Dairy trade war between U.S., Canada will test Trump

SHEBOYGAN, Wis. – Seven generations of Gartmans have birthed calves in this barn, a white-roofed, red-sided structure within a short walk of the land the first Gartmans are buried on.

But the bull that Luke Gartman, 36, pulled into the world on a recent Tuesday morning was a special one. This calf — steaming and soggy and apparently unbreathing, before Luke begins to poke his face with straw — could be one of the very last calves ever born on the Gartmans' farm.

The family has two weeks to find a new dairy processing company to buy their milk and sell it into the market. The contract with their existing buyer was just canceled, the latest casualty of an increasingly acrimonious trade war with Canada over the price of ultrafiltered milk, an ingredient used in cheese.

"We could be in a situation where we have to sell the cows," said Gartman's brother Matt. "If we're to that point of May 1 and have no solutions — well, we would no longer be a dairy farm."

The dispute — which has played out in surprisingly barbed remarks across the normally friendly northern border — illustrates the enormous complexity of fulfilling President Trump's promise to renegotiate the North American Free Trade Agreement, the free trade pact with Canada and Mexico.

While NAFTA is often portrayed as a single trade agreement to be negotiated, it has specific provisions affecting thousands of products in hundreds of industries. The trade pact contains terms governing dozens of different dairy products alone.

Reworking many of these, experts say, will involve not just complex technical discussions but a fight between powerful political interests on both sides of the border. And in almost every case, on the line will be the livelihoods of the people who grow or make the products, each with a compelling case for why their side should prevail.

"This could certainly become an issue in any attempt to renegotiate NAFTA," said Luis Ribera, an agricultural economist at Texas A&M who studies North American trade. "Once you open NAFTA, everything is theoretically on the table for debate."

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The dairy industry, like much of agriculture, has never been predictable. But until receiving the cancellation letter earlier this month from their processor, Grassland Dairy Products, the Gartmans at least knew where their milk would end up.

Every morning at 5, Luke, Matt and their father, Mark, begin herding the family's 120 Holsteins from the 13,000 square-foot barn where they sleep. They guide the cows to pumps in the 12-stall milking parlor, where they produce 3,800 pounds of milk in each of the herd's two daily milkings. The milk is siphoned via stainless-steel pipes to a Civil War-era cold room, where it awaits pickup by an insulated tanker truck.

From there, the milk travels 194 miles west to Greenwood, Wis., where Grassland processes it into butter, cream, dry milk powder and a high-protein milk concentrate called ultrafiltered milk. The bulk of ultrafiltered milk is then shipped to Canada and used as a protein added to cheese.

But ultrafiltered milk hit the market after NAFTA's 1994 enactment. As a result, it could enter Canada without facing big tariffs.

Ontario farmers, frustrated with the arrangement, last April dramatically cut the prices on Canadian ultrafiltered milk. Other provinces plan to follow suit, posing a dire threat to U.S. farms.

Companies such as Grassland and New York's Cayuga Milk Ingredients have already reported losses of $150 million since the price drop began.

American agricultural interests have decried Canada's actions as deeply unfair.

"Our federal and state governments cannot abide by Canada's disregard for its trade commitment to the United States," Tom Vilsack, president of the U.S. Dairy Export Council and former secretary of agriculture under President Barack Obama, said in a statement. Canada, he continued, has "pursue[d] policies that are choking off sales of American-made milk to the detriment of U.S. dairy farmers."

"To use a phrase that has recently come out of the U.S., Wisconsin farmers are using alternative facts," said Isabelle Bouchard, the director of communications and government relations at the industry group Dairy Farmers of Canada. "The Wisconsin people are trying to find an enemy — when in reality the problem they have is that they're overproducing."

With dairy farmers scrambling to find new markets for their milk, a bipartisan alliance of policymakers, including New York Gov. Andrew Cuomo and Wisconsin Gov. Scott Walker have called on the Canadian government to intervene in its dairy industry.

Sens. Tammy Baldwin and Ron Johnson of Wisconsin — a liberal Democrat and a tea-party Republican, respectively — joined a statement by Speaker of the House Paul Ryan this month that alleged that the new pricing policies "appear to violate Canada's existing trade obligations to the United States."

Industry groups, meanwhile, have called on the Trump administration to intervene directly. On Thursday, several powerful dairy trade associations sent a joint letter to Trump, asking that he push Canadian Prime Minister Justin Trudeau on the issue and direct U.S. agencies to "impress upon Canada in a concrete way the importance of dependable U.S. trade." The letter called on Trump to escalate the issue to the World Trade Organization if Canada doesn't respond positively.

Industry is also concerned the dispute could spill into other products. The Ontario price drop applied not only to ultrafiltered milk but also to skim milk powder, which could eventually result in Canadians selling more of the ingredient on global markets. That could depress prices for American farmers, and ultimately hurt them even more than the lost trade in ultrafiltered milk.

The U.S. Trade Representative's 2017 report on barriers to U.S. trade, which articulate the country's trade enforcement priorities, discussed the dairy concerns. Emily Davis, a spokeswoman for the office, said that USTR was "aware of the importance of the Canadian market for American dairy farmers" and was "examining" the matter.

"The administration has demonstrated strong interest in trying to resolve this issue," said Jaime Castaneda, the vice president of trade policy at the National Milk Producers Federation. "They are definitely paying a lot of attention."

The escalating rhetoric has begun to alarm some Canadians.

"A lot of people are very nervous in Canada because of Mr. Trump's statements about trade," said Sylvain Charlebois, a professor of food policy at Dalhousie University in Nova Scotia. "You could easily see the U.S. refusing to buy Canadian beef, for instance, unless Canada opened its dairy markets."

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"Everybody knows there's nowhere to go with this milk. Absolutely nowhere," said Stacy Limberg, who heads the Sheboygan County Dairy Promotion Board, gesturing around her own barn. "I can't even begin to fathom what we would do in that situation."

Ten miles east on County Road V, the Gartmans have begun to fathom it. They remain "hopefully optimistic" that they will find a new processor by the May 1 deadline, and have recently heard from a local hauler who believes he might have a connection for them.

Should that fall through, however, the brothers are discussing the possibility of moving their herd, short term, to a relative's farm. And if they still can't find a processor at that point, they'll begin to truck their cows to auction.

That is a prospect that Gartman said he refuses to think about, yet. He knows each of his 120 cows on sight, by name: There's Yodel, Dinah, Egypt, Cosmic, Jolly — generations of cows milked in this room his mom hand-stenciled with a cow motif in the '80s.

On a recent Monday night, his 8-year-old niece Audrey herded cows around the parlor, unfazed by the fact that most were twice her height. Gartman's own children were off the farm at a 4-H meeting for the night.