America\u2019s hard-working dairy farmers are being exploited by the gross abuse of global trade norms by the country\u2019s greatest rival: Canada. Despite the presence of the North American Free Trade Agreement (NAFTA), the Canadian government bans the import of milk and many dairy products from the U.S. in a system referred to as \u201csupply management.\u201d\u00a0 Intended to ensure the survival of Canadian smaller, family owned farms, supply management has the downside of causing higher prices for Canadian consumers and providing fodder for reactionary trade regulations [1].\u00a0 This came to a head with the election of President Trump and the effort in 2017 to renegotiate NAFTA.\u00a0 Caught in the middle are regional businesses like Cayuga Milk Ingredients which are having trouble navigating the increasingly heated debate and determining a viable strategic path for their future.<\/p>\n
A co-op of 28 dairy farmers in upstate New York, Cayuga Milk Ingredients provides value to its members by providing controlled, scaled production while serving as a combined point to bargain with customers [2].\u00a0 With an eye on the increasing global demand for several products, Cayuga completed a $100 million processing plant and began expanding sales in powdered milk to countries like China and ultra-filtered milk, a previously unregulated good, to Canada [2].\u00a0\u00a0 When Canada updated its supply management system in 2017 to include the prohibition of imports of ultra-filtered milk, Cayuga lost the $30 million in export sales that the company normally sends north [3].\u00a0 The U.S. responded with a clear demand for Canada to reduce or eliminate its supply management system as part of the ongoing NAFTA renegotiations [4]. The Dairy Farmers of Canada, a strong lobbying organization, refutes the claim that removing the trade restrictions would help U.S. farmers and instead proposes on its website that the U.S. would be better off regulating American production as a way to help its farmers [5].\u00a0 A more pointed argument is made by those who point out that eliminating the protectionist policies would allow Canada to begin selling its own milk on the larger markets, potentially increasing global supply by up to six billion additional liters according to the Canadian Advisory Council on Economic Growth [6].<\/p>\n
In the short term, Cayuga has found a willing ally for its complaint in both President Trump and Democratic Senator Schumer from New York [3] and the pressure has been stepped up during the fourth round of NAFTA renegotations.\u00a0 Cayuga hopes to be able to access the Canadian market again in the short term.\u00a0 However, the company is itself a long-term move made by its co-op members in order to stay competitive.\u00a0 \u00a0The U.S. dairy industry is consistently plagued with supply surpluses and farmers have begun to be squeezed by retailers looking to consolidate production under their control.\u00a0 As a part of the trend, Kroger, a national retail grocery store, recently brought 100% of their milk production under their control.\u00a0 Cayuga and its members are addressing these pressures by reaching into the global market more extensively to make itself less dependent on the status of the U.S. and Canadian dairy markets.\u00a0 The company is working to convert almost 80% of its intake into powdered milk that it can export to mainly Mexico and Saudi Arabia [2].\u00a0 This transition to a product more easily exported allows for greater global distribution and resilience to regional demand fluctuations.<\/p>\n
There are additional complications that come with expansion into the global market that Cayuga must take into account in order to successfully transition their product.\u00a0 In the short term, the company must continue to expand its supplier base to allow for greater economies of scale and bargaining power when negotiating with distributors and retailers.\u00a0 By expanding into additional states, it may set itself up as an ideal regional partner if and when the Canadian dairy market is opened.\u00a0 In the longer term, Cayuga must be wary of the political messaging it pursues with the NAFTA renegotiation and be conscious of how that may be extended.\u00a0 Although President Trump is championing their cause now, other isolationist and anti-trade policies may eliminate the very global relationships that the company looks to nurture for its survival.\u00a0 Continuing the path into greater diversification into the international market is critical to Cayuga\u2019s long-term success.<\/p>\n
A relatively small co-op in upstate New York, Cayuga finds itself caught in some of the swiftest changing political tides in generations.\u00a0 However, while it is holds great value to some firms like Cayuga, the Canadian dairy market is only of tertiary importance to most U.S. diary farmers.\u00a0 Is Cayuga right to publicly pressure the Canadian government to remove supply management instead of focusing on less politically sensitive expansion?\u00a0 When global milk supply can fluctuate at such a large scale, is Canada right to protect a small industry that they believe preserves cultural value?<\/p>\n
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[1] Dan Charles, \u201cHow Canadian Dairy Farmers Escape the Global Milk Glut\u201d, National Public Radio, May 3, 2017, https:\/\/www.npr.org\/sections\/thesalt\/2017\/05\/03\/526613411\/how-canadian-dairy-farmers-escape-the-global-milk-glut<\/a>, accessed November 2017.<\/p>\n [2] Ilan Brat, Kelsey Gee, \u201cU.S. Dairies Get Crash Course in Exporting; Cooling Chinese Demand Points Up Unpredictability of Global Prices\u201d, Wall Street Journal (Online), January 9, 2015, https:\/\/search-proquest-com.ezp-prod1.hul.harvard.edu\/docview\/1643257591?accountid=11311<\/a>, accessed November 2017.<\/p>\n [3] Robert Harding, \u201cCEO: Cayuga Milk Ingredients lost $30M in sales overnight due to Canada\u2019s trade rules\u201d, Aubornpub.com, April 20, 2017, http:\/\/auburnpub.com\/blogs\/eye_on_ny\/ceo-cayuga-milk-ingredients-lost-m-in-sales-overnight-due\/article_f85b4c52-2563-11e7-907c-0724c5c124aa.html<\/a>, accessed November 2017.<\/p>\n [4] Paul Lalonde, \u201cA Closer Look at Round Four of the NAFTA Negotiations\u201d, Mondaq Business Briefing, November 3, 2017, https:\/\/global-factiva-com.prd2.ezproxy-prod.hbs.edu\/redir\/default.aspx?P=sa&NS=16&AID=9HAR000400&an=BBPUB00020171103edb30002x&cat=a&ep=ASI<\/a>, accessed November 2017.<\/p>\n [5] Pierre Lampron, \u201cNAFTA Round 4 \u2013 What does the U.S. really want?\u201d, Dairy Farmers of Canada, October 17, 2017, https:\/\/www.dairyfarmers.ca\/farmers-voice\/farm-policy\/nafta-round-4-what-does-the-u.s-really-want<\/a>, accessed November 2017.<\/p>\n