On Above the Fold, we examined the 12 states that would be hit hardest by a withdrawal from NAFTA. Over the coming weeks, we’ll take a close look at one small business in each of those states that depends on NAFTA. Check back for future installments.
Ken Nobis has spent half a century as a dairy farmer–50 years working alongside his father and brother on the same farm in St. John's, Michigan–and he can’t remember a time when business has been tougher, the future more precarious, and the stakes so high.
“People feel dejected, depressed and you can see it on their faces,” said Nobis from his farm 20 minutes north of Lansing. “These are hardworking Americans. But once they are gone, they are gone. And they don’t come back.”
Milk prices that were are a record-high in 2014 have plunged since, souring the fortunes of many of the nation’s dairy farms. Dairy farmers have increasingly found themselves on the front lines of geopolitical strife, global markets, and cultural shifts. The industry is weathering the simultaneous storms of shifting Chinese demand, increased competition from Europe, and other political shifts around the globe.
Now they are facing a challenge they didn’t anticipate: the possibility that the U.S. might pull out of the North American Free Trade Agreement (NAFTA). And as the future of the NAFTA hangs in the balance, the fate of Nobis and farmers like him sway with it.
U.S. dairy farmers exported $5.4 billion last year, with about 15 percent of those exports going to Mexico, according to the Michigan Milk Producers Association, where Nobis serves as president. And the potential of the U.S. pulling out of NAFTA adds an additional worry to Michigan farmers already on edge, in a state that can hardly afford more economic turmoil.
‘We could lose it all overnight’
The Wolverine State might just be the state that would suffer most if the current administration withdraws from NAFTA, putting at risk 366,000 Michigan jobs that depend on trade with Canada and Mexico. According to the American Enterprise Institute, 38.9% of Michigan’s GDP depends on trade—the highest in the nation—and a staggering 65% of the state’s exports are bound for Canada and Mexico.
Michigan’s $35 billion in export sales to Canada and Mexico are topped only by Texas and California. The Detroit metropolitan region’s exports to Mexico are greater in both absolute value and in share than those of any other U.S. city, according to the U.S. Department of Commerce. About 95% of the state’s steel exports are bound for Canada and Mexico.
“It’s sad because it took years to gain access to these markets,” Nobis said. “Now, we could lose it all overnight.”
The consequences of threatening access to global markets have equally dire repercussions that spread beyond just the farms. Dairy is a tremendous economic generator to the communities where the dairy farms exists, generating billions in economic activity in Michigan, according to the Michigan Milk Producers Association.
Dwindling Options
While NAFTA’s future– and thevaluable markets they provide– hang in the balance the uncertainty in the industry is causing farmers to furiously max out lines of credit, renegotiate loans — anything to buy time, Nobis said. But the clock is ticking.
“Every year the options dwindle further. There aren’t many choices left,” said he added. “There have been some who have been forced out by the bank, and a bunch of farmers have just said ‘the heck with it’ and liquidated their herds.”
Not too long ago the Michigan Milk Producers Association gave an award to a promising young farmer in his early 20s who started a family farm with his brother and father in hopes of keeping the tradition of the Michigan dairy farmer alive. He was dedicated to farming and working hard. For Nobis, that young farmer – whose pursuits reminded him so much of his own – represented the future of the region’s hopes and dreams.
“He was a sharp kid, loves cows, loves the industry and loves creating jobs,” he said. “Last week he told us he had to sell his cows. He and his family were tired of losing money. And with all the uncertainty around his future it’s hard to blame him.”
“When he told us, there wasn’t a dry eye in the house,” he said. “It really hurts.”
Want to learn about other small businesses that depend on trade? Read about them here, here and here. And check back for future installments.
About the authors
Cordell Eddings
Cordell was a senior editor and content strategist for the U.S. Chamber of Commerce's strategic communications team. He previously covered corporate finance, economics, foreign exchange and fixed income markets for Bloomberg News in New York during the heart of the financial crisis. Before that, he was a crime and politics reporter (as well as covering many, many country fairs) at the Indianapolis Star.
