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Life after supply management – One of Ontario’s most-acclaimed dairy farms shares his thoughts

Ben Loewith and his family operate one of Ontario’s most-acclaimed dairy farms, in Lynden, just west of Hamilton. Year after year, they’ve earned nationwide industry recognition for their milk. But U.S. President Donald Trump has a beef with Loewith and Canada’s 11,279 other dairy farmers — and he’s not the only one complaining.

For years, foreign farmers (and their political representatives) have argued Canada’s supply-management system unfairly protects farmers while hurting consumers who’d rather buy imported products at lower prices. But what would our dairy industry look like without it?

Loewith has some idea. Back in the late 1940s, his grandfather sold milk to a nearby processor, with no choice but to accept whatever the processor was willing to pay. Some processors would increase their quality standards on an ad hoc basis to refuse farmers’ milk if it wasn’t needed that day — leaving the farmers to scramble for buyers.

Supply management, introduced in the 1970s, gave Canadian dairy farmers near-exclusive control of the domestic milk market — and greater stability for their businesses. The government establishes high tariffs and import quotas, while farmers set processing prices and limit how much milk can be produced by issuing quota.

Loewith says he’s benefitted from the system, noting that a steady income makes it easier for him to plan improvements to the business. “You have a reasonable expectation of what your revenue is going to be for the next two, three, four, five years.”

Were the government to do away with supply management away tomorrow, he says, Canadian farms would expand to take advantage of the economies of scale. Competition would flood in from producers in other countries, and absent greatly increased consumer demand, the price of milk could plummet as much as 30 per cent.

The impact would be immediate; many farms would fold. And because processors and retailers would be first in line to take advantage of reduced costs, Loewith says, consumers likely wouldn’t see any savings at the supermarket.

Shep Ysselstein, co-owner of Gunn’s Hill Artisan Cheese factory, in Oxford County, doubts his profits would change much if supply management were eliminated. Yet while his business expenses might go down — he sources milk from his parents’ farm across the road — he’d face far greater competition in the marketplace.

The Comprehensive Economic and Trade Agreement between Canada and the European Union, which takes effect this year, provides Ysselstein with a taste of what a more competitive market might look like. Once the agreement’s five-year phase-in is complete, European cheese imports will double to more than 30,000 tonnes a year — equivalent to 7.5 per cent of the current Canadian cheese market, according to Dairy Farmers of Canada.

Sylvain Charlebois, an agricultural economist at Dalhousie University, predicts small and mid-size cheese processors will struggle if the federal government doesn’t come to their aid by, for example, giving them shares of the new specialty cheese import quotas.

But Ysselstein doesn’t think the new imports will affect him: “A lot of people buy our cheese because it’s from here, not from somewhere else, and because they like it.” What worries him is the notion that CETA might be only a first step in relaxing import restrictions.

If those restrictions are scaled back further, says Alfons Weersink, an agricultural economics professor at the University of Guelph, some producers might feel they could do better outside the supply-management system. “Those pressures could lead to significant changes,” he adds. Canadian farmers have the geographic position, management skill, and technology to compete with other jurisdictions if the current system were dismantled, he says — “but getting from A to B could be difficult.”

Charlebois says axing supply management is simply not feasible. There is $30 billion worth of quota at stake, and banks and credit unions use quota as collateral. Without supply management, domestic dairy production would collapse.

Instead, he says, give dairy farmers a strategy for the future. Change the formulas that calculate farmers’ production costs and milk pricing, to encourage cost-saving and innovation. As dairy farmers improve their efficiency to meet new targets, prices will drop for processors and restaurants — making them more competitive, too.

Australia dismantled its supply-management system in 2000, and some industry observers here suggest its approach could be adapted to help farmers in Canada transition to the open market. The Australian government levied an 11-cent tax per litre on fluid milk retail sales for eight years to fund the equivalent of nearly C$2 billion in transition programs (including an initial payout, plus reimbursements for farmers’ lost quota).

Charlebois says Canada would need to do the same to establish a long-term compensation fund for farmers. But he cautions against basing our strategy on that of another country. “Australia is export-driven which is not what Canada is all about,” he says. “Australia is an isolated island — not like Canada — so whatever model we come up with, we need to keep in mind that we are just north of the largest economy in the world.”      

But if nothing changes, the Canadian dairy industry will continue to operate in isolation from the rest of the world, which Charlebois predicts will make it difficult for farmers here to remain innovative — and give them less incentive to do so. He says the number of farms will decline, too, as demand for milk is dwindling. Annual per capita consumption has dropped more than 20 per cent since 2000, according to the Canadian Dairy Information Centre. “We’re getting older and we’re drinking less milk and we’re welcoming immigrants from all over the world who don’t know what milk is,” Charlebois says.

Loewith tells a different story: greater demand for butter and yoghurt has spurred growth in the domestic dairy market. He believes Canada’s existing supply management system can adapt to meet new needs, noting that prices have changed to encourage dairy farmers to produce higher-fat, lower-protein that suits the market’s changing tastes.

Opening Canada’s borders to imports won’t solve U.S. and EU dairy producers’ problems, Loewith argues: “It’s a temporary reprieve.” The milk supply in those countries will quickly increase to compete in the new marketplace, Loewith predicts, and then supply will exceed what the market can handle.

“Then they’re back in the exact same situation, hunting around for some other country that they can flood.”

Source: TVO

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