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Battling tariffs, drought and milk substitutes, Arizona dairy farmers expand their global reach

Dairy farmers in Arizona are dealing with challenges brought by tariffs and competition from alternative milk products, such as almond and soy milk, as well as persistent drought across the Southwest.

But they’re forming new partnerships and adjusting their agricultural practices to stay competitive in the rapidly evolving world market, and even attracting new dairy industry producers to set up shop in the state.

One such farmer is Jim Boyle Jr., 44, whose family has been dairy farming in Arizona for five generations. Boyle’s father bought a large farm near Mesa in the 1970s. Boyle has since expanded operations to Casa Grande, south of Phoenix.

In Casa Grande, his land is surrounded by dairy and alfalfa farms. In Mesa, his land is in a small farming enclave not far from a highway and suburban homes. It is surrounded by other dairy farms, some of which keep cows in pens and others which graze cows in green pastures.

Since Boyle’s father started the Mesa farm, the family has partnered with the United Dairymen of Arizona, or UDA, a co-op that processes, manufactures and markets Arizona dairy products in and outside the United States. Roxy Helman, communications manager for the UDA, said the system “helps the farmers focus on making the best product possible, while we do the work for sale.”

Every day, the UDA plant in Tempe receives fluid milk from 74 family farms across Arizona, amounting to about 150 to 200 truckloads of milk, each holding 6,000 gallons of milk and stamped with the words “Undeniably Dairy.” Before the milk is offloaded, it’s tested to ensure it meets federal standards for temperature and the presence of antibiotics, among other things. The milk then travels through the plant to become butter, cheese or powdered milk. Some fluid milk is sold to local grocers for gallon bottling or sent to other dairy processing plants, where it becomes yogurt or sour cream.

With so much milk coming in, the UDA has enough to export to 20 countries. According to Boyle, the importing countries “tend to be protein-short countries,” including Algeria, Indonesia and Saudi Arabia. American dairy products, he said, “are seen as a great source of protein.”

What’s sold overseas is mostly powdered milk, which is popular in Asia and North Africa. Because of its longer shelf life, Boyle said, it can travel long distances while retaining essential vitamins and nutrients.

The Tempe plant also makes butter and cheese, but these can only travel shorter distances and are sold mostly to Mexico, Arizona’s largest international trade partner. Canada is third, after China, according to Gov. Doug Ducey’s office.

Data collected by the University of Arizona shows 61% of Arizona’s agricultural products in 2016 were purchased by Mexico and Canada, the United States’ partners in NAFTA and its proposed replacement, the U.S.-Canada-Mexico Agreement, which awaits congressional approval. About 30% of the dairy that leaves Arizona goes to Mexico.

“We have a plentiful supply,” said Paul Brierley, executive director of the University of Arizona Yuma Center of Excellence for Desert Agriculture, “why not share it with the world?”

The world’s dairy industry is mostly concentrated in three areas: Europe and New Zealand, which have been producing dairy products for centuries, and the United States, which is relatively new to the business of selling around the world.

“The U.S. really didn’t get into this game until about 12 years ago, so we are behind.” Boyle said. “A lot of countries, and companies in countries kind of doubted our commitment to it; we in Arizona have treated it very seriously.”

The competition ratcheted up after President Donald Trump enacted export tariffs on steel and aluminum in March 2018 and, in return, Mexico started taxing American cheese, greatly affecting Arizona farmers. New Zealand has taken advantage of this conflict, creating a trade agreement with Mexico that has resulted in increasing sales and threatens to shut the U.S. out of the Mexican market.

“You give up that market share, and then it’s really hard to get it back,” Boyle said.

Brierley agreed that trade wars are counterproductive.

“Tariffs disrupt the market,” he said. “Other countries retaliate, which makes our products more expensive, and then we aren’t competitive anymore.”

A new beginning
To counter Arizona’s reduced share of the Mexican market, the UDA looked for an alternative inside the United States. Three years ago, it began negotiations with Fairlife LLC, a producer of ultra-filtered milk, which has less natural sugar and lactose and more protein. The company has a single plant in Illinois, but on April 9, it broke ground on a plant in Goodyear, set to open in 2020. Fairlife milk sells for a premium at grocery stores.

In partnering with Fairlife, UDA dairymen will be given top dollar to produce milk that meets the company’s higher standards of animal care and product quality. Fairlife Chief Operating Officer Tim Doelman told the Business Journal the company looked at potential sites in five states before narrowing its choice to a Goodyear business park near Cotton Lane and Thomas Road.

Boyle said Arizona dairymen also hope their partnership with Fairlife will lead to increased international sales.

By Tyler Peckham – Cronkite News