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Milk Plant

Cayuga Milk Ingredients CEO Kevin Ellis opens a container mixing powdered milk during a Jan. 22, 2015 tour of the plant.

Kevin Ellis knew his company, Cayuga Milk Ingredients in Aurelius, would take a hit when Canada implemented its new dairy pricing policy related to ultra-filtered milk. What he didn't know is how soon the trade rules would affect sales. 

"The impact is our sales went to zero on April 1 because we have no sales into Canada at this point," said Ellis, CEO of Cayuga Milk Ingredients. "I had a suspicion that the business would go away over time. I had no idea it would go away overnight." 

With Canadian firms no longer buying ultra-filtered milk from Cayuga Milk Ingredients, Ellis said the company lost $30 million in export sales. That's a major challenge on its own, but is exacerbated by the current milk supply situation in the Northeast. 

Ellis said dairy farmers are increasing their output even as there is a reduction in sales to Canada. There's also "flat-line growth" in other dairy manufacturing sectors within New York, he added. 

"There's a huge imbalance of milk causing a surplus," he said. "You're going to see more and more farmers losing their markets and losing the ability to continue operating is a growing concern. It's a dire situation for the dairy farmers right now." 

But Canada's trade policy is having the most impact. 

The Canadian government, Ellis said, took a targeted approach to eliminate imports of ultra-filtered milk by changing its dairy policy and milk pricing system. 

Many of the companies that previously purchased ultra-filtered milk from Cayuga Milk Ingredients and other U.S. producers have made investments to manufacture the product on their own. In return, Ellis said the Canadian Dairy Commission has promised to provide cheap milk for production. 

He believes the Canadian policies violate the North American Free Trade Agreement and the country's commitments to the World Trade Organization. Several of New York's elected officials, including U.S. Sen. Chuck Schumer, agree and have accused Canada of violating existing trade agreements between the two countries. 

The U.S.-Canada dairy spat received more attention Tuesday when President Donald Trump addressed the issue during a speech in Wisconsin. He called Canada's policies "very unfair." 

"It's good that Trump is now finally aware that they are very protectionist of the agricultural industry within Canada," Ellis said. "I was excited to see it." 

Even though Ellis welcomes Trump's critique of Canada's dairy trade restrictions, he doesn't think the Canadian government will change course. 

Millions have been spent on the new program implemented by the Canadian Dairy Commission. While he doesn't see the policy being reversed, he's hopeful the U.S. government will use it as a bargaining chip when renegotiating NAFTA. 

"As an American, I hope that America wins something in return for, really, the dealings that haven't been in good faith by the Canadian government," he said. 

Ellis' main focus at the moment, though, is the future of Cayuga Milk Ingredients. 

With the loss of business in Canada, he said the profitability of the Aurelius plant is at risk. They're seeking customers to fill the void left by the Canadian companies that used to purchase ultra-filtered milk for cheese production. But that's going to take time. 

One change Ellis won't make is reducing the company's workforce. He's pledged to his employees that there won't be job cuts. They'll continue to provide a market for milk supplied by Cayuga County-area dairy farmers. 

"We're running at full capacity," he said. "It's just that we lost a good piece of profitable business with Canada."