Dairy supply management costs consumers and farmers
OTTAWA, Feb. 27, 2014
System prevents efficient Canadian dairy producers from expanding into
OTTAWA, Feb. 27, 2014 /CNW/ - Canada's dairy supply management policy is
costly to millions of Canadians — consumers pay higher prices for dairy
products to support a small number of farms, and the most efficient
farmers are limited to the small Canadian market, according to the
first release of findings from The Conference Board of Canada analysis
of supply management.
"All Canadians have a stake in supply management," said Michael Bloom, Vice-President, Industry and Business Strategy. "Canadians — including
those with lower incomes — pay about $276 per family more for dairy
products than consumers in other countries."
"In addition, the policy effectively limits farmers' growth
opportunities by focusing them on the slow-growing Canadian market.
Canada's most efficient producers are already among the world's best
and there is every reason to believe that they can compete globally. In
effect, supply management policy is limiting income and jobs for
The Conference Board report, Canada's Reforming Dairy Supply Management: The Case for Growth, argues that a win-win reform package needs to be accompanied by a new
vision for industry growth. Since dairy consumption in Canada is
stagnant, export markets are key to industry growth.
Dairy farms are among the most profitable farms in Canada and dairy
farmers are generally wealthier than the average Canadian.
The most efficient Canadian dairy farms are internationally competitive,
but supply management has effectively limited them to the small and
slow-growing domestic market.
Supply management has existed in its current form for more than 40
years, but its origins date to the post-World War II period, when the
Canadian dairy industry struggled with chronic excess capacity and low
farm incomes. Supply management policy was designed to provide existing
dairy farmers with a "fair" return and stabilize their incomes.
The current policy determines a target price for milk — based in large
part on cost of production—and proceeds to restrict supply to generate
that price, which is paid by food processors and by consumers. The
Organisation for Economic Co-operation and Development calculates that
"market price supports" cost Canadian dairy consumers an average of
$2.6 billion per year in the decade to 2011, around $276 per family
A contentious issue is whether this target milk price acts as a hidden
tax on consumers. Although there is no fiscal cost to governments, if
Canadian consumers pay more for dairy products than they would on the
open market because of the regulatory system in place, then they have
effectively been "taxed" to underwrite dairy farmers' business risk.
Supply management has also effectively limited Canada's most efficient
producers to operating in relatively small and slow-growing domestic
markets. Canada is largely shut out of the fast-growing international
markets for dairy products for a couple of reasons. First, a large
portion of the investment in the industry is tied up in production
quotas rather than productive assets. In addition, Canada's dairy
exports are limited because the World Trade Organization considers
supply management policy to be a form of subsidy.
The next release from this research, scheduled for Monday, March 3, will
outline the opportunities for growth in the dairy industry.
The full report with recommended reforms will be published Thursday,
This report is one of 20 being produced by the Centre for Food in Canada. Since 2010, the Centre has been engaging stakeholders from business,
government, academia, associations, and communities in creating a Canadian Food Strategy —one that will meet the country's need for a coordinated, long-term
strategy on industry prosperity, healthy and safe food, household food
security, and environmental sustainability.