A new report from Dalhousie University and the University of Guelph paints a way forward for the dairy sector within supply management.
The report, called Supply Management 2.0, calls for four areas of reform of the system that sets production level for farmers in return for guaranteed pricing for milk.
Why it matters: Milk is the largest dollar value individual commodity at the farmgate in Ontario.
The report was created by Dalhousie’s Sylvain Charlebois, a long-time critic of supply management, Simon Somogyi, the Arrell Food Institute chair in the business of food in the Gordon S. Lang School of Business and Economics at the University of Guelph and Jean-Luc Lemieux at Dalhousie.
There’s been lots of discussion about supply management within the industry and in academia over the past decade, says Somogyi. “It’s a very polarizing issue. You’re either for it or against it. It’s been that way for quite a while.”
But over the past five years, Somogyi says there’s been more willingness to find some middle ground.
That’s why the Supply Management 2.0 report doesn’t call for the dismantling of the system, but reforms within it to make it more responsive to consumer and market demand and eventually create some way to have Canadian dairy farmers be part of the growing global market for dairy products.
The report argues there are challenges in the system including a continuous decline in the number of dairy farmers, a decline in the consumption of milk and trade agreements which have shrunk the Canadian market, allowing imports with no benefits for dairy farmers in Canada. It also points out that the large subsidization given to the dairy sector as compensation for trade deals “changes everything.”.
For decades dairy farmers could argue that supply management pulled funds directly from the market and not from government.
“It’s time we have a rational discussion about supply management. For a number of different reasons, there’s no point in just abolishing something.”
The report looks at challenges with abolishing supply management, including the impact on rural economies across the country, challenges with throwing Canadian dairy farmers directly into competition with more concentrated competitors like the United States and the fact that there’s no compelling research that says the price of dairy products in Canada would decline significantly if the supply management system went away.
Studies of public opinions about dairy farming and supply management show that public support is declining with each generation.
However, a total of 87.3 per cent of Canadians somewhat or strongly agreed with the statement “Dairy farming is an important industry in Canada”.
Consumers strongly identified with being able to continue to purchase Canadian dairy products, but they also said they wanted more diversity.
That’s an opportunity, says the report, and one that can be met if some of the four recommendations are followed.
1. A fund could be set up to buy back quota from farmers who wanted to exit the industry. That would take the production capacity out of the sector to offset the market lost to trade deal imports, so that remaining farmers could continue without quota losses. “The current approach of the federal government, to directly compensate farmers for the next eight years, is merely putting a Band-Aid on a wound that needs sutures,” says the report.
2. The Canadian Dairy Commission is too often staffed by former leaders of other dairy organizations. The price-setting mechanism is too often unknown. The report says it isn’t enough just to know how dairy prices are set, but the way prices are determined needs to change in order to fill demands of consumers for sustainable and humane practices and for new products. New companies on the processing side need to have easier ways into the industry, the report says. Pricing should have a value-chain focus.
3. Removing interprovincial trade barriers in dairy farming would help niche markets to expand as those marketers would be able to more easily trade their products across the country.
“Removal of interprovincial trade barriers is essential to promoting artisanal dairy products. Because the market is much smaller than for general dairy, it is vital that producers of these products can access consumers across the country.”
The report also discusses the fact that much of the sector is situated in Ontario and Quebec and suggests that by reducing regional barriers, milk production could be spread across the country.
However, the production of milk is most efficient where forages can be best grown, which is in Ontario and Quebec in Canada. Somogyi says the report authors were thinking of the ability to fill niche markets with dairy products produced close to larger centres in the country, when they argued that production should be allowed to decentralize.
4. A 20-year plan should be established to gradually reduce tariffs to allow for greater competition in the domestic market and allow Canadian dairy farmers to compete in some parts of the world market. Working to establish classes of milk that allow for export is also possible, says the report, although the recent CUSMA deal with the United States meant the end of such a class for the export of milk.
Canada has a valuable brand image in the world, the report says, and over 20 years, the Canadian brand in dairy could be built.
Somogyi says that in the first couple of days after the report was released, there’s been “constructive discussion about this report. People have been reading it and saying yes, we agree with this or we don’t agree with that. I think that’s heartening.”