Conference Board of Canada Cries Over Supply-Managed Milk

Photo Courtesy of Eduardo Pina

In the last week, discussions surrounding supply management in the Canadian dairy sector have lit up again, thanks largely to the Conference Board of Canada’s recent report entitled “Reforming Dairy Supply Management: The Case for Growth.” In it, the Conference Board, a not-for-profit research organization, argues for a three-point reform and, ultimately, the demise of supply managed dairy in Canada.

This change could gain up to $2.5 billion for farmers from the export of high-quality dairy products, the report argues, while consumers could eventually save $2.4 billion annually. It would also increase innovation, the writers say, since it would no longer protect “unsuccessful farmers” whose only hope is to ride their quota through retirement.

The transition to a new system would have to focus on funding, efficiency, equity and duration, according to the Conference Board, and would happen through policies that liberalize prices, unwind milk production quota and tackle trade barriers. Quota would be bought out through a book-value buyout, which could be funded through a consumer levy, as was done in Australia. This reform would cost up to $4.7 billion dollars, but, as the report estimates, it could see retail price change in as little as five years.

The Organisation for Economic Co-operation and Development (OECD) estimates that this market price support cost Canadian dairy consumers an average of $2.6 billion per year in the decade to 2011: roughly $200 thousand per dairy farm per annum and around $276 per family every year.
– Reforming Dairy Supply Management: The Case for Growth

Possibly the greatest argument the Conference Board gave for reform, however, was that the change would improve equity amongst all Canadian citizens.

Dairy Farmers of Canada’s Response

While I was researching and tweeting about this report, I had the opportunity to have some very interesting discussions with people of all viewpoints. Then the Dairy Farmers of Canada (DFC) contacted me looking for the opportunity to respond to the report…

“First – we reject any call for dismantling supply management.  Farmers and processors have continuously worked on updating, improving and adapting the system since its beginning to take advantage of opportunities and develop new markets. We continue to do so”

“The [Conference Board] recommendation amounts to bad business advice for dairy farmers,” wrote a spokesperson for the Dairy Farmers of Canada, criticizing the study for suggesting dairy farmers double their herd size only to receive half the income, and, without any suggestion for how to subsidize the changes on farm.

On the argument that the average Canadian family spending an extra $276/year on dairy products, the DFC says it’s misleading and is based on an assumption that the removal of supply management would reduce farm gate price, a savings that would ultimately be passed on to the consumer. Farm and retail prices are not so directly linked, DFC argues.

My Response

Food Security as defined by the
World Food Summit in 1996:
“When all people at all times
have access to sufficient, safe,
nutritious food to maintain a
healthy and active life.”

Includes three pillars:
food access, food availability, food use.
With increasing demand for high-value protein products, and dairy offering such a nutritious benefit to consumers, I think Canada is missing out on valuable trade opportunities in dairy. I also have to wonder if we don’t have a role in food security, nationally and globally? In my questions to the Dairy Farmers of Canada, I asked what supply management offers food security, receiving a response that the assumed lower prices (which DFC argues is an oversimplification) won’t necessarily make food accessible and that the extra supply dairy farmers already produce means Canadians have dairy available even in the event of an industry issue. True enough. But what about people outside of Canada? It seems in almost every other commodity, we celebrate the role our vast nation offers global food supply. Why is it any different in dairy?

I realize the benefits of supply management, don’t get me wrong. I know milk prices won’t fluctuate, and that dairy farmers are well-protected. But I also have to wonder how supply management doesn’t stifle innovation. Why can’t we brainstorm some kind of compromise? Is it not possible for us to keep our high-quality production through some means other than supply management? Are subsidies really that bad of an idea? I’m paying the dairy industry anyway. What difference does it make if it’s through a subsidy instead? At least then I can rest assured we’re sharing our production capabilities with the global market, no?

Does the demise of supply management really mean animal welfare issues, loss of family farms and lower quality dairy production? I didn’t know food safety was regulated by supply management and I thought limiting supplies often led to illegal behaviour? But you’re probably right; that under-the-table milk is only bought for “non-human” consumption.  So, in an effort to eat only “safe” food, maybe we should just cut everything from our diets save milk, eggs, turkey and chicken.

Are we so pro-status-quo, we can’t even begin to offer solutions that consider all challenges and opportunities? Can’t we try to move forward without constantly citing best and worst case scenarios? Is change always futile?

Oh, right and I should clarify there’s a bit of a bias here. I grew up on a mixed farm where we dealt with market challenges on our own, and often milked our own cows, goats and — once — a horse. What can I say? My brothers are innovative. Though I typically resist change, I always seek it.

Really, is there not some kind of happy medium?

I’m off to buy a holstein. Let me know what you think.

 

Debra Murphy

Debra Murphy is a Field Editor based out of central Alberta, where she never misses a moment to capture with her camera the real beauty of agriculture. Follow her on Twitter @RealAg_Debra

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19 Comments

naomi

I always find these articles and conversations interesting! First of all I don’t understand why it is always assumed that if the supply management system goes, prices will drop? There is no guarantee of this. Just look to New Zealand for an example of this. Milk in New Zealand has gone up considerably since their supply management system left. In New Zealand milk is now called a “rich man’s drink” at over $4CAD for two liters of milk at a discount grocery store. Your comment of “are subsidies really that bad of an idea” Well no not necessarily, but why would we create a system that can not sustain itself, when our current system can? I had to laugh at the comment of protecting “the “unsuccessful farmers” whose only hope is to ride their quota through retirement.” Anyone who has been a dairy farmer knows that there is no ridding anything in diary farming! It is inflexible, long hours 365 days a year. The margins are not as great as the Conference Board of Canada makes them sound. If you are an “unsuccessful farmer” or unwilling to be creative and innovative in today’s market you wont make retirement quota system or not! The Conference Board of Canada makes it sound like the quota system is a system that pays the farmer regardless of how he farms. No, the quota system pays the farmer for their quality product. A quality product requires good herd management, growing high quality forages, balancing nutrition, and ensuring a healthy safe environment for our cows. All of these things require a lot of hard work and investment. We may not be miking goats and horses on the side, but I would say we are still pretty innovative.
I think we have found our “happy medium” in Canada where we have a self sustainable industry, that produces a high quality product for a fair price.

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Kim

How much ‘opportunity’ really exists too in the export market potential? Less than 10% of dairy products around the world cross international borders anyway because most forms of dairy are perishable. Plus the US and New Zealand are already battling for that small market to offset volatile domestic prices. Why should Canadian dairy farmers, processors and consumers give up their stable system to jump in that sandbox?

Agree with Naomi’s point – why would you replace a self sustaining system with one that can’t be sustained unless subsidized? Then we could have the ‘rich man’s milk’ syndrome of NZ plus still have to pay through our government coffers to sustain the farmers when the middlemen pocket the margins. That would cost more in the big picture than what we pay now for milk in stores!

Didn’t realize our Canadian dairy farmers were supposedly lagging so far behind in innovation… I understood the sector has the most sought after genetics in the world, has barns with technology rivaling other top countries with similar cold weather climates (look at all the robot milkers, feed pushers, scrape alleys, auto ventilation, lighting systems, etc.), has enforceable standards in place for quality milk, animal welfare, etc.

Sure there are always some bad apples….doesn’t every sector (not just in agriculture) have businesses that aren’t all leading edge innovators?

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Terry James

I think you are bang on with this article. Canadians should be exporting dairy products, not hiding behind tariff barriers. If as Kim says, we are leaders in innovation, what are we afraid of. By the way Kim, we do subsidize the dairy industry in the form of higher prices. And is a regressive subsidy. Poorer people as well as wealthy people pay it equally. Is it fair that the most vulnerable in society contribute to the ever increasing value of dairy quota in Canada. The other major reason we need to rethink supply management is that it is hypocritical for Canadians to seek open access to markets around the world, yet protect their own dairy and poultry industries. I don’t think we can continue to have it both ways. Dairy farmers need to begin thinking beyond just their own little circle, and also consider the concerns of other farmers who wish broaden their business, but who are denied export access because of our supply managed system.

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Kim

Why export? It’s a small pie – less than 10 per cent of dairy (all products) trades across international borders. For improved profits? It’s already a race to the bottom with countries with the US and New Zealand, and more and more EU dumping their oversupply into the market. Why compete in that environment? The playing field isn’t level – how can Canadian dairy farmers be expected to compete against the heavily subsidized players in these other countries?

Remember that dairy farmers don’t set the price at retail. It’s set only for raw milk product to processors. Beyond that it’s out of farmer hands. Even still, at retail Canadian prices are comparable to other countries. http://www.dairyfarmers.ca/farmers-voice/farm-policy/what-s-the-truth-on-supply-management
In the past two decades there are often times when Canadian dairy (and other ag and non-ag products are cheaper here than in the US). Typically when the US is digging out of an economic down turn they ‘trump’ with lower prices.

Other countries protect ag and non-ag sectors. Japan in rice, New Zealand in dairy, Argentina in beef….why should Canada not be interested in watching out for its own businesses? Dairy has not gotten in the way of other trade agreements to date – to the benefit of friends in other ag sectors. http://www.dairyfarmers.ca/what-we-do/international-trade/international-trade-negotiations/other-bilateral-agreements

As part of existing agreements, Canada already imports, tariff-free, more than 6 per cent of dairy products to fill the domestic market. The US only allows 2.75 per cent access to their dairy market. How’s that comparable? Before the recent CETA deal, Canada imported ten times more cheese from the EU. Post CETA this is access has doubled. Figure the tonnage out on a per capita basis in Canada vs. EU and it’s even more staggering how more open our borders already are to dairy (other SM groups too).

Nice to see the discussion thread on this article. Some good ideas coming forward I think.

Canada has a system that has been working. Certainly, a lot has changed since it was first implemented in the 1960s, like Jen has said. The system has evolved, and will continue to evolve. Canadian dairy farmers are innovative and with that comes embracing change. Certainly on the outside looking in, it’s sometimes easier to see ‘faults’ or feel the pace is too slow, but there are lots of layers and complexities, and unfortunately that takes time to get it right.

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Terry James

Why export? To increase revenue, create jobs, and improve our economic well-being. And I don’t think our farmers should be expected to compete against subsidized products from elsewhere. But by the same token, I don’t think they should be protected from unsubsidized products. In general, industries that depend on subsidies become less competitive and eventually are squeezed out any way. I am sympathetic to the argument that milk is a perishable product and it perhaps should be treated differently from the other major supply managed industry, poultry. Nonetheless the dairy industry needs to address the concern that many consumers have, high prices for milk which appear to go directly into high prices for dairy quota.

Jen Christie

Excellent article, Debra! I would’ve said the same thing if I’d had the chance but I’m still digesting the report myself. There is no doubt the system provides many benefits for Canadians, but we also must accept the environment in which it was originally conceived nearly 50 years ago is significantly different than it is today.

Does Canada face climate and market challenges which make production costs higher here? Yes, absolutely we do. Every industry in Canada faces these challenges. However, don’t we also have the best genetics in the world (as Kim pointed out), unparalleled quality and production/cow and access to more arable land and freshwater than possibly any other milk-producer region in the world? We need to start looking for the opportunities to take advantage of growing demand for dairy products rather than cowering behind a hope and prayer Canadians are suddenly going to want more dairy in their diet.

Canadians are leaders in food production and this attitude should be embraced by our dairy producers and industry leadership. Thanks for this story!

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Don

http://www.thebullvine.com/news/whats-truth-supply-management/

Some facts to digest. Why would Canada want to race to the proverbial bottom of the supply chain. Export markets are usually the lower priced products, so should Canadian farmers aspire to take on more work, more debt, and become more like factory farmers in order to placate those whose rose colored glasses see the world as a peaceful and benevolent market place? Countries that import vast quantities of dairy products are not offering a premium price. Does Canada want to become someone that other countries outsource cheap production to? Buy a dairy farm and join the discussion.

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Dan Drummond

Supply Management is much more Dynamic and Powerful than you give it credit for. It is the only reason there are any smaller size dairy farms left. It spreads economic wealth over the towns of this great country.

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Doug Hammerton

Too bad all these supposed benefits to supply management has to – in part – be at the expense of other farmers. The price of land for one is driven up largely because of the cash that dairy farmers have. Since they can’t buy more quota at the moment, they bid up the neighbour’s farm.
Tough luck if you are in another area of agriculture and want a chance to expand. Talk about the tale of 2 cities…

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Kim

Interesting take. In this area, it’s more often the cash crop farmers that have been driving land prices up. And it makes sense – with the higher crop prices lately, if you’re able, who wouldn’t want to run more acres to take advantage of that opportunity?
Another trend here is more to rental agreements than land purchases as older generation wants to still ‘own’ land. Do you see that in your area too Doug?

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Doug

There are both in this area – rentals and purchases. In my case though the purchases are just not going to happen. Years ago it was difficult to figure the economics of land purchases and it’s gone from bad to ridiculous now. Just not going to happen.
The price of corn and all has come down here. Sooner or later that would otherwise reflect on land prices. I can’t see that happening with the dairy being like it is.
Cash crop farming is kind of a boom or bust cycle and it’s certainly been a boom of late, and yes land prices reflect that. Again though, the dairy seems to have put a floor on those prices.
Best bet would be to let them buy quota again.

Sarah Weigum

I’m torn on the supply management thing. On one hand, I’m generally in favour of free markets as opposed to managed ones and I think it’s ridiculous that the dairy industry flips out everytime the value of SM is questioned. That being said, the CBC report seems to use loaded language when it describes “unsuccessful farmers” who are riding out their quota. Um, how do they prove these accusations? That being said, if SM is as dynamic and powerful as some in the dairy industry say it is, then I think the industry could do a lot to improve on the PR side of things and talk about what modernizations they are doing, both at a farm level and industry wide.

However, while the dairy side could do a lot better, I question the basic complaint in the report, which seems to be that “Milk is expensive in Canada.” Expensiveness is always relative. Do we pay more for milk in Canada than in the US? Yes, but we pay more for just about every food stuff. We also have a substantially more robust social welfare system. The middle class wastes great gobs of money on consumer goods every year, so I don’t feel all that bad about them (meaning me) paying a little extra for milk if it ensures a good quality of life for Cdn dairy farmers and by extension, good quality milk for everyone. For the very poor, yes the current cost of milk may seem to price it out of their diets, but frankly, just making milk cheaper is not going to address the shortcomings in their current standard of living. To deal with that, we need better employment, education and probably, ultimately, more stable family structures, which, again, the price of milk is not going to fix. People often bring up the argument that pop is cheaper than milk. Well, if as a society we don’t recognize that 250 mL of milk is way more nutritious than double that amount of pop, there is a failure of education. We need nutritious food, not cheap food. The poor are statistically more obese than the wealthy (in N. America)–they don’t need more, cheaper calories, they need fewer, more nutrient dense calories.

All this to say, if we’re going to talk about milk and food security, I’d be much more in favour of a milk-voucher system or a milk in schools program than just ditching SM so that milk is cheaper for everyone and probably less profitable for the farmers to produce. Right now, for the vast majority of Canadians, milk is a secure, safe food item, not subject to the caprice and volatility of international markets. Tailoring our food policy to suit the poorest people seems to make less sense than lifting the poor out of their poverty and bringing them to a standard of living that matches those of us who can afford milk.

Oh, and as for my background in the milk industry, well I’m a grain farmer, but once upon a time we milked Brown Swiss cows by hand and I got to drink delicious, unpasteurized, non-supply managed milk every single morning.

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Terry James

Good points. Sure consumers spend lots of money on other things as well, but its the lower income groups in society that suffer the most from high prices on basic foodstuffs.

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richardbarrett

As a former Dairy Quota holder, I salute all the hard working Dairy Farmers in Canada. I desire the Supply Management (SM) to remain with minor changes. The Milk Quotas were originally given out free and should not have become worth more than some farms or of any monitor value. Many former Dairy Farmers did get pressure ‘get Big or get Out!’. More consumers, thru education are wanting better nutrition than cheap food. I am thankful that our farmers are supplying better than some of the California Farmers who have had to resort to feeding ‘chicken manure’ in order to put food on the table for their children. About 2000 U.S. Dairy Farms quit every year for the past ten years. Re: “riding out their quota” The main reason is that the Farmer does not have any family who wants to be tied down and there is more money off the farm. Let the Farmer be paid his True Value. Re: “equity amongst all Canadian citizens” The Farmer feeds us all but makes pennies (sorry nickels) compared with sports players. Re: “The price of land for one is driven up largely because” Not mainly the cash that Dairy Farmers have but due to the ever increasing investors who do not live on the land. Re:” Animal welfare issues” I appreciated an Ontario Farmer who showed me how that they monitored the temperature of their cows and many other items. From a personal farm experience and what I have seen on many farms, when a farmer pushes for quantity by grain, the quality goes down and diseases increase. I personally met a former farmer in Alberta that had the lowest Somatic Cell Count and never fed grain and had no mastitis problems. Once a cow eats grain the CLA and OMEGA-3 goes down by 3 – 4 times. Good Herd Management will result in a cow being on the farm longer than 7 – 10 years not less than the average 5. Re: “consider the concerns of other farmers who wish broaden their business, but are denied” Yes, the SM does stifle innovation which leads to “under-the-table milk” With the Milk Regulations that state that: 1.One must solely own the land. 2.One must solely own the cow. 3.One must solely take care of the cow. Where is Food Freedom to consume Fresh Unpasteurized Whole Milk that all the children which I grew up with drank? How can I living in a city obtain it unless I resort to the Black Market? Please, Dairy Farmers of Canada, Please tell me. Raw Milk is not a High Risk Food and can be very safe. Check the web: http://www.rawmilkinstitute.net/about-rawmi/ Organic Pastures in California (google it) is now suppling Raw Milk to over 90,000 people weekly without anyone getting sick. Please send your answer to fuwmilkalberta@gmail.com For anyone desiring to do more research on this go to: rawmilkconsumer.ca I am off to buy a Jersey, maybe when legal, maybe before.

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Matt Jackson

All quota is a guaranteed price on a product with a short shelf life. It’s not like grains, beef cattle, hogs etc that can be stored till the market is at least fair price. An open market will become the same problem the rest of the Ag industry has now quantity over quality; livestock will become pushed to the max in a factory farm setting. Any of these people on the conference board of canada (and anybody whose is agreeing with them) I welcome you to go spend a couple of weeks on a dairy farm and see how easy if a life it is!

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Doug

If someone was inclined to “push to the max” their animals without quota, they already do with it. That kind of thinking isn’t related to money. If people want to abuse animals, they don’t need excuses to do so.
Also, the “factory farm” reason is largely a media invention. People see a large building and assume. Mean while, it turns out to be owned by a family that has invested in a new building with new technology to make productivity better. There are regulations already in place to keep the huge operations people refer to in the U.S. from happening here.

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Shane Debock

If I was a dairy farmer that was paid out for quota, I think I would sell the cows and then just grow canola. It’s way easier. Why would they work that hard without the guaranteed income? Think it will result in lower prices? I doubt it. Dairy and poultry farmers get paid a living wage, which is more than can be said for beef and pork. I don’t see how removing supply management will benefit anyone long term.

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Jim

Hi Debra
How come you don’t provide a “dislike” at the bottom of your article? Also I wanted to point out that, yes, the price of mik is set by Cost of production formulas, but at this point in time only 40% of producers are profitable at the current target price level. The industry usually targets a 50% level of profitability and we all agree that this is fair. What this does is make everyone very competitive and driven to manage their farms better because nobody wants to be in the bottom percentile. The attrition rate for farms is approximately 5% per year. When I started 30 years ago there were over 900 fluid shippers in Sask. now there are about 170. So much for the inefficient farms. As far as food security in the world, it is recognized that there is more than adequate food in the world but rather it is currently an issue of proper food distribution and preventing waste. Also it is well known that dumping subsidized food into forign markets will destroy the local farm economy and even more people will be without food. I could go on but I’ve got chores to do.

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