California’s dairy farmers were struggling to regain profitability. Then came the trade wars

“The overall feeling is that we hit ‘peak cow’ five or six years ago.”

Devin Gioletti, a fourth-generation dairy farmer in this Central Valley community, was outlining for me the trajectory of the dairy industry in California, the nation’s largest. He was alluding back to when the industry was still growing and milk prices were rising, and his family farm was expanding the herd and investing in advanced equipment to raise the productivity of its thousands of cows.

Things look different now. The industry, including his farm, has been unprofitable since 2014, when prices peaked. Since then, the average producer price for raw milk has fallen by almost one-third, to less than the cost of production.

For a few months this spring, it looked as if milk prices were finally turning around. Then came the tariffs.

Starting at the beginning of July, Mexico and China imposed tariffs on U.S. dairy products in retaliation for Trump administration trade belligerence. China, which had been developing as a promising new market for U.S. dairies, imposed new tariffs on dairy products almost across the board as Trump moved to place 25% tariffs on up to $50 billion in imported goods; combined with existing tariffs, the levies now reach as high as 45% on some products. Trump added 10% tariffs on an additional $200 billion in Chinese imports in August, with a threat to raise them to 25% on Jan. 1.

Meanwhile, Mexico, retaliating for Trump tariffs aimed at forcing a renegotiation of the North American Free Trade Agreement, imposed 25% tariffs on U.S. cheese. Although the agreement has been modestly renegotiated, the tariffs are still in place.

Those moves have left dairy producers feeling like collateral damage in a war they had nothing to do with. Wisconsin may bill itself as “America’s Dairyland,” but California is the leading dairy state in the union, with the most cows and highest production. California dairies had made great strides in opening new foreign markets, in part by exploiting the benefits of NAFTA and by focused approaches to China and other Asian markets.

“Two decades ago, this industry was largely domestic,” says Rachel Kaldor, executive director of the Dairy Institute of California, a statewide trade association. Now, with a third of its production exported to trading partners that are “exercised about tariffs being thrown on their products and want to retaliate, we look like we’re going to be vulnerable,” she says.

“These are markets we’ve been working on for years,” says Annie AcMoody, chief economist for the trade group Western United Dairymen. Dairy producers fear that while they’re shut out of the markets, competitors from Europe, Australia and New Zealand will take the opportunity to strengthen their foothold. “Once you lose a market, it takes time to get it back,” she says.

For Gioletti and other members of California Dairies Inc., the state’s largest dairy cooperative and the second-largest in the U.S., the trade war with China has had a direct effect: “We no longer sell any products into China since the middle of this year,” says Rob Vandenheuvel, the co-op’s vice president of industry and member relations. That means the loss of 6% to 9% of its sales of milk powder. “We’re down to zero there.”

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