Dairy supply management policies the product of the industry's history

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OTTAWA, Aug. 23, 2012 /CNW/ - Canada's supply-managed dairy system has largely met its primary policy objectives of reducing the industry's chronic milk surpluses and providing both increased and stable returns to farmers. But addressing these long-standing problems has come at a cost — reducing the industry's overall economic competitiveness and performance and complicating Canada's international trade relationships, according to a Conference Board of Canada report that looks at the historical evolution of the supply management system.

Canada's Supply-Managed Dairy Policy: How We Got Here, authored by the George Morris Centre for the Conference Board's Global Commerce Centre, is the first of a series that considers supply management from the dairy industry's perspective.

"Though most Canadians drink milk or eat yogurt or cheese, few are aware of the long-standing, complex supply management system that establishes milk prices and supply at the farm level and limits dairy imports," said Al Mussell, co-author of the report and Senior Research Associate at the George Morris Centre.

The study explains how historical low returns for farmers and chronic dairy surpluses led to the creation of supply management as the core element of dairy policy. Canada was a dairy product exporter in the early 20th century and was a significant supplier (especially of cheese) to the United Kingdom during World War II. Following the war, as continental European dairy production recovered, Canadian cheese exports declined sharply.

The Canadian dairy industry responded by shifting production to serve the domestic market. But the transition led to milk supply surpluses and depressed dairy farmer incomes. In response to these market conditions, post-war federal and provincial governments intervened to stabilize markets.  As the government costs of surplus removal became burdensome, policy shifted to limit the production eligible for subsidy, and later to limit production as a means of directly stabilizing prices.

Fragmented federal and provincial policies began to coalesce into a national supply management system beginning in the mid-1960s:

• provinces streamlined their producer agencies involved in milk marketing.
• the federal government established the Canadian Dairy Commission in 1967 and introduced subsidy eligibility quotas.
• an interprovincial market-sharing agreement on industrial milk was reached in 1971.

Milk supply management evolved throughout the 1980s. Lowering the costs of handling or disposing of surplus dairy products was a major influence on government policy. In the past 20 years, supply management has faced pressure under Canada's free trade discussions with the United States and later with Mexico, as well as the multilateral Uruguay Round Agreement on Agriculture. The industry also had to contend with market changes brought about by substitute dairy products.

"As it has evolved to changes, Canada's milk supply management regulation has created some unintended costs and burdens. The challenge for the Canadian dairy industry - and policy-makers - is to foster changes in the supply management system that reflect today's market conditions and economic policy context without handicapping industry stakeholders, including dairy farmers, processors and consumers," said Mussell.

Future publications based on this research will consider how Canada's dairy supply system compares with those of peer countries, and will discuss sources of tension within the Canadian dairy industry. The George Morris Centre is a national, independent, economic research institute that focuses on the agriculture and food industry. The Centre's areas of research include: trade, regulation, market analysis, agricultural research, environment, competitiveness and corporate strategy.

The research was produced for the Global Commerce Centre, formerly the Conference Board's International Trade and Investment Centre. Made up of organizations representing both the public and private sector, the Global Commerce Centre helps Canadian leaders better understand what global economic dynamics—such as global and regional supply chains, barriers to trade, U.S. policies, or tighter border security—could mean for public policies and business strategies.

SOURCE: CONFERENCE BOARD OF CANADA