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What happened? What’s next? - USMCA dispute panel sides with U.S. dairy

Progressive Dairy Editor Dave Natzke Published on 18 January 2022

In this column, Progressive Dairy summarizes issues in the news and attempts to describe how they might affect dairy farmers. Look for more extensive background and details at Progressive Dairy.

Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke.

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USMCA DISPUTE SETTLEMENT

What happened?

Right at Progressive Dairy’s deadline, a U.S.-Mexico-Canada Agreement (USMCA) Dispute Settlement Panel found Canada is improperly restricting access for U.S. dairy products in violation of its USMCA tariff-rate quotas (TRQs) commitments.

A TRQ applies a preferential rate of duty to an “in-quota” quantity of imports and a different rate to imports above that in-quota quantity. Under the USMCA, Canada has the right to maintain 14 TRQs on dairy products.

In notices to importers in 2020 and 2021, Canada set aside a percentage of each dairy TRQ exclusively for Canadian processors. According to U.S. dairy stakeholders, this was contrary to Canada’s USMCA commitments by limiting U.S. access to in-quota quantities negotiated under the USMCA.

What’s ahead?

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There’s lots to get through – and with time short, we’ll follow up in a future issue of Progressive Dairy. With the finding, Canada faces possible retaliatory measures if the dispute issues are not resolved by Feb. 3, 2022.

Bottom line

The USMCA was initially approved by trade negotiators on Sept. 30, 2018. After being ratified by the three governments, it went into effect on July 1, 2020.

Faced with immediate implementation challenges, the U.S. filed a formal complaint over dairy trade issues in December 2020, but consultations to resolve differences failed.

Supported by U.S. dairy organizations and members of Congress, the Office of the USTR requested formation of a formal dispute panel in May 2021, arguing that Canada has maintained dairy TRQ measures that run counter to its market access obligations under USMCA. The hearing concluded at the end of October 2021.

DIPP PROGRAM

What happened?

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While the Dairy Margin Coverage (DMC) program has received the bulk of attention this winter, the USDA also announced changes to the Dairy Indemnity Payment Program (DIPP).

As established, the program made indemnity payments to producers for milk that had to be dumped due to contamination. With the changes, dairy producers are eligible to receive a payment for loss of dairy cows because of permanent milk contamination, including from per- and polyfluoroalkyl substances (PFAS).

Contamination from PFAS is considered permanent due to the long lifespan of the chemicals. Because cows affected by PFAS contamination will not be able to produce non-contaminated milk in the future, the new rule provides compensation for deceased or depopulated cows.

To be eligible to receive DIPP payments, the producer must provide:

  • Inventory of all contaminated cows and heifers, including deceased and depopulated cows, since the contamination occurred.

  • An approved plan describing how, where and when cows will be depopulated and disposed.

  • Documentation the cows are not marketable through normal cull cow market facilities.

  • Have produced whole milk that was removed from the commercial market pursuant to the direction of a public agency.

  • Not have been responsible for the milk contamination.

  • Certify compliance with Highly Erodible Land Conservation (HELC) and Wetland conservation (WC) provisions.

  • Submit a completed FSA-373B to the FSA local office no later than December 31 following the end of the fiscal year in which the loss occurred.

The USDA’s Natural Resources Conservation Service will target assistance through the Environmental Quality Incentives Program and other conservation programs to help producers safely dispose of and address resource concerns created by affected cows.

Bottom line

DIPP cow indemnity payments will be paid on 100% of fair market value according to the USDA’s Livestock Indemnity Program pay rate for the application claim year.

NORTHEAST ORGANIC CONTRACTS

What happened?

State officials and leaders of regional organic organizations said Danone North America, owner of Horizon Organic, has agreed to extend milk purchase contracts for Northeast organic dairies for an additional six months, until Feb. 28, 2023.

Last August, Horizon notified 89 dairy producers in New York, Vermont, Maine and New Hampshire that their milk supply contracts would not be renewed beyond August 2022. That prompted protests from organic dairy advocates and the establishment of task forces to seek alternative milk marketing options for the affected producers.

What’s ahead?

According to a letter from Chris Adamo (Danone North America’s vice president of government relations, policy and partnerships), the company’s four-part Northeast organic dairy transition plan will extend contracts until February 2023, provide transition payments on milk purchased from these producers during the last six months of the agreements, provide access (at no cost to the farmer) to farm financial consultants, and explore co-investment solutions to address challenges related to the Northeast organic dairy infrastructure.

Following are updates on other news items covered by Progressive Dairy:

FMMO REFORM

U.S. Ag Secretary Tom Vilsack said a consensus is needed within the dairy industry before moving forward with potential hearings on Federal Milk Marketing Order (FMMO) reforms. A bill introduced in the U.S. Senate, in early December, would mandate Vilsack to take steps to initiate national hearings on possible FMMO reforms within six months of its approval.

DAIRY MARGIN COVERAGE (DMC) PROGRAM

Changes to the Dairy Margin Coverage (DMC) program as well as updates on 2021 indemnity payments and the 2022 enrollment period are covered extensively in this issue of Progressive Dairy. One change from information previously released is that retroactive indemnity payments for hay price adjustments in 2020 are subject to a 5.9% sequestration deduction, with a 5.7% deduction on the 2021 hay adjustment. It was previously implied the sequestration rate was 5.7% for both years.

MILK PRICE REPORTS

We’re going back in time a bit, but two monthly average milk prices announced by the USDA both improved for September milk marketings. What’s more noteworthy is the spread between the average “all-milk” and “mailbox” prices widened slightly to about 87 cents per cwt during that month.

The all-milk price is the estimated gross milk price received by dairy producers and includes quality, quantity and other premiums but does not include marketing costs and other deductions. The mailbox price is the estimated net price received by producers for milk, including all payments received for milk sold, and deducting costs associated with marketing.

The difference in the two announced prices can affect dairy risk management, since indemnity payments under the DMC, Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) programs are all based on the all-milk price, before any marketing cost deductions.

RETAIL DAIRY SALES

Driven by concerns over COVID-19 and inflation, consumers continue to eat more meals at home, affecting values and volumes of retail dairy product purchases, according to a monthly update from the International Dairy Deli Bakery Association (IDDBA). While retail inflation is the highest in many decades, the cost of eating out rose even more.

Like October, November retail dairy sales (value basis) exceeded year-earlier levels, up 0.6% from November 2020 and up 8.7% from November 2019. However, sales performance compared to a year earlier remained mixed at the category level. Following patterns established in October, November 2021 unit and volume sales trended below 2020 levels for most dairy categories.

One issue facing heightened concern is that 37% of consumers surveyed said they encountered out-of-stock items when grocery shopping in November. In addition to paper towels and toilet paper, fluid milk was listed as being in short supply. end mark

Dave Natzke
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