How a Tariff Can Kill a Cow

Swiss dairy farmers have been used to a mixed market system.

Now though, U.S. tariffs have become the boss.

Swiss Tariff Response

With a mixed market system like Switzerland’s, the freedom of the market’s supply and demand is offset by some of government’s central control. On the supply side of the market, Switzerland has 20,000 dairy farmers that own approximately 550,000 cows. With no dominant large producers, the numbers echo the competitive market that Adam Smith described. The farmers’ milk buyers include cheese and chocolate makers. And, if their cows get older or produce too little milk, they know that they can sell their meat for hamburgers or pet food. As a result, farmers’ decisions include herd size and being able to provide the milk for the 4500 tons of Gruyère exported by Swiss cheesemakers annually to the United States. Meanwhile, the government nudges demand in farmers’ direction with tariffs as high as 100% (and beyond) on dairy products.

Our Bottom Line: Trump Dairy Tariff

Combined with other fees and foreign exchange, the Trump Swiss dairy tariff of 39 percent is really 50 percent. Coping with so high a tariff, Swiss farmers have already begun cutbacks. Slaughtering cows, some have reduced herds. They also recognize that the U.S. price of Gruyère per pound will rise from $15-$50 up to whopping $20-$70 range. So yes, Swiss dairy farmers know they will get hit when less quantity will be demanded. In addition to producing less, some are looking for new buyers that will use their milk for mozzarella cheese or yogurt.

Responding to market signals, the farmers were already coping with a rainy spring that grew more grass for cows to feast on. But they knew how to manage too much milk and too many cows. Then though, the U.S. government shifted their plans.

My sources and more: Today, the NY Times took us to tariffs, Switzerland, and, dairy farmers. From there edairy news had more detail. And finally, Bloomberg’s Odd Lots podcast took us in a new direction. Through high protein milk, they demonstrated that there is more to milk than cows.