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Local dairy farmers struggle in a world 'just flooded with milk'

Local dairy farmers such as John Richmond suddenly see one of their biggest challenges – and President Trump's first big trade controversy – emerging from, of all places, north of the border.

Amid a worldwide milk glut that has pushed prices down and left some local farmers just scraping by, the Canadian dairy industry in recent months made moves that, in essence, closed the border to a key American milk product.

American dairy experts say the move will keep the annual equivalent of 3,000 tanker trucks of milk that would have headed north stuck in America, further flooding the U.S. market and further driving down prices.

As a result, for Western New York's 935 or so dairy farms, "it's going to be harder than ever to pay our bills," said Richmond, who runs a dairy farm with 200 cows in North Collins.

At the same time, though, the dairy trade battle – which has enlisted everyone from Trump to Senate Minority Leader Charles E. Schumer to Canadian Prime Minister Justin Trudeau – is just the latest front in a worldwide war engulfing the U.S. dairy industry.

Cows wait to be milked on John Richmond's farm in North Collins. (Mark Mulville/Buffalo News)

Farmers say milk prices have plummeted thanks to a myriad of factors, including excess production, the cooling of the Greek yogurt craze, the emergence of "almond milk" and trade sanctions against Russia.

Given all of that, Canadian dairy interests say, basically: Don't blame us.

"This is (a battle) I don't think anyone would want to pick when you start looking at it," said a Canadian dairy expert who asked not to be identified by name.

A big-name battle

Now, though, it's a battle that's reaching the highest levels of the U.S. and Canadian governments.

"Canada ... what they've done to our dairy farm workers is a disgrace. It's a disgrace," Trump told reporters last Thursday. "Rules, regulations, different things have changed, and our farmers in Wisconsin and New York State are being put out of business."

Trudeau replied, diplomatically, in a question-and-answer session in Toronto that same day.

"Let's not pretend that we're in a global free market when it comes to agriculture," Trudeau said. "Every country protects, for good reason, its agricultural industries."

Trump and Schumer: Bonding over, of all things, milk?

Trudeau went on to note that while Canada has a milk management system that regulates its dairy market, the United States offers agricultural subsidies that benefit its dairy industry.

In saying that, Trudeau wasn't exactly defending a Canadian government decision that's affecting the dairy market in the United States – because there was no such government decision.

Instead, he was alluding to the actions of the Canadian dairy industry itself.

That industry, in the words of a Toronto Globe and Mail editorial last week, operates as a price-fixing cartel that "benefits dairy farmers at the expense of everyone else – Canadian consumers, in particular."

Industry-led provincial marketing boards set milk prices in Canada, keeping them higher than in the United States. But for years, those marketing boards left open a loophole that allowed American milk producers to undercut the Canadian market price for ultra-filtered milk.

American dairy producers ended up selling upwards of $150 million a year in ultra-filtered milk in Canada, where processing companies turned most of it into cheese or yogurt.

But last year, the provincial milk marketing board in Ontario decided to allow Canadian farmers to start selling ultra-filtered milk — not at the propped-up Canadian price, but at the lowest price that would be available on the world market.

Soon, Ontario's new milk pricing policy spread across Canada, going national early this year.

"This was an industry-led initiative," not a government policy, said Ashlee Smith, a spokesperson for Dairy Farmers of Canada.

Too much milk

So now, the Canadians are undercutting the Americans on the price of ultra-filtered milk.

And as a result, U.S. milk processers such as O-AT-KA Milk Products of Batavia find themselves with a lot of extra milk and nowhere to sell it.

"This isn't something that puts us out of business, but it's a pretty big bump," said Craig S. Alexander, vice president for dairy ingredients and regulatory affairs at O-AT-KA, which is owned mostly by Upstate Niagara Cooperative and its 360 farmers.

Those 360 Western New York farmers will see the most immediate impact of the Canadian milk pricing policy, as O-AT-KA struggles to find buyers for the milk it has been selling in Canada.

But Alexander stressed that all that excess milk will mean that eventually, all American dairy farmers are likely to get lower prices for their milk.

"It's disruptive to the entire market," Alexander said.

How disruptive?

Richard Janiga, who owns a 500-cow dairy in Marilla, fears for the worst.

"It means farms going out of business," he said.

A topsy-turvy business

Those fears stem not just from what happened in Canada, but from what's happened over the years in the notoriously topsy-turvy dairy industry.

The New York dairy industry, one of the nation's largest, was booming just three years ago, as Greek yogurt became a popular breakfast and snack item.

The prices the state's dairy farmers get for their milk peaked in 2014 – but then prices fell 35 percent over the next two years, according to February-to-February data from the U.S. Department of Agriculture. And the Canadians had absolutely nothing to do with that.

Falling milk prices start with the improvements most farmers have made in feeding and caring for their cows, several local farmers said.

"It's all about breeding, management, cow comfort, better crops," said Richard Kimball, president of the Chautauqua County Farm Bureau.

Those changes turned every single cow into a much more productive milk-maker. Kimball said the average cow on his farm now produces more than twice as much milk per year as the same sort of cow four decades ago.

Rick Janiga, left, and Corey Miller, right, walk through the R&D Janiga farm in Marilla. (Mark Mulville/Buffalo News)

But at down times like these, productive cows mean too much milk and too-low prices for the nation's dairy farmers.

For one thing, the Greek yogurt boom is over. Sales of Greek yogurt grew 41 percent as recently as 2013, but by 2015 they rose only 4.6 percent, according to Statista, a German company that keeps track of data on more than 80,000 topics.

With the boom ending, a Quaker-Muller Greek yogurt plant in Batavia that employed 200, shut its doors in late 2015.

Meantime, Chobani – the Colossus of the Greek yogurt industry – has been expanding its production in Idaho, not New York State.

Asked about the Greek yogurt business, Darin Hill, the president of the Cattaraugus County Farm Bureau, said: "I don't think it ever reached its expected potential."

That boom ebbed as Americans continued drinking less and less milk every year. Fluid milk consumption is down about 36 percent over the past 40 years, according to federal statistics, as more consumers have turned to products that farmers derisively call "soy juice," "almond juice" and the like.

On top of all that, the U.S. dairy industry is coping with a strong dollar that makes it harder for it to sell milk overseas, as well as the vagaries of international politics.

In retaliation for sanctions placed on Russia after its takeover of Crimea, Russia in 2014 banned the importation of most dairy products from the United States, Canada, the European Union and Australia.

Farmers struggling

Add it all up, and "the world is just flooded with milk," Kimball said.

And farmers are drowning.

Jeffrey Simons, president of the Erie County Farm Bureau, said that for a majority of the time since 2009, the cost of producing milk has exceeded the price farmers can get for it.

"It has been a struggle for a long time," said Simons, whose county farm bureau served 88 local dairy farmers in 2015, according to state statistics. "I am hearing of at least 10 farmers that are planning on getting out."

Farmers said they're pessimistic because they expect milk prices to sink even further thanks to the new Canadian policy that's keeping huge volumes of Canadian milk on this side of the border.

That being the case, Trump and Schumer, D-N.Y., are trying to threaten Canada into changing its dairy policies.

"We hope they move quickly before we are forced to take retaliatory trade actions against them," Schumer said last week.

So far, though, Canadian officials are standing their ground.

In a letter to Gov. Andrew M. Cuomo of New York and Gov. Scott Walker of Wisconsin, David MacNaughton, the Canadian ambassador to the United States, noted that American companies sell five times as much in dairy products in Canada than their Canadian counterparts sell in America.

"Canada has not taken any broad actions to limit imports from the United States," MacNaughton said.

That's not the way U.S. farmers such as Janiga see things, though. They see the Canadian dairy industry colluding to drive American milk out of the Canadian market, and they say it's just not right.

"This has got to be rectified in some way," Janiga, the farmer from Marilla, said. "We can't just sit back and let it happen."

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