America’s hard-working dairy farmers are being exploited by the gross abuse of global trade norms by the country’s 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 “supply management.” 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 . This came to a head with the election of President Trump and the effort in 2017 to renegotiate NAFTA. 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.
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 . 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 . 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 . 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 . 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 . 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 .
In the short term, Cayuga has found a willing ally for its complaint in both President Trump and Democratic Senator Schumer from New York  and the pressure has been stepped up during the fourth round of NAFTA renegotations. Cayuga hopes to be able to access the Canadian market again in the short term. However, the company is itself a long-term move made by its co-op members in order to stay competitive. The 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. As a part of the trend, Kroger, a national retail grocery store, recently brought 100% of their milk production under their control. 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. The company is working to convert almost 80% of its intake into powdered milk that it can export to mainly Mexico and Saudi Arabia . This transition to a product more easily exported allows for greater global distribution and resilience to regional demand fluctuations.
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. 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. By expanding into additional states, it may set itself up as an ideal regional partner if and when the Canadian dairy market is opened. 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. 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. Continuing the path into greater diversification into the international market is critical to Cayuga’s long-term success.
A relatively small co-op in upstate New York, Cayuga finds itself caught in some of the swiftest changing political tides in generations. 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. Is Cayuga right to publicly pressure the Canadian government to remove supply management instead of focusing on less politically sensitive expansion? 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?
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 Dan Charles, “How Canadian Dairy Farmers Escape the Global Milk Glut”, 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, accessed November 2017.
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