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Conference Board Takes Aim At Supply Management

Supply management blocks dairy farmers from competing in world markets and saddles consumers and processors with high costs, says a report from the Conference Board of Canada.

Dairy farmers are engaged in defending their system from cheap imports when they “could otherwise be positioning the sector for future long-term domestic and global success including opportunities in China and India,” the report says. “Eventually, Canada will have to open up its market partly or fully, and if the industry has not prepared in advance, the system may even fail in its stated goal of improving producer incomes.”

The report recycles many of the usual criticisms of supply management and its insulation from the world market as well as the higher prices that consumers and processors pay compared to what’s available on the world market.

Dairy Farmers of Canada says the world market has proved disastrous for other producers such as pork farmers. Dairy farmers in Europe, U. S., New Zealand and other countries suffer from prices as low as 20 years ago, combined with higher input costs. Between July 2008 and January 2009, for instance, the world prices for dairy declined by 56 per cent, while feed costs decreased by only 35 per cent.

“Meanwhile, the Canadian dairy industry has a different story: demand for dairy products has increased modestly in the past years while demand dropped significantly in the rest of the world and prices have remained much more stable and fair for all – from farmers to consumers,” it said. “Moreover, the Canadian system does not cost anything to taxpayers, unlike the bailouts that need to be doled out in other countries.” The most obvious example would be the costly dairy cull program in the United States.

Not surprisingly dairy farmers prefer the stability of supply management to the financial agony of the pork sector, DFC notes.

The conference board says dairy farmers go to great lengths to protect their market share creating a system that becomes increasingly complex.

The system faces major challenges such as “the astronomical cost of the right to produce milk for sale, new dairy imports that threaten to displace Canadian production and relatively expensive dairy inputs that make some Canadian processors less competitive.”

Canadian dairy farmers earn consistently higher prices for milk while consumer prices for dairy products have grown much faster than have prices for other foods, it says. The average dairy farm holds quota valued at a minimum of $2 million or $28,000 per cow, for a total quota value of at least $28 billion. This represents double the value of quotas only 10 years ago.” This cost structure makes entry into dairy farming prohibitive for young farmers.

DFC says European and the United States governments are investigating the disparity between drops in prices to farmers and little decline in food prices “due to the concentration of power in the processing and retailing sector of the chain.” At the same time, both have announced major support programs for their farmers. “Is that competitiveness consumer benefit? We don’t think so.”

The world milk price of US$20 per 100 kg of milk would only sustain two per cent of the world milk production. The rest is driven by subsidy and support programs. “Surely, anyone can understand that such farm prices are unsustainable. And retail prices across various countries show consumers are not benefiting from producer misfortune.”

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