WAUSAU, Wis. (WSAW) — Eleven thousand cows, 800,000 pounds of milk per day, 71 farmers, 13 from Minnesota, 58 from Wisconsin all terrified of losing their livelihood after receiving a letter from Grassland Dairy April 1, stating “new Canadian dairy regulations” had force them to cut back on their milk intake and will no longer be accepting their supply by May 1.
“It was extremely stressful,” Mark Heinze said. He and his wife Beth thought their family’s 145-year legacy would come to an end after only recently taking over the Heinze Dairy Farm from his parents.
“We knew there was an issue with Canada,” Trevor Wuethrich, president of Grassland Dairy told WSAW in a phone interview. “However, we didn’t know Canada would give us 48 hours’ notice. If we were given 30 days’ notice, we could have worked for 30 days to find a solution.”
“It was about two weeks that we went without knowing where our milk was going to go before Mullins picked us up,” said Beth Heinze.
WSAW discovered while Grassland was given 48 hours’ notice, their Canadian markets were no longer going to accept their product, the knowledge of the possibility of changes did not come suddenly.
“Over the last 10 years, Grassland developed that market into Canada,” explained Daniel Smith, agriculture development administrator for the Wisconsin Department of Agriculture, Trade and Consumer Protection. He said at about 2007, dairy processors, particularly in New York, Minnesota, and specifically Grassland Dairy in Greenwood, Wisconsin developed a market for ultra-filtered milk in Canada. Ultra-filtered milk is a derivative of milk and is created after components, such as cream is taken out of raw milk to make butter or other products. This high-protein milk derivative is used by Canadian cheese makers.
“So over the last couple of years,” explained Smith, “Canada started looking at the impact of this milk, ultra-filtered milk, coming into their cheese industry and wondering, maybe our own Canadian dairy farmers should be taking advantage of this market.”
Canadian producers and processors at the provincial level created a new milk product classification, Class 7, essentially allowing them to price their ultra-filtered milk at a figure former Agriculture Secretary Tom Vilsack says is well below global prices. He told WSAW, the U.S. Dairy Export Council, for which he is now the CEO, has anecdotal evidence that a shipment from Canada was 13 cents less than the global price.
“In an area and in an industry where a half a penny or a penny can make a significant difference whether you get a contract or not, 13 cents difference is enormous,” Vilsack asserted. He feels the type of move the Canadian dairy industry took violates the spirit of trade agreements, such as NAFTA.
In a statement to WSAW from Canada’s Minister of Agriculture and Agri-Food, Lawrence MacAulay stated: “Under the North American Free Trade Agreement, the U.S. has duty-free and quota-free access for milk protein substances, including diafiltered (ultra-filtered) milk. This duty-free and quota free access has not changed, and Canada is not imposing any import taxes on ultra-filtered milk.”
The Canadian pricing policy changes, however, did not come out of nowhere. Before the changes were made nearly nationally, Ontario first implemented a similar policy two years ago. Grassland Dairy leaders and politicians such as House Speaker Paul Ryan, Representative Ron Kind, and Senator Tammy Baldwin have all worked in some capacity to push for change regarding this pricing policy.
“When I heard those rumors that it was going to expand nationwide, it was very alarming to me because I knew it was already costing our Wisconsin dairy producers,” Baldwin said.
In August, 2016, Baldwin first asked then Agriculture Secretary Vilsack and then U.S. Trade Representative Michael Froman for a federal investigation into possible Canadian trade violations.
Froman declined an interview with WSAW, but Vilsack said while he was aware of the policy talks in Canada at the time, he was not focusing on it, adding Canada has a history of trade manipulations in an otherwise positive relationship, and an investigation was not what was needed.
“We were playing defense most of the time during the Obama Administration as it related to Canada and Mexico because of the ‘country of origin label’ bill that congress passed,” he said.
When asked how President Obama handled this issue with Canadian leaders, Vilsack responded the president focused on other agriculture issues outside of the dairy industry.
Smith also admits DATCP was aware of the policy change the Ontario dairy industry made the two years prior.
“We were in constant negotiations and conversations with policymakers in Canada about, you don’t really want to close this door,” he explained, figuratively speaking. “Let’s keep this door open; let’s keep product moving both ways and we were unsuccessful in doing that.”
“What’s happened to you is very, very unfair,” President Donald Trump sympathized with a crowd in Kenosha April 18. “It’s a typical one-sided deal against the United States and it’s not going to be happening for long.”
In April, several U.S. senators and representatives from Wisconsin, along with Governor Scott Walker sent letters to President Donald Trump and his administration asking for an investigation into possible Canadian trade violations and to assist the farmers facing this situation. Shortly after, Trump imposed tariffs on Canadian lumber.
In a letter to Gov. Walker and New York’s governor, Canadian Ambassador David MacNaughton wrote, “Canada has not taken any broader actions to limit imports from the United States…” adding the U.S. actually has more protectionist barriers keeping Canadian dairy out the of the American market.
Current Agriculture Secretary Sonny Perdue told WSAW he believes Canada’s actions were discriminatory to American producers, but is optimistic for the future.
“I think that great trader in the presidential seat that knows the art of the deal,” he said. “I think he can take advantage of that by helping to prosper our American agriculture with good trade deals, what he’s talking about is fair trade.”
Vilsack said the Trump Administration’s late appointments and confirmations of Perdue and a U.S. trade representative left President Trump without some key advisers.
“I think the lack of a secretary and a trade representative up to this point has had more of an impact on the internal conversations within the Trump Administration about trade,” adding because of that, “I think there has been kind of an inconsistency in the discussions coming from the president on trade that has created a lot of uncertainty, a lot of stress, a lot of doubt, a lot of anxiety among our trade partners.”
The new U.S. Trade Representative Robert Lighthizer, acting quickly since his confirmation May 11, wrote a letter to congressional members, stating he plans to begin negotiations with Canada and Mexico – America’s biggest dairy exports – to modernize the North American Free Trade Agreement as soon as possible.
But all of this effort was too late for the farmers dropped by Grassland Dairy.
“We had never really faced this before,” Wisconsin Department of Agriculture, Trade and Consumer Protection Agriculture Development Administrator Daniel Smith explained. “You could have a market correction; you could have a natural disaster such as a drought or major ice storm or tornado in an area or widespread hail storms, those things farmers are used to dealing with because it’s always been in the nature of agriculture.” He went on to say this was the first time that a change in the market reverberated back to the farm level and impacted only a specific number of farmers.
“Farmers took that very hard; they took it very personal. They took it as though they were singled out and that they were paying the cost directly for Grassland losing their market into Canada,” explained Smith.
He and other members of DATCP’s Farm Center provide emotional and business advice and support year-round since it was created in 1984, and was responsible for connecting most of the farms to processors left without a place to sell their milk. Only two of the 58 Wisconsin dairies did not get placed. One left the industry, the other is a farm of 12 cows that Smith said is difficult to place because of its size, but they are continuing to look for a processor that will take them on.
“Because this happened at this particular time, where milk supply is at its annual peak, the milk pipeline through the processing plants was chucked full,” Smith added, describing it as the perfect storm when the Canadian dairy industry pricing policy went national.
On top of that, the market for milk in America is oversaturated, though he prefaced Wisconsin processors have enough capacity to handle the amount of Wisconsin milk being produced. The problem, he said, is milk is coming from outside of Wisconsin in neighboring states such as Ohio, Michigan, and Indiana, making it a regional issue, rather than simply a state issue. Smith added dairies are also expanding in all of those markets, but those other states have not expanded processing capacities much.
“We learned how important communication is on several different levels,” Smith said, indicating from the dairy farmer all the way through the processor and lender, plans of expansion to retiring from the industry need to be communicated freely and openly.
The Heinze family is channeling that. With the sting of the letter still fresh on their minds, they feel passionate about being vocal to create permanent changes positive for the dairy industry.
“It’s important for us as farmers to really take the lead if we want changes made. Politicians don’t do this every day,” asserted Beth Heinze. “So, I feel like it’s going to be up to us to kind of band together to help lead our legislators in the direction that we feel we need to go.”
Smith said DATCP will be hosting listening session beginning in the summer and running through the fall to help facilitate and provide expertise for conversations on what policy changes all levels of the dairy industry believe need to be made in the future.
As negotiations begin on NAFTA, Mark Heinze is already voicing concern and urged leaders to be careful in their deals.
“Agriculture has actually been very well served by NAFTA, so we don’t want to just wreck it and start over because it could really cause some harm.” He explained, “We actually send a lot more milk into Canada and dairy products than they send back here… So, I certainly think it can be tweaked, but we don’t want to make it worse.”
In MacNaughton’s letter to the governors, he reinforced that, stating the “trade balance massively favours the U.S., at around five to one. U.S. exports of milk protein substances, including diafiltered milk to Canada were (in U.S. dollars) $98 million in 2016, up from $33 million in 2011. Dairy imports into Canada from the U.S. were up $83 million compared to 2015, a significant year-over-year increase of around 17 percent.”
Over the last two months, Vilsack and USDEC have been voicing concerns about the trade system and urging policy makers such as Speaker Ryan to talk more with Canadian officials.
“We at USDEC and in the entire industry are very interested in making sure that the administration understands the importance of the Canadian issue as they are beginning negotiations and discussions, whenever that begins, that front and center, at the top of the list from the US perspective is a resolution in some way shape or form of these issues.”
He told WSAW his advice to American leaders “is to suggest strongly to the Canadians that it would be in everybody’s best interest if they paused the Class 7 process… so that we don’t do irreparable damage.”
Vilsack also has been traveling the world recently, visiting markets such as Mexico, reassuring leaders there, they are a valued trade partner and are in a long-term relationship with the U.S. Adding Sec. Perdue and Rep. Lighthizer have a more complex and sophisticated view of trade that was missing during the vacancies. Also visiting China and Japan, he said those markets along with North Africa, and the Middle East show potential for new, long-term dairy export markets. He believes the U.S. can quickly increase its dairy export rate from 14 percent to 20 percent.