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Abstract

The Uruguay Round World Trade Organization (URWTO) agreement and the North American Free Trade Agreement (NAFTA) created both benefits and costs for dairy farmers. The URWTO agreement benefits include border protection that helped to keep U.S. prices for cheddar cheese, butter, and nonfat dry milk 40 percent, 78 percent and 36 percent, respectively, higher than world prices during 1995-2001. Wisconsin's dairy industry benefited from expansion of dry whey and lactose exports under the URWTO agreement. Costs under the complex agreement included an unanticipated increase in milk protein concentrate (MPC) imports. Benefits under the NAFTA include the scheduled elimination of Mexico's tariffs on major imports of U.S. dairy products by 2003. Over the longer-run, the more important benefits and costs produced by trade agreements may be those related to changes in the business environment for the U.S. and Wisconsin dairy industries. The URWTO agreement has encouraged U.S. dairy exporters to focus on (a) products not priced out of international markets by border protection and the USDA's dairy price support program and (b) highly differentiated products. Because the changed environment provides incentives for expanded exports of dry whey, lactose, and specialty cheeses, it should generate benefits for Wisconsin's dairy industry. Much as predicted by proponents of free trade, the NAFTA has made Mexico's dairy companies stronger competitors. This will limit gains in dairy product market share by U.S. firms. However, this development will create opportunities for U.S. and Wisconsin companies to supply genetics, dairy equipment, and technical services for Mexico's dairy industry.

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