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Trade war hits Idaho dairies, cherries and beer

August 10, 2018

SunRidge Dairy in Nampa says it’s losing more than $4,000 a day.

The family dairy milks 2,900 cows in the Treasure Valley, sending approximately 250,000 pounds of milk down the road to the Sorrento Lactalis cheese plant every day. Co-owner Adrian Kroes and other local dairy producers saw a 15 percent drop in milk prices below what was projected for July. Kroes estimates they’ll close the month of July $150,000 under projected revenue, and stand to lose at least $100,000 more in August.

State dairy associations say SunRidge Dairy isn’t alone, and despite ongoing industry labor shortages, there’s one obvious reason for the loss.

“Our dairymen have sustained tremendous losses already,” said Rick Naerebout, CEO of the Idaho Dairymen’s Association. “We were starting to see a resurgence — but then the trade war started.”

Tariffs impacting key Idaho trade partnerships

Earlier this year, the Trump administration placed tariffs on steel, aluminum and billions of dollars of Chinese goods, prompting retaliatory tariffs on U.S exports from key trade partners.

Idaho businesses — especially in the agricultural industry — are already paying for these retaliatory tariffs. Canada, China and Mexico were among Idaho’s top foreign export destinations in 2017, according to the Idaho Department of Commerce.

In June and July, Mexico put tariffs on cheese, pork, apples, potatoes, steel and aluminum, among other products; Canada put tariffs on steel and aluminum; and China upped its tariffs on dairy, beef and other agricultural products an additional 25 percent. The European Union in June also imposed tariffs on several U.S. exports with significant Idaho industries — the largest being kidney beans, according to an analysis by the Idaho Department of Commerce.

Before retaliatory tariffs, the U.S. enjoyed extensive free trade with both Canada and Mexico under the North American Free Trade Agreement (NAFTA). Renegotiations of trade agreements with both countries are ongoing, with rumors of agreements looming.

In 2017, Idaho exports to Canada and Mexico topped $1.07 billion, with $353 million more in exported goods to China.

Idaho State Department of Agriculture spokeswoman Chanel Tewalt said the tariffs have an undeniable effect on Idaho’s economy. Twenty percent of all sales in the state come from agriculture, Tewalt said. Their department has been fielding worried calls from businesses across the state.

“When you look at all states in the United States and you see how much GDP is agriculture generated, we are the fourth highest in the nation,” Tewalt said. “When there are disruptions in the ag market, it will be felt in a state like this.”

‘Tremendous amount of stress’ for dairy producers

Before tariffs were imposed, Idaho’s dairy industry was already feeling the strain. Low unemployment is difficult for an industry that has no access to a temporary worker visa program, such as the H-2A agricultural visa program increasingly used by Idaho farmers. The lack of access to foreign worker visas means Idaho’s dairy industry has historically employed more undocumented foreign workers than in other industries, Naerebout said. A national crackdown on immigration threatening a sparse workforce creates uncertainty for dairy producers and employees alike.

The dairy industry represents about one-third of Idaho’s agricultural sector, according to an analysis by the Idaho Dairymen’s Association.

“There is a tremendous amount of stress for the average dairy producer right now,” Naerebout said. “Our dairymen are growing increasingly frustrated that their voices are not heard.”

Mexico alone imported more than $14 million in Idaho cheese and whey products in 2017. Representatives from Sorrento Lactalis are expecting the tariffs to hurt their Nampa cheese plant. Ninety percent of the milk they use comes from Treasure Valley producers.

“Mexico is an important export market for our cheese, and the majority of the products we export to Mexico are manufactured at our Nampa facility,” spokesman Pierre Lorieau emailed to the Idaho Press. “The tariffs imposed by Mexico in retaliation for U.S. tariffs on Mexican steel and aluminum are likely to have a significant impact on our business to Mexico, and therefore will adversely affect our Nampa facility.”

Naerebout estimated Idaho dairy producers have lost $1 to $2 a cow every day since 2018 began. That matched with SunRidge Dairy in Nampa.

“It’s been few years since it’s been a good year,” Kroes said. “There was hope that the second half of this year would see a recovery in milk prices, but that’s kind of been pushed back.”

The trade war has cut both ways, however. While Idaho milk producers are suffering from retaliatory tariffs, some Treasure Valley businesses are dealing with the impact of Donald Trump’s tariffs on Canadian aluminum.

Steel and aluminum tariffs hit local businesses

Treasure Valley businesses have seen a recent increase in steel and aluminum prices significant enough to cause concern. Local metalworking companies and brewers have both seen production costs go up.

President Trump imposed a 25 percent tariff on steel and 10 percent tariff on aluminum metal imports this year. The administration cited a national security risk as justification for the steel and aluminum tariffs, according to the Associated Press.

Price jumps may be directly tied to the tariffs, or indirectly based on regular market fluctuations. Either way, Treasure Valley businesses say the changes are noticeably larger than normal.

“If anyone is in the metal business here, it’s affecting them,” said Jeremy Adams, president of Excalibur Metal Design in Meridian.

Excalibur Metal Design, which sells products mostly within the United States, makes a variety of custom railings, gates and furniture among other metal fabrications. Since January, Adams said, the price of flat steel has increased 60 percent.

“There’s no telling what the effects are going to be if prices are going up and the tariffs continue,” he said.

Other Boise metalworkers confirmed seeing drastic price increases for steel and aluminum products.

Local brewers are seeing a rise in aluminum packaging products. Suppliers point to the tariffs by way of explaining the cost hike.

Mother Earth Brew Company brews and cans 750,000 cases of beer in Nampa. Eighty percent of that ends up in either aluminum cans or stainless steel kegs, said owner Daniel Love, so the 10 percent U.S. tariff on Canadian aluminum and steel makes an impact.

“If this continues over an indefinite amount of time, it might affect 1 percent of bottom line,” Love said. “Whether I believe tariffs are good or bad, they aren’t great for my business.”

Love said Mother Earth had no plans to raise prices, but instead plans to absorb the costs to keep their beer affordable.

Bart Watson, chief economist for the Brewers Association, a craft brewers trade group, said they are hearing from members that this is a trend nationwide. In the brewing industry, aluminum cans make up 28.5 percent of packaging products.

Mike Francis, owner of Payette Brewing Company, said an increase in aluminum material for packaging is on their radar.

“Over time if prices go up for raw materials,” he said, “prices are going to go up for consumers.”

Fruit growers feel the impacts of apple and cherry tariffs

Chinese tariffs on apples and cherries as of July 6 have risen to 50 percent from the previous 10 and 25 percent tariffs imposed in April, according to the Idaho Department of Commerce.

Idaho is one of the top five cherry-producing states along with Washington, Oregon, California and Michigan. In 2017, China became the top market for Northwest cherry exports with nearly 3 million 20-pound cases imported, according to the Northwest Horticultural Council.

Sally Symms, vice president of sales and marketing at the Symms Fruit Ranch in Caldwell, said the tariffs have forced farmers to reduce their prices in order to sell their fruit. The Chinese market is now significantly less accessible for farmers, creating an over-supply of cherries within the U.S. markets.

“You can’t have the third-biggest market closed without affecting all other markets,” Symms said.

Cherries that are shipped to China are grown specifically in size and quality for their market. Now, farmers have had to find other options to sell.

Other nations have also imposed tariffs on apples and cherries. Mexico’s 20 percent tariff on apples has been in effect since May. Last year alone, Mexico imported nearly 14 million 40-pound cartons of apples, according to the Northwest Horticultural Council.

“Everyone is very hopeful that the tariffs will be removed,” Symms said, “and not only in China.”

Idaho ag still uncertain about promised relief

The U.S. Department of Agriculture’s announcement that it will dole out $12 billion in emergency relief to farmers and producers impacted by the retaliatory tariffs wasn’t a comfort to some Idaho farmers.

“I’m not a big fan of subsidies,” Kroes from SunRidge Dairy said. “I think they end up harming the industry at the end of the day. I can understand that there may be a need for it. It all depends on how it’s done.”

Symms declined to comment on the possible relief because of the lack of details provided so far. She wasn’t sure if it would help Symms Fruit Ranch.

Naerebout said he and other dairy producers remained skeptical the plan will help Idaho dairies, although details of the emergency relief program remain sparse. The average herd size for Idaho dairies is 1,400 cows, Naerebout said, compared to the national average of 300 cows. Naerebout said such relief programs usually have a subsidy cap based on that national average.

“They won’t have as much impact on Idaho producers as across the country,” Naerebout said.

Naerebout said there’s already a “misconception” that dairies are a heavily subsidized industry, but independence is point of pride for the average dairy producer. Instead of subsidies, Idaho dairies would prefer the federal government broker a rapid solution to the trade dispute, reopening the markets they’ve enjoyed access to for more than a decade.

But while Idaho businesses are suffering the consequences of the trade war, the solution is still out of their hands.

Idaho has been losing about 10 to 15 dairies a year, according to Naerebout. If the trade dispute isn’t resolved quickly, Naerebout thinks they could see double that number close by the end of 2018. There are currently 472 dairies and more than 500,000 milk cows in Idaho, according to the Idaho Dairymen’s Association.

“The end result is going to be the loss of family business in Idaho,” Naerebout said. “We’d like to try to avoid that in Idaho. We can only do that at the federal level. There is nothing we can do to fix this at the local or state levels.”

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