an eventual $12 billion package) worth of assistance to those who are losing sales to China and other export markets. Dairy producers got a significant portion of that aid, with a USDA promise to make direct payments to farmers as well as buy up product from the market, but groups like the National Milk Producers Federation say they are not satisfied.
“Although there may be a second direct aid package at the end of the year, dairy producers are greatly disappointed that the farmer aid portion of today’s trade relief package does not adequately address the harm done to dairy,” said NMPF President and CEO Jim Mulhern. “Dairy farmers are particularly vulnerable to downward price swings because, unlike crop farmers who harvest once a season, dairy producers harvest and market their product daily. If farmer incomes continue to suffer as projected, we will lose more farms.”
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