Chinese and Mexican tariffs are slamming U.S. cheese producers just as exports — and stockpiles — hit record levels, pushing prices to their lowest levels since 2009, according to The Wall Street Journal.
China announced July 6 it was instituting tariffs on cheese and whey, among other items, matching a new round of tariffs from the Trump administration. And, in response to U.S. tariffs on Mexican steel and aluminum, the neighboring country placed levies of up to 15% on most U.S. cheese in June before raising it last week to 25%.
All this comes as U.S. dairy exports hit an all-time high in April, double the amount of 10 years ago, the Journal reported. The concern is that Trump's trade agenda could hurt that growth. Meanwhile, the price for a 500-pound barrel of white cheddar has fallen to its lowest point since 2009, and the amount of cheese in cold storage in the U.S. is at its highest level in more than 100 years.
The U.S. dairy industry has been working hard to diversify and build exports to reduce the oversupply of milk, so the Chinese and Mexican tariffs couldn't come at a worse time. U.S. exports hit a record high in April, but dairy farmers have seen prices drop to levels below their cost of production due to corporate consolidation, shifting consumer tastes and oversupply.
All these challenges come as dairy faces challenges from plant-based substitutes. Non-dairy milk sales in the U.S. have increased 61% during the past five years and were forecast to reach $2.11 billion last year, according to Mintel. This contrasts with sales in the dairy milk category, which have dropped about 15% since 2012 to an estimated $16.12 billion in 2017.
As a result, some in the dairy industry have diversified into yogurt, butter, ice cream and other value-adds to bolster their bottom lines. Dean Foods, the country's largest milk producer, has expanded into dairy-free beverage alternatives. It announced earlier this month that it increased its stake in Good Karma Foods — a maker of flaxseed-based products — to a majority position.
It's uncertain what might happen next in the tariff wars, so unless dairy producers and cheesemakers can find new markets, they might have no recourse but to hunker down and try to ride it out. For some dairy farmers and processors already close to the edge, there may be no other option but to get out of the business. There is probably little comfort for cheese and dairy knowing that other commodities are being impacted by the tariffs, including soybeans, pork, fruit and vegetables, among others.
The federal government has some tools to help. In 2016, the U.S. Agriculture Department stepped in with an offer to buy up $20 million worth of cheddar cheese. The department has authority to purchase surplus food to benefit food banks and nutrition assistance programs. It also can make payments to dairy producers through its Dairy Margin Protection Program. While such actions may help, they probably won't alleviate the long-term situation.
The dairy industry would like to see Trump back away from policies it views as protectionist and fully support trade deals such as the North American Free Trade Agreement. So far, that appears unlikely as the president shows no sign of changing his mind about what he views as one-way arrangements that undercut American industry.