Saturday, March 30, 2024

Round-up: How free trade agreements ignited US dairy exports to six countries

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In the decade following implementation of the North American Free Trade Agreement (NAFTA), US dairy exports to Mexico have increased from $250 million to $1.6 billion. That makes Mexico the US dairy trading partner most positively affected by Free Trade Agreements between 2004 and 2014, according to a report by the US Dairy Export Council and the National Milk Producers Federation.
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Overall, FTAs helped bring an additional $8.3 billion to the US dairy industry from all countries studied during that period. That number includes increased dairy farmer income due to rising demand.

"Obviously, Free Trade Agreements have delivered in a big way for the US dairy industry," USDEC President Tom Suber said. "Continued efforts are needed to forge new agreements, expand market access and stay competitive. Other dairy-exporting nations are trying to gain an advantage with their own agreements, so we can’t rest on our laurels."

USDEC and NMPF are still carefully examining the full text of a Trans-Pacific Partnership agreement released by the Obama administration, Jaime Castaneda, senior vice-president of trade policy at the US Dairy Export Council said. This study by USDEC and NMPF did not assess the potential impact of TPP.

The study did clearly show past Free Trade Agreements have been positive for the US dairy industry.

The impact of entering into a Free Trade Agreement was estimated by comparing a trend projection based on exports prior to entering into the agreement with actual exports following implementation, said NMPF economist Peter Vitaliano, who conducted the study.

Based on dollar value of sales, here are the six countries most positively affected since Free Trade Agreements were implemented. Charts following this list show trade date from nine additional countries importing US dairy products.

1. Mexico: After the implementation of the North American Free Trade Agreement (NAFTA) in 1994, US dairy exports to Mexico (the largest US dairy export destination) have increased by 558%. US dairy and dairy products exports increased from totalling $250m in 1993, to a total of $1.6b in 2014. The most significant growth in dairy product exports to this market was in non-fat dry milk, where US exports increased from totalling $85m in 1993 to a total of $775m in 2014 (an increase of 809%).

US exports to Mexico are fairly diverse. Although non-fat dry milk accounted for a sizable 47% of the total of US dairy exports to Mexico last year, a majority of shipments were of a variety of other dairy products. Regular discussions between trade and regulatory officials have helped ensure a relatively smooth functioning of trade with this important FTA partner and provided a forum for resolving issues when they have at times arisen.

2. South Korea: For the US-Korea Free Trade Agreement (KORUS), market access for dairy products took place through a combination of tariff elimination and expansion of TRQs. For dairy products, there was tariff reduction for some products but most products face expanding TRQs with phase out periods of 5-15 years. US dairy exports to South Korea have increased from $223.7m in 2011 (before the entry into force of the agreement in 2012) to $416m in 2014, an increase of 86%.

Most of the growth has been in exports of “cheese and curd”, which represent 75% of US dairy exports to this market and have increased by 116% from 2011 to 2014. The agreement, the first South Korea negotiated with a major dairy supplier, proved to be especially critical in ensuring that the US did not lose ground competitively given that South Korea subsequently proceeded to negotiate FTAs with the EU, Australia and New Zealand, the US dairy industry’s three major global competitors. Had the US not had its own agreement in place, we could have been at risk of seeing a loss in market share rather than the significant export gains that have resulted from the agreement.

3. Australia: The US-Australia Free Trade Agreement (AUSFTA) entered into force on January 1, 2005. With this agreement over 99% of US exports of consumer and industrial goods became duty-free. Since the inception of the agreement, US dairy exports have increased 3012%, from totaling $5.6m in 2004 to total $173m in 2014. The dairy product category that has seen the highest level of growth has been “cheese and curd” (which in 2014 represented 51% of total US dairy exports to Australia), growing by 13,246% from 2004 to 2014.

A key factor in the positive impact this agreement has had on the US dairy industry has been not only how Australian dairy tariffs were handled, but also the care taken with how US dairy tariffs were treated under the agreement. Additionally, it is important to note that a severe draught following the close of AUSFTA impacted trade dynamics between the US and Australia by negatively impacting Australian production at a time when US production was growing.

4. Singapore: US dairy products enjoyed duty free access to the Singapore market even before the entry into force of the US-Singapore FTA in 2004. However, trade has continued to expand in this market with US dairy exports increasing from totalling $8.1m in 2003 to $99.9m in 2014, an increase of 1132%.

5. Morocco: Most dairy products under the US-Morocco Free Trade Agreement (entered into force on January 1, 2006) have a duty elimination phase out period of 15 years. This means that they will be duty free by January 1, 2020. For dairy products, Morocco has been the FTA partner that has presented the highest level of growth on a proportional basis. US dairy exports increased from totalling $64,499 in 2005 to total $97.1m, an impressive increase of 150,437%. The main products exported to this market from the US are whey (36% of US dairy exports in 2014) and butter and milkfat (34%). 

6. Chile: For the US-Chile Free Trade Agreement, which entered into force on January 1, 2004, most tariffs for agricultural goods were almost completely eliminated, with the last year of the phase out period being 2015. US dairy exports have increased from totalling $2.6m in 2003 to totalling $60.2m in 2014, an increase of 2225% since the agreement’s implementation. 51% of the US dairy exports to Chile were in “cheese and curd”, which grew by 2237% from 2003 to 2014.

The growth from such a minimum starting point helps illustrate the importance of cultivating markets over time, coupled with well-negotiated trade agreements. The expansion of US dairy exports to Chile is all the more notable given that Chile is a competitive dairy producer in its own right. An important non-tariff element of the US-Chile FTA was the establishment of a regulatory pathway for the U.S. to provide a list of plants intending to ship to Chile. This measure removed a regulatory barrier that had previously made it much more cumbersome in practice for US dairy facilities to get approved by Chilean authorities to ship to Chile. This non-tariff element of the agreement was a critical factor in ensuring that US companies would actually be able to take advantage of the opportunities that the elimination of tariffs introduced.

Editor's Note: This is the second of a two-part series examining a report on the impact of past Free Trade Agreements on the US dairy industry. Also see, "Free trade agreements helped bring $8.3 billion to US dairy over 10 years."

Mark O'Keefe is vice-president of editorial services at USDEC and editor-in-chief for USDEC’s website and The US Dairy Exporter Blog.

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