Why we need supply-management for a healthy dairy
industry
Supply-management has once again found its way to
the headlines in national newspapers all across
Canada.
Supply-management is being criticized as a result of
an imminent signing of a free trade agreement
between Canada and the European Union where they
have asked for additional access to Canadian markets.
A change in the current system could have dire effects
for Canadian dairy farms, including the 193 currently
situated in Prince Edward Island.
Supply-management was introduced by the federal
government in the 1970s as a way to ensure local
farmers could meet domestic demand. The
introduction of quota levels helped to control supply
while creating stable prices for Canadian consumers.
Prices for milk worldwide had led to fluctuating prices
and instability in Canadian markets. The government
sought to fix this by implementing a system to provide
milk and poultry for the Canadian market by Canadian
producers.
The shift to a neo-liberal mindset during the 1980s
has led to the mindset that supply-management
hinders trade initiatives from moving forward, and is
costing consumers dearly. However, is this belief valid?
Kelly McParland, a columnist for the National Post,
acknowledges Canadians are being overpriced at retail
stores for the price of milk, yogurt and cheese in
comparison to other world markets. While Kelly is
certainly right - Canadians do pay more at the cash
register - he has failed to articulate why prices are
lower in other markets. Simply put, other markets are
heavily subsidized. Markets such as the United States
and the European Union gloat about free trade and the
positive impact of open markets on industry. What is
overlooked is the crutch the government must provide.
In fact, as reported by the Toronto Sun in 2012, the
European Union spends 40 per cent of its budget
subsidizing its dairy industry, the equivalent of $52
billion spent annually. In comparison Canadian
taxpayers do not subsidize the industry.
Some Canadians also point to the large discrepancy
between the cost of American and Canadian milk as a
flaw in supply-management. This discrepancy is also a
result of subsidies. The fiscal cliff issue in the United
States highlighted the importance of subsidies for the
dairy industry; without subsidies, the predicted price
of milk was expected to double to between $6 to 8 per
gallon. Those subsidies are provided via the American
Farm Bill, which was in danger of losing assistance
from Washington.
It's not clear whether or not a free-market system will
bring lower prices to Canadian consumers. New
Zealand once had
supply-management, then switched to a free-market
orientation. Prices increased for consumers, and a
monopoly was established where one dairy owns 90
per cent of milk farms. The result caused the New
Zealand government to have a parliamentary
investigation as to why prices increased.
A common misconception is how the price of milk is
determined. Prices are set based on actual input costs
directly associated with producing milk. Usually this
formula allows 50 per cent of producers to break even
after labour costs. The farmers, who break even, spend
the majority of their profit on paying off existing
loans, or investing in capital upgrades. Farmers who
do not break even are forced to manage costs more
efficiently to reach the 50th percentile or leave the
market. This creates a competitive environment where
not all farmers are guaranteed to succeed.
The number of dairy farms in Canada has decreased
since the 1960s from around 135,000 to roughly
14,000 today. Barrie McKenna, columnist with the
Globe and Mail, suggests decline in farms is directly
related to barrier of entrance in the industry. McKenna
mentions the cost of buying quota, which is the
equivalent of $25,000 per cow. Supporters of supply-
management argue the high quota shows that the
industry is healthy, and that other profitable
businesses require high start-up costs, including
purchasing franchise fees to begin operations. Neo-
liberalization has also pushed many "mom and pop"
shops out of business, as increasing economies of
scale make it difficult for small businesses to compete;
this decline in numbers extends beyond the dairy
industry.
In conclusion, economics and policies aside, the issue
comes down to values. What do Canadians value? If the
elimination of the supply-management reduced actual
costs to consumers (which there is substantial
evidence it wouldn't) it would put our dairy industry in
a precarious position. Given that the average
percentage of the Canadian grocery bill spent on dairy
is two per cent or less it represents a small portion of
the cost of living. The choice then comes down to a
potential small increase in consumer savings, or
maintaining the livelihood of roughly 14,000 Canadian
dairy producers including other dairy-related jobs that
would be affected. I, for one, am in support of the
latter.
Kody Blois is a Nova Scotia resident pursuing a
commerce degree with a minor in political science at
Brock University. You can follow him on twitter
@kodyblois or his blog kodyblois@blogspot.ca
industry
Supply-management has once again found its way to
the headlines in national newspapers all across
Canada.
Supply-management is being criticized as a result of
an imminent signing of a free trade agreement
between Canada and the European Union where they
have asked for additional access to Canadian markets.
A change in the current system could have dire effects
for Canadian dairy farms, including the 193 currently
situated in Prince Edward Island.
Supply-management was introduced by the federal
government in the 1970s as a way to ensure local
farmers could meet domestic demand. The
introduction of quota levels helped to control supply
while creating stable prices for Canadian consumers.
Prices for milk worldwide had led to fluctuating prices
and instability in Canadian markets. The government
sought to fix this by implementing a system to provide
milk and poultry for the Canadian market by Canadian
producers.
The shift to a neo-liberal mindset during the 1980s
has led to the mindset that supply-management
hinders trade initiatives from moving forward, and is
costing consumers dearly. However, is this belief valid?
Kelly McParland, a columnist for the National Post,
acknowledges Canadians are being overpriced at retail
stores for the price of milk, yogurt and cheese in
comparison to other world markets. While Kelly is
certainly right - Canadians do pay more at the cash
register - he has failed to articulate why prices are
lower in other markets. Simply put, other markets are
heavily subsidized. Markets such as the United States
and the European Union gloat about free trade and the
positive impact of open markets on industry. What is
overlooked is the crutch the government must provide.
In fact, as reported by the Toronto Sun in 2012, the
European Union spends 40 per cent of its budget
subsidizing its dairy industry, the equivalent of $52
billion spent annually. In comparison Canadian
taxpayers do not subsidize the industry.
Some Canadians also point to the large discrepancy
between the cost of American and Canadian milk as a
flaw in supply-management. This discrepancy is also a
result of subsidies. The fiscal cliff issue in the United
States highlighted the importance of subsidies for the
dairy industry; without subsidies, the predicted price
of milk was expected to double to between $6 to 8 per
gallon. Those subsidies are provided via the American
Farm Bill, which was in danger of losing assistance
from Washington.
It's not clear whether or not a free-market system will
bring lower prices to Canadian consumers. New
Zealand once had
supply-management, then switched to a free-market
orientation. Prices increased for consumers, and a
monopoly was established where one dairy owns 90
per cent of milk farms. The result caused the New
Zealand government to have a parliamentary
investigation as to why prices increased.
A common misconception is how the price of milk is
determined. Prices are set based on actual input costs
directly associated with producing milk. Usually this
formula allows 50 per cent of producers to break even
after labour costs. The farmers, who break even, spend
the majority of their profit on paying off existing
loans, or investing in capital upgrades. Farmers who
do not break even are forced to manage costs more
efficiently to reach the 50th percentile or leave the
market. This creates a competitive environment where
not all farmers are guaranteed to succeed.
The number of dairy farms in Canada has decreased
since the 1960s from around 135,000 to roughly
14,000 today. Barrie McKenna, columnist with the
Globe and Mail, suggests decline in farms is directly
related to barrier of entrance in the industry. McKenna
mentions the cost of buying quota, which is the
equivalent of $25,000 per cow. Supporters of supply-
management argue the high quota shows that the
industry is healthy, and that other profitable
businesses require high start-up costs, including
purchasing franchise fees to begin operations. Neo-
liberalization has also pushed many "mom and pop"
shops out of business, as increasing economies of
scale make it difficult for small businesses to compete;
this decline in numbers extends beyond the dairy
industry.
In conclusion, economics and policies aside, the issue
comes down to values. What do Canadians value? If the
elimination of the supply-management reduced actual
costs to consumers (which there is substantial
evidence it wouldn't) it would put our dairy industry in
a precarious position. Given that the average
percentage of the Canadian grocery bill spent on dairy
is two per cent or less it represents a small portion of
the cost of living. The choice then comes down to a
potential small increase in consumer savings, or
maintaining the livelihood of roughly 14,000 Canadian
dairy producers including other dairy-related jobs that
would be affected. I, for one, am in support of the
latter.
Kody Blois is a Nova Scotia resident pursuing a
commerce degree with a minor in political science at
Brock University. You can follow him on twitter
@kodyblois or his blog kodyblois@blogspot.ca
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