Three governments, one food system? What’s it all mean for U.S. dairy farmers?

EDITOR’S NOTE: This is the third and final installment examining North American agricultural integration as the U.S., Canada and Mexico review and negotiate the USMCA. Parts I and II, in the July 24 and 31 editions of Farmshine, explored how integrated North American agriculture has become, including dairy. Part III looks at current negotiations with Canada and Mexico and what integrated protein sectors may reveal about dairy’s future.

WASHINGTON — The U.S.-Canada dairy dispute just escalated in real time. Negotiations collapsed late Aug. 21. The additional 50% Section 338 tariffs the U.S. imposed on roughly $20 billion of Canadian goods—including various dairy products and ingredients such as whey and milk protein concentrates—took effect on Aug. 22.

On Aug. 25, Canada answered with detailed dollar-for-dollar retaliatory tariffs covering about C$27.6 billion of U.S. goods, effective Sept. 8. Those counter-tariffs hit dairy hard: 50% on milk and cream (concentrates, powders, sweetened varieties), whey and certain protein products; 25% on fresh, grated, powdered and processed cheeses including cheddar, mozzarella, Swiss and others. Rates of 15%, 25% and 50% also target steel, appliances, agricultural equipment, pulp and paper, and electronics.

No new talks are scheduled at this time.

The underlying dispute remains two-way. Going north, American farmers and exporters still lack the meaningful access to Canada’s protected market negotiated through tariff-rate quotas (TRQs).

Coming south, surplus skim solids and protein generated by Canada’s butterfat-driven supply-management system have competed in U.S. and world markets. NMPF and the U.S. Dairy Export Council say both problems—chronic TRQ underfill and workarounds on protein exports—remain unresolved.

Yet a market-driven reprieve is emerging for the southbound lane. The same protein craze fueling demand for Greek yogurt, cottage cheese, whey protein and other high-protein dairy products in the U.S. is also taking hold in Canada, keeping more of those skim solids home and easing the pressure to move surplus solids and protein south.

While the tariffs dominate the headlines, another layer has grown beneath the surface: under NAFTA and USMCA, dairy manufacturing has become increasingly integrated through cross-border ownership, investment, and ingredient production.

Mexico presents a different picture, with talks described as constructive and a next round expected in September. Those stakes are high. In 2025 the U.S. exported 17% of its milk production on a milk solids equivalent basis—one day’s milk out of every six. Mexico took $2.6 billion, or 27% of U.S. dairy export value.

Canada ranks second. The U.S. is both Canada’s leading foreign dairy supplier and one of its top export destinations.

Protein sector integration

Earlier this summer the Center for Strategic and International Studies conference “Three Nations, One Table: North American Agriculture under USMCA” used pork as “the (integrated) success story you’ve never heard of.”

Pigs can be born in Canada, finished near Corn Belt feed in the U.S., processed here, and the cuts marketed across all three countries where consumers value them most. Bacon moves strongly in Canada and the United States; ham finds higher demand in Mexico.

Canadian Pork Council Chair René Roy noted the industry has operated “as though that border wasn’t there for decades.” The supply chain, he cautioned, “has been built over years. You cannot just flip the switch.”

Beef shows another side of integration. With the U.S. beef cow herd at its smallest in 75 years, Canadian and Mexican cattle help supply feedlots and processing infrastructure built for larger inventories.

Before the New World screwworm disrupted trade for the past 20 months, Mexican feeder cattle represented about 5% of U.S. feedlot placements, according to University of Arkansas livestock economist James Mitchell. During the closure, Mexico fed more cattle at home—with U.S. feed—and sent more processed beef north.

USDA began cautiously reopening the Douglas, Arizona port to Mexican cattle on Aug. 24 with a reported 713 cattle inspected and crossing that first day.

Meanwhile, on Aug. 21 President Trump announced plans to allow another 300,000 metric tons—roughly 661 million pounds—of product for ground beef to enter the U.S. over 90 days without out-of-quota tariffs. The source countries that agreed to ship at 25% under market price have not been publicly identified.

Aside from that announcement, feed already moves south, cattle and beef move north, and lean beef from farther abroad continues to enter U.S. grinding operations at rising levels since 2022.

Pork demonstrates specialization that treats the border as secondary. Beef shows how integration plugs a domestic shortfall while producers are concerned its impact can interfere with U.S. herd rebuilding.

Where does dairy sit?

Mexico and Canada: Two paths for dairy

Mexico bought more than a quarter of U.S. dairy export value in 2025 and remains the largest foreign buyer of American cheese and milk powder. That relationship grows more critical as roughly $13 billion in new U.S. processing capacity comes online—much of it centered on cheese to capture the rising value of whey proteins.

The math is unforgiving: processors cannot make more whey protein without making more cheese, and every additional vat still produces cheese that must be absorbed somewhere. Mexico offers proximity, a growing population, rising dairy consumption and a commercial relationship hard to replace.

Unresolved issues remain, including protection for common cheese names as Mexico negotiates with the European Union. Yet Mexico continues to characterize its talks with the Trump Administration as “constructive.”

For an industry already exporting one day’s milk out of six while expanding production and processing, keeping the door open to its largest customer is now part of the milk-price equation.

Canada is more complicated. The core U.S. concern is whether the specific TRQ volumes Canada agreed to under USMCA are administered to deliver the access actually negotiated.

At the same time, Canadian dairy companies and a farmer-owned cooperative hold substantial investments in U.S. cheese and ingredient plants—a protected farm-level system north of the border participating in manufacturing expansion under a very different U.S. pricing system.

Canadian trade data demonstrate the entanglement: C$1.93 billion in dairy imports in 2025 (the U.S. as leading supplier) and C$560 million in exports (the U.S. among top destinations). Imports included cheese, butter, whey and milk protein concentrates; exports included whey products, skim milk powder and cheese.

Those flows give weight to NMPF CEO Gregg Doud’s observation at the June CSIS conference that dairy operates on both sides of the border with product moving “back and forth all the time,” making the “real trade” increasingly hard to define.

What does dairy become?

Dairy isn’t pork, and it isn’t beef. However, capital and companies cross borders. Milk is separated into components sold where markets value them most.

Cheese and whey create different revenue streams from the same vat. And billions in new U.S. processing capacity will require more milk and more customers.

With Mexico and Canada the No. 1 and No. 2 destinations for U.S. dairy exports, international trade is increasingly embedded in the industry’s structure, and this affects milk checks.

Mexico shows what that means when integration and market access work together.

Canada shows how complicated it becomes when manufacturing and investment integrate while farm policy and market protections remain national.

Pork and beef point toward deeper specialization and efficiency that treat borders as secondary.

As dairy processing, ownership and markets become increasingly continental and global while farm milk pricing remains national, what becomes of local and regional production competing with globally integrated assets? Who ultimately captures the value. And who calls the shots on sustainability and other rules for the U.S. farmer?