In Mexico, Farmers See Milk Profits Drying Up

This place has definitely got milk.

It was named Cuenca Lechera, which translated means Dairy Valley, when it was founded 30 years ago as a government-subsidized farm to provide fresh milk for Mexico City. A community within the city of Tizayuca, it blossomed into a bovine Levittown with paved streets, basketball courts, stores, tidy homes and cows.

Today, about 1,000 residents live alongside 26,000 black-and-white Holsteins, whose biological rhythms govern this tranquil community.

But an udder utopia it is not.

Joined by other dairy farmers, Tizayuca milkmen traveled to the capital last month and blocked traffic with their animals, dumped rivers of milk in the street and called on the Mexican government to curb a rising tide of imports -- much of it from California -- which they said was driving down prices and decimating their dairies.

The pain could get worse. Under the terms of the North American Free Trade Agreement, Mexico is required to open its market to even more imports of American dairy products over the next couple of years and must drop all tariffs and quotas by 2008.

That could be a boon for U.S. dairy farmers for whom Mexico is their most important export market. But it could also serve as the final blow for some Mexican milk producers, who do not receive the same government assistance as their U.S. counterparts.

“We’re not even covering our costs of production,” said dairy farmer Rogelio Ramirez Contla, president of the Regional Ranchers’ Union of Hidalgo state. “We can’t compete with [U.S.] subsidies.”

It is an odd turn of events for Cuenca Lechera, which was once completely dependent upon state support. Opened in 1976 under the administration of populist President Luis Echeverria, Cuenca Lechera was the government’s solution to the urban development encroaching on dairy farms in Mexico City. It provided generous incentives for milk producers to relocate to the gleaming, planned farm city.

In addition to low-cost loans, state-supplied veterinarians and other perks, the government bought all the farmers’ milk, leaving them with few worries except for how to increase their production. The arrangement ended under President Carlos Salinas de Gortari, a Harvard-educated economist who in the early 1990s set out to modernize Mexico’s largely state-controlled economy with a wave of privatizations -- including the 1990 sale of Cuenca Lechera.

Today, 96 farmers own the operation as a cooperative. Tanker trucks prowl the streets, collecting more than 145,000 gallons of milk daily. Silos from the local feed plant dominate the skyline. The scents of alfalfa and manure mingle in the air.

Many residents start work at 1 a.m., but the neighbors don’t complain -- least of all the four-legged ones with the swollen undersides that line up as expectantly to enter the milking sheds as Angeleno motorists on a freeway onramp.

“This is unique in all of Mexico, maybe the world,” said Francisco Javier Jimenez, a third-generation dairy farmer and president of the sprawling, gated complex. “It used to be a beautiful life.”

Since the inception of NAFTA in 1994, Mexican imports of U.S. milk products have risen from a trickle to a flood. U.S. dairy shipments to Mexico have tripled since 2000 to a little more than $500 million last year.

Mexico’s dairy sector doesn’t produce enough to meet the nation’s domestic demand. U.S. cheese, ice cream and whey have shown strong increases south of the border.

But powdered milk is the main commodity that Mexico buys from the United States, in part because it’s easy to ship and store. Mexican food processors use it as an ingredient in a wide variety of products, and the Mexican government buys huge quantities to distribute in anti-poverty programs.

“We supply what they can’t produce,” said Tom Suber, spokesman for the U.S. Dairy Export Council.

But Mexican farmers say so much milk powder has blown south of the border that companies here are using it as a substitute for fresh milk in many products, curbing demand for domestic production. Cuenca Lechera producers said a recent milk contract paid them just under 35 cents a liter, below their production costs of 38 cents.

Some experts say falling prices for fresh milk in Mexico have more do with unseasonably warm weather that has cows here producing an unexpected gusher of milk.

But the flap shows how NAFTA is still a sore point, especially for some Mexican farmers. Trade statistics show that Mexico’s farm sector has done slightly better than that of the U.S. under the trade pact.

Mexico’s agricultural exports have nearly tripled since 1994 to $8.3 billion last year, while its agricultural trade deficit with the U.S. has shrunk 40% over the same period to just above $1 billion last year, according to U.S. Department of Agriculture statistics.

But trade numbers tell only part of the story. Mexico needs to keep its masses employed. Unable to compete with low-cost U.S. corn and beans, millions of rural dwellers have fled the countryside for the cities or to the United States -- a potent symbol of frustration that many here feel with free trade .

The U.S. and Mexico have feuded over tomatoes, avocados, sugar, beef, pork, chicken, apples and rice, among other commodities. Milk is just the latest sour note.

The Mexican government last summer slapped a 30% tariff on U.S. shipments of a powdered milk product used to make yogurt and cheese. It was a legal, retaliatory maneuver stemming from an unrelated trade dispute with the U.S. And it has had real consequences for the U.S. and California, the nation’s No. 1 dairy state, which experts say will probably see exports to Mexico decline this year.

But farmers in Cuenca Lechera know the penalties are only a temporary reprieve. They are dreading the arrival of 2008, when all dairy trade barriers will be dismantled. Although Mexico boasts some super-efficient dairies whose productivity is on par with the best in the world, the facilities here aren’t among them.

At Ramirez’s “stable,” as it’s known in Cuenca Lechera -- the plot of land holding his home, cow pens and workers’ lodgings -- 13 cows at a time can squeeze into one of his concrete milk sheds, but there are only seven machines to service them. The close quarters make for an intricate ballet of men and beasts.

The 1,200-pound cows lumber into the stalls for a consolatory bite of feed, their udders full, while four nimble workers in T-shirts and rubber boots try to avoid getting squashed. The men clean the Holsteins’ teats with a disinfectant solution and attach the suction cups of the automatic milking machines that will bring the animals relief.

Jaime Pons Alvarez, a veterinarian at Cuenca Lechera, talks dreamily of cutting-edge milking machines that can handle 80 cows at once. He figures such a setup would cost at least $138,000, an impossible sum for the farmers here given the low milk prices and the modest size of their individual herds, which average around 250 animals each.

Watching a dairy truck pump milk from the storage tank at his stable, farmer Jimenez figured he would lose about $250 on this load because of falling milk prices. Meanwhile, his costs for feed, electricity and fuel are all climbing.

“I don’t have a Plan B,” Jimenez said. “But I can’t go on this way for very long.”