US dairy farmers get little help from Canada trade deal

MADISON, Wisconsin/ST. CLAUDE, Manitoba, Oct 25 (Reuters) - Minnesota farmer Paul Fritsche can no longer afford health insurance as he struggles to sustain a dairy farm that has been in his family for nearly a century.

With U.S. milk prices in the fourth year of a slump due to chronic oversupply, Fritsche, 58, is unsure whether he will be able to pass his 30-cow farm onto his sons and grandsons.

"Do you pull the plug? We've been at it for 90 years," he said. "I'd hate to lose that."

The dairy industry was a sticking point in the contentious renegotiations of the free trade deal between the U.S., Canada and Mexico that concluded last month.

U.S. President Donald Trump demanded concessions from the protected Canadian dairy industry and said on Twitter that Canada was hurting U.S. farmers with high tariffs. After Canada gave some ground, Trump claimed a big victory and said farmers would have more export options.

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NAFTA deal gives little help to US dairy farmers
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NAFTA deal gives little help to US dairy farmers

Miss USA and two other dairy cows eat their breakfast after their morning milking at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. Scooter and Cynthia LaPrise have about 30 cows on one of eight remaining dairy farms in Rhode Island. Miss USA is their daughter Maggie's show cow that was recently named Supreme Champion at this year's New England 4-H Program. 

(REUTERS/Oliver Doyle)

Cynthia LaPrise, 52, the co-owner of EMMA Acres dairy farm, discusses the state of dairy farms with her brother Paul Bailey in East Greenwich, Rhode Island, U.S., April 12, 2018. Cynthia is also a nurse at the Miriam Hospital in Providence, Rhode Island.

(REUTERS/Oliver Doyle)

Former dairy farmer Rodney Bailey, 90, and his sister Gladys, 94, sit in their home on farmland that has been a part of their family for generations in East Greenwich, Rhode Island, U.S., 12 April, 2018. Rodney is known as the "last of his kind" by local publication - the last farmer from the golden age of Rhode Island Dairy.

(REUTERS/Oliver Doyle)

A barn of a dairy farm that has long been out of operation belonging to former dairy farmer Rodney Bailey and his sister Gladys, is seen in East Greenwich, Rhode Island, U.S., 12 April 2018. The owners are thinking about turning this barn and the farmland surrounding it, into a wedding venue. 

(REUTERS/Oliver Doyle)

Bailey Brook Farm that belongs to former dairy farmer Rodney Bailey is seen in East Greenwich, Rhode Island, U.S., 12 April, 2018. Bailey still lives on this land though it is no longer in operation as a dairy farm. His daughter Cynthia LaPrise grew up on the farm. 

(REUTERS/Oliver Doyle)

Cynthia LaPrise, 52, the co-owner of EMMA Acres dairy farm, milks the cows, in Exeter, Rhode Island, U.S., 12 April, 2018. "Moms Rims" can be seen written on the dividers. Cynthia said that one of her children wrote it long ago. 

(REUTERS/Oliver Doyle)

Scooter LaPrise, 53, uses his bulldozer to dump feed for the cows into the steaming mixer at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. Scooter with his wife has about 30 cows on one of eight remaining dairy farms in Rhode Island. The cows get their breakfast after their morning milking. 

(REUTERS/Oliver Doyle)

Cynthia LaPrise, 52, the co-owner of EMMA Acres dairy farm, pokes her head into small living quarters above the milk storage room at the farm, in Exeter, Rhode Island, U.S., 12 April, 2018. The area also serves as a place to stay when the farmers need to stay close to their cows. Cynthia is also a nurse at the Miriam Hospital in Providence, Rhode Island. 

(REUTERS/Oliver Doyle)

Scooter LaPrise, 53, uses his bulldozer to dump feed for the cows into the steaming mixer at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. Scooter with his wife has about 30 cows on one of eight remaining dairy farms in Rhode Island. The cows get their breakfast after their morning milking. 

(REUTERS/Oliver Doyle)

Scooter LaPrise, 53, herds his cows into the milking parlour for the morning milking at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. Scooter shouts "Come on, Ladies!" as he directs his cows from their stalls into the milking parlour. Scooter with his wife has about 30 cows on one of eight remaining dairy farms in Rhode Island. 

(REUTERS/Oliver Doyle)

An old Rhody Fresh sign sits in the overgrowth behind the recently closed Cottrell Homestead dairy farm in West Kingston, Rhode Island, U.S., 15 July 2018. 

(REUTERS/Oliver Doyle)

Julie Brodeur, one of the farmers at Cottrell Homestead dairy farm, speaks with a man who visited inquiring about the status of the farm, in West Kingston, Rhode Island, U.S., 15 July, 2018. 

(REUTERS/Oliver Doyle)

Three cows stand in the summer heat at the recently closed Cottrell Homestead dairy farm in West Kingston, Rhode Island, U.S., 14 July 2018. The Cottrell Homestead at its peak was home to over 80 cows. Today, the farm houses less than 20, some of which are just being boarded there by their owners. They milk what they need to feed the calves, and dump the rest. 

(REUTERS/Oliver Doyle)

Scooter LaPrise, 53, and Cynthia LaPrise, 52, the owners of EMMA Acres dairy farm, gather in the milk storage room preparing for the truck that picks up the milk to arrive in Exeter, Rhode Island, U.S., 7 April, 2018. Milk is stored in the large stainless steel vat seen behind them. 

(REUTERS/Oliver Doyle)

Scooter LaPrise, 53, walks from the milk storage room after the nighttime milking at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 12 April, 2018. Scooter with his wife has about 30 cows on one of eight remaining dairy farms in Rhode Island. 

(REUTERS/Oliver Doyle)

The AgriMark truck collects milk from EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. 

(REUTERS/Oliver Doyle)

Cynthia LaPrise, 52, and Scooter LaPrise, 53, the owners of EMMA Acres dairy farm, milk their cows, in Exeter, Rhode Island, U.S., 7 April, 2018. Scooter and Cynthia LaPrise have about 30 cows on one of eight remaining dairy farms in Rhode Island. They are a married couple and have four children. They have been producing milk at their dairy farm for 10 years. Their smaller sized milk parlour holds up to 10 cows at a time. 

(REUTERS/Oliver Doyle)

Dairy cows are seen in their stalls before their daily milking at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. 

(REUTERS/Oliver Doyle)

Supplies, old signs for decoration, and trophies from contests line the walls at a barn at EMMA Acres dairy farm, in Exeter, Rhode Island, U.S., 7 April, 2018. 

(REUTERS/Oliver Doyle)

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But Canada opened less than 4 percent of its dairy market to U.S. farmers - a concessions unlikely to make much of a dent in U.S. oversupply or improve the lot of farmers such as Fritsche, producers on both sides of the border say.

The U.S. Trade Representative - which negotiated the new deal that replaced the North American Free Trade Agreement (NAFTA) with Mexico and Canada - declined to comment. U.S. Agriculture Secretary Sonny Perdue said in a statement Friday that the deal will "crack open" additional dairy access and cited "significant victories" for U.S. agriculture.

In Canada, the dairy industry is faring much better and continues to be among the nation's most profitable farm sectors, allowing most farmers to absorb the concessions' impact. In addition, Ottawa has promised to compensate dairy farmers for losses stemming from opening up the industry.

Third-generation Canadian farmers Alain Philippot and Henry Holtmann are each preparing to bring their children into the business. They say the concessions sting and will limit growth. But the country's protectionist system with its higher prices remains intact.

"I don't think there will be a mass exodus" of farmers, Holtmann said. "There will be some leaving, but that's because their business models weren't flexible enough."

DROWNING IN MILK

With Wisconsin alone producing more milk than is consumed in all of Canada, the additional market access provides little comfort.

The average price that dairy plants pay U.S. farmers for milk fell from a peak of $25 per hundred pounds (45.36 kilograms) in 2014 to about $16 now, according to the U.S. Department of Agriculture (USDA).

“The only thing that will help us is less milk or more consumption of milk,” said Scooter LaPrise, 53, who with his wife has about 30 cows on one of eight remaining dairy farms in Rhode Island.

“It’s not going to fix anything,” he said of the revamped trade agreement. “It’s just something to catch votes.”

(For a Wider Image photo essay on U.S. dairy farmers, see: https://reut.rs/2JicGyI )

While the more than 40,000 U.S. dairy farms have endured slumps before, the current price slide has been unusually drawn-out as milk production increased in recent years despite falling prices. Per capita consumption of U.S. fluid milk has been falling steadily since the 1970s, although total dairy consumption has increased as Americans eat more yogurt, butter and cheese, according to the USDA.

The new arrangement with Canada likely won't pull U.S. dairy farmers out of the ditch, said Mark Stephenson, director of dairy policy and analysis at the University of Wisconsin.

"It does provide a bit more access to Canada," he said. "But it's pretty incremental change."

PROTECTED MARKET

Canada has been an island of stability in an otherwise volatile global industry. In July, farmers in the Canadian province of Ontario received the equivalent of $24.20 per hundred pounds of milk, about 50 percent more than U.S. farmers collect, according to data published by Dairy Farmers of Ontario.

That's because Canada manages oversupply by issuing production quotas to farmers based on domestic consumption, setting prices according to a formula that factors in farm costs and imposing high tariffs to keep most imports out.

In 35 years of farming, St. Claude, Manitoba farmer Philippot has lost money only "a handful" of times.

Since Holtmann and his brother took over the family dairy farm near Rosser, Manitoba in 1995, they have expanded nine-fold, to 600 cows, which required them to spend about C$14 million to purchase the right to produce more milk. The system allows farmers to buy and sell units of production quota - based on 1 kilogram of butterfat per day, or nearly the output of one cow - which currently fetch close to C$30,000 each at auction in Manitoba.

In a Statistics Canada profitability measure, dairy farmers' operating expenses were 77 percent of gross farm receipts in 2015, the latest data available, the healthiest level of 11 farm sectors.

That statistic does not include debt, however. Canadian dairy farmers in 2015 held the second-highest liabilities on average among Canadian farm sectors as well as the third-highest net worth, according to Statistics Canada.

Farmers say concessions in recent trade deals will strain their profits and leverage.

Dairy Farmers of Canada (DFC) estimates that the market share ceded to the United States, as well as in trade deals with the European Union and Pacific nations, will add up to 18 percent by 2024, worth C$1.3 billion.

"Is it impossible to get over that? No. But it's like losing a finger, and then another one," said Philippot at his small 68-cow farm.

Canada also agreed in trade talks with the United States to dismantle a pricing system for the lower-value skim portion of milk that previously allowed Canadian skim to displace U.S. ingredients in the production of cheese and yogurt. Philippot says that move will reduce the prices farmers receive for milk.

Canada's combined concessions could mean reductions to Canadian dairy farmers' quotas, since production is matched to domestic consumption, less imports.

Domestic consumption growth, however, estimated at 2 percent annually by DFC for the next six years, offsets some of the lost share to imports and mitigates any reduced quotas.

LaPrise expressed admiration for Canada's "really good milk system."

"When a Canadian dairy farmer wants to retire he sells his quota and he can retire on that," he said.

'BACK IN THE HOLE'

U.S. dairy farmers have sought additional revenue with second jobs, harvesting grain and dabbling in genetics by selling cows, bulls and embryos.

Many farmers couldn't get by without such side jobs, said Julie Brodeur of West Kingston, Rhode Island. Brodeur and her brothers, fourth-generation dairy farmers, quit the business in March after their 70-cow operation stopped generating enough income to keep the cows fed.

"You borrow some more and then you pay everything off," Brodeur said. "And you think everything is going good. And then you're back in the hole."

(Reporting by Julie Ingwersen in Madison, Wisconsin and Rod Nickel in St. Claude, Manitoba; additional reporting by Humeyra Pamuk in Washington and Caroline Stauffer in Chicago; editing by Denny Thomas, Simon Webb and Brian Thevenot)

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