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Why Canada has dairy supply management and how it works

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Photo: flickr/Mohammadali F.

The Conference Board of Canada (CBoC) embraces the mantra that "all growth is good." Their plan to change supply management for growth is a prescription for weakening, if not eliminating, the three pillars of supply management for dairy production in Canada -- production controls, import tariffs and farmers' cost of production pricing -- in order to produce more milk, lower its price and increase exports.

The CBoC claims to be an independent think tank, but is affiliated with the New York-based Conference Board, run by and for U.S. based multinational corporations. While pretending to serve the public it advocates for a suite of policies -- including dismantling dairy supply management -- that promote corporate interests at the expense of the values and aspirations of Canadian people.

Let's do a quick review of why we have dairy supply management, and how it works.

In the 1960s dairy processors were using erratic milk hauling practices to depress farm-gate prices paid to farmers. Farmers were faced with delivering milk at whatever price they could get or lose it all. Ontario and Quebec farmers protested and demanded government action.

In 1969 a new system had the government regulate farm-gate prices based on farmers' cost of production in return for farmers producing a constant flow of high quality milk along with a system of discipline (quotas) to prevent over-production. Its success led to rapid adoption in all provinces.

Since then, provincial milk marketing boards have successfully managed procurement, marketing, quotas, quality control and government regulation. To ensure supply and demand are synchronized, Canada restricts dairy imports via WTO-compliant tariffs. Thus, Canada's dairy sector produces primarily for the domestic market.

Canada's dairy supply management operates smoothly, efficiently and sustainably without government subsidies in contrast to other Canadian agricultural sectors where Agri-Stability payments are often needed to support farm incomes and overcome depressed commodity prices.

The CBoC now promotes increasing dairy production beyond Canadian needs in order to export.

There is definitely capacity in Canada to produce a lot more milk. But what kind of export markets could we pursue, what kind of programs would be required to obtain those markets and what net benefits would there be for various players in the system?

Only a small portion of the world's milk production crosses borders because it is a bulky perishable product. Most exports depend on subsidies, often obscured as indirect production supports to comply with trade agreements.

American dairy farmers receive U.S. Farm Bill-related payments that nearly double their milk cheques. European subsidies provide dairy farmers a base income, allowing them to survive on lower farm gate prices. The exception is New Zealand, a major dairy exporter with little or no subsidies. With the world's lowest production cost (no winters) it can sell at the world's lowest farm-gate prices.

Dismantling dairy supply management would be costly for Canadian taxpayers. To compete internationally we would have to match the massive subsidies given by the U.S. and European countries. Dairy farmers in Canada would receive lower prices for milk, be subjected to less transparent pricing and require government bail-out programs such as Agri-Stability to keep operating.

Ironically, the CBoC's dairy plan is modeled after the deregulated export-oriented hog and beef sectors, which have not only failed to grow, but have seen a steady decline punctuated by several crises over the past 15 years because farmers cannot recover the cost of production.

The CBoC suggests that an export-oriented dairy system with lower farm gate prices would result in lower prices for consumers. In reality, retailers charge what the market will bear --New Zealand consumers pay among the highest prices for dairy in spite of their farmers' low cost of production. 

Canadians value dairy supply management, as they enjoy a steady supply of high-quality products for a reasonable price. Supply management regulates production in each region of our vast geography, providing milk where consumers need it. An unregulated dairy market would centralize production, processing and distribution, requiring consumers in distant areas to pay more due to transportation and storage costs.

Processors benefit from the constant, predictable flow of milk under supply management which allows them to maximize plant and labour force utilization, unlike their U.S. counterparts who must deal with wide and erratic fluctuations.

Dismantling dairy supply management would help companies affiliated with the CBoC, such as food processors and retailers, and those industries that have their eyes on massive concessions at the trade deal table. Their gain would be a huge loss for Canadian citizens and Canadian dairy farmers. 

Jan Slomp is the President of the National Farmers Union and a dairy farmer from Rimbey, Alberta.

Photo: flickr/Mohammadali F.

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