Trade tensions dampen US dairy trade

Published 9 July 19

Trade tensions between the United States and some of its trading partners have been rumbling on for well over a year.  As a result, US dairy exports have seriously suffered from the import tariffs applied to US products. In total, US dairy exports have fallen by 14% so far this year (January to April) compared to last year. This is the equivalent to 92,000 tonnes of dairy products.

Though the US has made some progress in expanding exports in other markets, including South Korea, New Zealand and the Philippines, it has not been enough to offset the large losses in other markets.

US trade balance

Falling exports to China have had the biggest impact on US trade volumes over the past year. In July 2018, China introduced a 25% tariff on over 500 US products, encompassing nearly all US dairy exports. Since January of this year, US exports of all dairy products to China are almost 70,000 tonnes lower than this point last year, a 64% drop.

The drop in whey powder exports account for most of the reduced trade with China. Traditionally, the US were the leading supplier of whey powder imports, sending 290,000 tonnes in 2017. However, the introduction of the tariffs meant US product was no longer competitive on the market. As such, US whey exports to China fell by 61% in the first four months of this year, compared to the same period last year.

The outbreak of African Swine Fever has only compounded issues further. Demand for whey for pig feed has fallen dramatically as the Chinese pig population shrinks. This has put downwards pressure on global whey markets; US whey prices have fallen by over €180/tonne since the start of the year.

In May this year, the Chinese authorities raised the tariffs further. Currently, US dairy exports to China are subject to a tariff of between 31-45%, which, in the absence of an agreement, is likely to keep US exports subdued.

Adding to the restrictions on US dairy trade, Mexico introduced retaliatory tariffs against the US on a range of dairy products in June 2018. These mainly covered cheese products, which are a key export for the US industry. These tariffs were initially set at between 10-15%, but were raised to 20-25% in July 2018 and have been in place until only recently (20 May 2019). 

When the tariffs were initially introduced, exports surged. It is likely that exporters increased shipments prior to the raising of the tariffs in July, in a similar fashion to what occurred here in advance of the 29 March Brexit deadline. Since then (Jul 18 –Apr 19), average monthly exports of cheese have fallen by around 265 tonnes (3%) compared to the same period the year before.  So far this year, exports of cheese in the first four months are down 6% year on year.

US cheese exports to Mexico

The impact of the Mexican tariffs on US dairy exports has been relatively muted compared to other agricultural products that were subject to tariffs. For example, US pork and pig meat exports to Mexico fell by 19% this year.

While Canada also implemented retaliatory measures against the US last year, yogurt was the only dairy product affected. Yogurt exports to Canada are comparatively small with only 180 tonnes of yogurt exported in the first four months of 2019. Surprisingly, despite the higher cost to importers, volumes were 10% more than last year.

Please note that total US dairy export figures converts liquid products to tonnes using a whole milk equivalent regardless of actual fat content.

 Felicity Rusk