Compiled with the experience and thoughtful insights of Mike Thresher and Klaas Martens
“For the average organic dairy feed, the 25% tariff (on Canadian goods) will raise the price of a complete grain mix at least $85/ ton. On the average farm, this could be an additional cost per cow/day of 75 cents or more” says Mike Thresher, Nutrition and Certification Manager, Morrison's Custom Feeds, VT. Thresher estimates a 25% tariff will cost them $10,000 a day, a cost they could not absorb. Most companies hit by this increase in price will pass it to their next level in the supply chain and finally to the consumer. Organic dairy does not have that structure in their supply chain or contracts that adjust to increased inputs, so the cost will be borne by the farmers. Even if you are not affected by the tariffs on purchased feed, everyone will have to pay more for gasoline and diesel fuel, plus essential fertilizers, equipment, parts, etc., so this will affect Grass Fed certified producers and Plain communities as well as those that feed grain. Organic poultry will also be hard hit by any tariffs.
The Northeast has long been a market for Canadian grown certified organic feed grains and beans. Many commodities are imported from Canada, including corn, soybeans, field peas, sunflower meal, flax meal, and high protein hard red organic spring wheat for bread flour. Many Canadian organic farms are closer to the Northeastern US than midwestern organic farms, so it costs less to transport grain from Canada to the Northeast than it does from the Midwest.
Morrison's Custom Feeds, for example, purchases over 85% of their organic commodities from Canada. Producers are already faced with the need to feed higher protein grain because protein levels in conserved forage generally are lower this year. At Morrison Feeds, an average cost of a 16% organic dairy feed is $650/ ton or $32.50 per cwt. Mike Thresher comments that, “I have always used the comparison of milk and grain price on a per cwt basis; if milk is higher, cash flow is ok, but when milk and grain are equal, or grain is higher, this puts the farm into a negative cash flow situation. If you add the tariff increase to the grain price, $650 is now $735, or $36.75/ cwt.....very similar if not higher than milk prices paid.”
Tariffs are a tax on imported goods and are paid by the importer. Tariffs can either be focused on one commodity, for instance steel, or across all imports. The on again/off again recent bouts of tariffs with Mexico and Canada were imposed by the US on all goods, with a few exceptions. The Trump administration will also be charging reciprocal tariffs from April 2nd, 2025, on other countries' imports that are equal to the tariffs they impose on the US, so there could be many different levels of tariffs imposed. There will also be exemptions for different goods. For example, after pressure from leading Republicans in Congress, Canadian potash was exempted from tariffs. Companies may well make unverifiable claims about investment in US manufacturing to gain exemptions, although these investments, if they happen at all, will take many years to have any effect.
A tariff used as a political or economic tool is imposed, reduced or stopped for those same reasons. A tariff initiated to protect an emerging business, if it is part of a long-term trade agreement like the USMCA (which include restrictions on dairy exports from the US to protect Canadian dairy producers) can be useful if it is negotiated between trading partners and supported by investment and other opportunities to grow the domestic business. No business will base their expansion plans and investment based on the type of actions the administration has recently been using.
Countries that the US has imposed tariffs on, have imposed their own on US products, either targeted to affect key US lawmakers’ districts or blanket charges on all products. With the last wave of tariffs in President Trump’s first administration, many grain farmers lost their markets and were not able to win them back. Similarly, countries are looking for new trade partners that can build trusted and stable relationships for future years. Canada is increasing its ties to Europe and reaching out to Mexico. Canada is already negotiating to increase trade across the Pacific with Japan, South Korea, Taiwan, Australia, China, and Southeast Asian countries. American refineries depend on Canadian oil. They may not continue to get that oil if a better deal can be made with other customers.
What won’t benefit anyone is a trade war. There are no winners in trade wars except for a few companies that can raise their prices or lower the quality of products because they no longer must compete with imports. Organic farmers on both sides of the borders are likely to end up paying more for what they must buy across the border and getting less for whatever they sell across the border than they did before the tariffs. The US can’t just start a trade war and not suffer reprisals. Both Canada and Mexico will retaliate by imposing their own tariffs on goods that they import from the US. That will increase prices and reduce demand for American goods. Consumers on both sides of the border lose by having to pay more for what they buy. The result will be less cross-border trade. Over time, some new markets will probably be developed, and new trade relationships will be established, but until then, higher costs and more uncertainty will be the only sure things.
The biggest risk that the US faces if the trade war intensifies and expands to other countries, is that oil may no longer be priced in US Dollars. If other countries begin using currencies other than the US dollar for pricing oil, then the dollar may begin to lose its status as the world’s reserve currency. That would have huge consequences for the position of the US, relative to other countries and for the ability of the US government to borrow money.
Mike Thresher’s final comments written on 3/9/2025, “While we are in another pause on the tariffs, (for Mexico and Canada) we certainly hope a peaceful outcome can come soon.” While we all join him in that hope, the pause didn’t last and we exist, and re-evaluate, on a day-by-day basis.
Posted: to Industry News on Sat, Mar 15, 2025
Updated: Sat, Mar 15, 2025
