Ag Policy Blog
Chris Clayton DTN Ag Policy Editor

Monday 03/10/14

Canadian Report Questions Merits of Dairy Supply Management

A Canadian economic think tank suggests in a new report that Canada should scrap its supply management policies for dairy farmers just months after the U.S. dairy industry waged a battle over a voluntary supply management provision stricken from the final version of the farm bill.

The Conference Board of Canada released a study last week suggesting that Canadian consumers would pay less for milk while the industry would gain by exporting to other markets. However, Canada's supply management policies hinder that potential.

The report begins by highlighting the difficulties of breaking up Canada's dairy policies. "Supply management is among Canada's most contentious public debates."

Dairy supply management policies in Canada go back more than 40 years. The country limits production by licensing dairy animals, setting price targets and controlling imports through high tariffs. The report looks at various options for removing the different elements of the three-legged stool. The conference report encourages the Canadian dairy industry to "embrace a growth paradigm.

Canada has just under 14,500 dairy producers, according to the conference board report.

If you recall, the 2014 farm bill was on the verge of a voluntary supply management program that was rejected after House Speaker John Boehner, R-Ohio, refused to bring a farm bill to the floor that included such a policy. Boehner had earlier referred to the supply management plan as a "Soviet-style dairy program." Debate over dairy policy was one of the last major sticking points before the bill was finalized last month.

Canada's supply management policies prompt other countries to reject their exports because the supply management program is viewed as a market price support. The World Trade Organization stated as much in 2002.

The conference board report cites the potential of a Canadian dairy industry tapping markets such as China, which is consuming higher volumes of imported dairy products annually. New Zealand, for instance, saw its dairy exports to China grow 30% in just two years 2010-2012, the report noted.

In a worst-case scenario for producers, Canada's market for imports could open up before Canada's farms are ready to ramp up production for exports.

To get rid of the quota system, however, would require buying out farmers of the value of their licenses, which would range somewhere between $3.6 billion and $4.7 billion CAN. That cost, however, is significantly lower than what is considered the market value of Canada's quotas.

Last week, before the Canadian report was issued, Dairy Farmers of Canada posted a blog item from a regional vice president citing that Canada's current dairy policies provide predictability and stability to dairy farmers. That brings stability for consumers as well. Moreover, the blog by Manitoba's David Weins argues retail prices in Canada are competitive with other countries global. He also argued that Canada's dairy market is more open than the U.S.

http://www.dairyfarmers.ca/…

Press release on the conference board report: http://www.conferenceboard.ca/…

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Posted at 10:17AM CDT 03/10/14 by Chris Clayton
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