The Colombian government is placing a 4.86% tariff on imports of U.S. milk powder for the next four months amid a trade investigation that has angered U.S. dairy groups.
Colombia’s Ministry of Trade, Industry and Tourism last week decided to impose provisional compensatory duties on powdered milk imports after it released a preliminary report arguing that through five programs, the U.S. government is subsidizing the production of liquid milk, which is used to produce powdered milk. The agency claims food companies are choosing the allegedly subsidized powdered variety from the United States over fluid milk from Colombian producers because of the difference in price.
U.S. dairy groups are frustrated with the investigation, which they say is "politically motivated" and “unfairly targets U.S. dairy exporters by advancing baseless claims that U.S. milk powder was unduly subsidized." U.S. Dairy Export Council president and CEO Krysta Harden and National Milk Producers Federation CEO Gregg Doud released a statement calling for U.S. trade officials "to take immediate action to challenge Colombia’s unjust decision and defend American dairy farmers and exporters."
“Instead of working with the U.S. government and dairy industry to resolve this issue in a mutually beneficial way, Colombia has instead chosen to move forward with this meritless investigation,” Doud said in the statement. “The U.S. government must use every tool at its disposal to counter the unwarranted tariffs on U.S. milk powder.”
The U.S. last year exported 24,000 metric tons of milk powder to Colombia worth $69.2 million, according to trade data shared with Agri-Pulse by Jaime Castaneda, NMPF’s executive vice president for policy development and strategy. That’s a decrease from 2020, when the U.S. exported 31,796 metric tons to the South American country at a value of $78.4 million.
Still, the U.S. made up 62% of total powdered milk imports to the country last year, which the Colombian government argued in a press release “is one of the many elements” currently hindering the country’s domestic dairy industry.
The three largest importers of the product in recent years have been Rosca, Nestlé and Grupo Nutresa/Gestion, who largely use it to produce chocolate, ice cream, cookies or flavored milk drinks, according to a report published last month by USDA’s Foreign Agricultural Service.
Jaime CastanedaColombia’s domestic milk powder industry “remains small and underdeveloped, with only a handful of processing facilities in the country,” the report said, noting that some Colombian importers interviewed by USDA officials questioned whether local milk powder supplies are by themselves enough to meet local demand.
The Colombian trade ministry’s preliminary technical report claims at least five programs are used to subsidize liquid milk, which is used to make powdered milk. Among these are the Dairy Margin Coverage program, the Organic Dairy Marketing Assistance Program and the Dairy Business Innovation Grants program. It argues Farm Service Agency loans are also “benefits in the form of financial contributions,” according to a copy of the report translated by Google.
In total, the Colombian government asserts in the report that the United States exported 335 million liters of subsidized powdered milk into Colombia in 2023 at a total free on board price of $85.2 million. The value for each liter was 25 cents, while the subsidies amounted to just over a penny per liter, representing 4.86% of the total import price, the report claims.
The U.S. government, meanwhile, argued in written comments that the Colombian government employed a “flawed methodology that greatly exaggerates the alleged benefit for secondary milk powder production,” according to the translated report.
The U.S. government believes that any such subsidies were “too small” to affect the prices of value-added products like milk powder and that there is no evidence to suggest they would have a price impact anyway. It also said most of the programs in question are either used in response to natural disasters, crises such as the COVID-19 pandemic, or are specifically targeted at organic producers.
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If such subsidies do exist, “only a very small portion of these subsidies could be attributed to milk powder production,” according to the translated report.
The Dairy Margin Coverage program does not cover milk powder, the U.S. government argued. Companies that produce milk powder are also not eligible for the program, it said. Producers of powdered milk also are ineligible for FSA loans, the U.S. government said.
In a letter to Agriculture Secretary Tom Vilsack and U.S. Trade Representative Katherine Tai last month, Harden and Doud said "there is no causal link between U.S. milk powder exports to Colombia and the injury claimed by the Colombian government in the investigation."
U.S. powdered milk products do not benefit from direct or indirect subsidie
Krysta Hardens nor are they interchangeable ingredients in food manufacturing, they said. Powdered milk and fluid milk are ultimately purchased by different end users, they added.
"Whatever challenges Colombia’s dairy farmers producing fluid milk may or may not be experiencing, U.S. powdered milk imports are not to blame as they are not displacing Colombia fluid milk," they wrote.
Castaneda told Agri-Pulse he believes the tariff could have three possible impacts. The first is that Colombian consumers could bear the additional costs, which may lead to declines in consumption. The second is that U.S. dairy companies could continue exporting products, but at a higher cost. The third is that U.S. companies could pull out of the market, leading to a significant drop in exports.
The Colombian government will now turn to the next step in the investigation of collecting more evidence. A hearing on the matter is scheduled for Oct. 3, Castaneda said, after which the Colombian government will need to determine whether it has enough evidence to maintain the tariff.
When asked about the options for U.S. trade officials, Castaneda said they could review Colombia’s investigation to see if it “really fulfills” the commitment the country has made to abide by World Trade Organization rules. If they conclude it does not, “then they can retaliate.”
“We haven’t seen, really, a strong response to Colombia yet by the administration,” Castaneda said. “We hope that soon, the U.S. government takes action and responds in a very strong manner.”
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