Canada’s supply-managed dairy industry is costing consumers an average of $2.6 billion per year, according to a new OECD report. Photograph by: Vincenzo D’Alto, Photo by Vincenzo D’Alto
Despite decades of stagnation in Canada’s milk products market, efficient dairy farmers could expand and prosper if they would give up supply management.
Consumers would benefit, too. The price they pay now is set high enough to support even the least-efficient producers and to cover the costs of an industry that ties up much of its capital in costly, unproductive quota – in other words, a licence to sell milk.
And if the governmentsanctioned system that sets these high prices and keeps out competitors is wound down properly, many producers would gain not only great growth opportunities, but also money to invest.
This is my read of key messages in the Conference Board of Canada’s final report on milk marketing, a detailed study that has been released a chapter at a time. The entire report is available as of today , and contains recommendations for reforming the system.
Dairy industry insiders habitually maintain they are not subsidized – a refrain repeated as recently as Tuesday in a letter to the editor from the B.C. Dairy Association.
But the Conference Board’s third-last chapter, released last week and the subject of my column last Friday, notes how “market price supports” cost consumers $2.6 billion a year, or $276 per family.
I didn’t make the obvious point then – but I will now – that consumers who shell out this money are also taxpayers, and it doesn’t matter which hat we’re wearing when our pockets are picked. When our money goes to government-anointed recipients, it is a subsidy – as is recognized by international trading partners, who always bring it up when Canada wants freer trading arrangements.
In the second-last chapter, released earlier this week and not widely reported, the Conference Board makes the case that efficient dairy farms – and Canada has some of the world’s best – really don’t need the $200,000 a year that they get, on average, through these “market price supports.” What they need is a chance to produce and sell more milk.
It seems the world would be eager to give them this chance, if only Canada would scrap the policies that prompt other countries to shun our dairy exports.
Looking at the developing world’s fast-growing demand for milk products, the analysis
envisions three scenarios by 2022. In the first, Canada remains a marginal participant with no inroads into export markets and one per cent of global production. In a moderate-growth scenario, we would capture 17 per cent of market growth and move up to 1.6 per cent of global production. And in the third aggressive scenario, we would get 34 per cent of the new market, and 2.2 per cent of global production – well over double today’s level.
So how does Canada get from here to there? First, the industry must embrace growth. No more zero-sum game where if producers win, consumers lose or – assuming the milk marketing monopolists ever let it happen – vice versa.
Next, gradually eliminate the protective measures that largely close our market to foreign competition, at the same pace that export opportunities open up.
Then wind up the quota system “equitably and efficiently.”
The report suggests compensating farmers not for their quota’s inflated market value, but rather for its book value – the amount they paid less depreciation based on the value they have extracted by having a protected market.
The cost of buying out this quota – $3.6 billion to $4.7 billion if done today – could be covered, it suggests, by a temporary premium on milk products. In the short term, this would leave prices where they are, but they would drop to market levels once the buyout has been paid for.
Finally, reorganize farmers, using the strengths of the most efficient producers, to capture the gains of an expanded market.
One of the early reports in the series chronicles how farmers who produce other commodities – with the exception of the poultry producers who also have monopolies – are able to compete effectively without supply management.
If Canada’s dairy farmers are as good as both the industry and the Conference Board say they are, they should be able to do it, too.
