The North American Free Trade Agreement (NAFTA) is a significant piece of the American dairy export market. An analysis conducted by Informa Economics identifies the free trade agreement as a key element for $1.2 billion in dairy exports going to Mexico.
Approximately 25 percent of all U.S. dairy exports are sent to Mexico, making it the single biggest market for American dairy producers. Mexico accounted for 45 percent of all American skim milk powder exports in 2016, the most recent year studied by Informa. That same year, Mexico accounted for 30 percent of cheese exports and 10 percent of all butter exports.
Dairy sales to Mexico have a sizeable impact on the overall U.S. economy. The cumulative output value of $6.7 billion from 2012 through 2016 translates to $23.3 billion in economic output when considering how the exports affect other industries that are linked to dairy production. The dairy exports to Mexico were also responsible for the creation of 16,492 full-time equivalent jobs.
The size of the current dairy export market in Mexico is directly related to the fact that dairy products from the U.S. are going into the country duty-free. Export competitors that ship to Mexico are subject to Most Favored Nation tariff rates between 20 and 45 percent for dairy products. Competitors like the European Union are currently negotiating trade agreements with Mexico that have the potential to make their exports more competitive in the market.
The newly established Comprehensive and Progressive Agreement for Trans-Pacific Partnership along with the renegotiations to modernize the Global Agreement between the EU and Mexico will increase the level of competition for the Mexican market. American dairy products would still retain logistical advantages related to transportation, but those advantages would not be enough to compensate for the economic losses if NAFTA were to be canceled.
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