Supply management – what is it all about? I keep getting asked that exact question from other business owners who don’t work in the agricultural field.
Recently there has been a lot of discussion about supply management and marketing boards with the proposed dismantling of the Wheat Board and Canada’s participation in the Trans-Pacific Free Trade Deal.
As a dairy producer working and living in a supply-managed system there are simple economics to explain the system.
So, what is supply management? How do marketing boards play a role in this? Where is the money?
In Canada, the broiler hatching egg, chicken, dairy, egg and turkey industries operate under national supply management systems. These systems are governed by national legislated acts which are controlled by national bodies and provincial commodity marketing boards that have been delegated powers by federal and provincial governments.
Why did the government implement a national supply management system? Well, back in the early 1960s, farms were producing food and marketing the products into a fragmented system.
The farmers didn’t have a reliable market for their products, processors didn’t have a reliable supply of product when they needed it and consumers didn’t have a standardized food safety system in place for their food.
The Ontario government commissioned a study around the food production system(s) of the time, and from the study the supply management system arose in 1963.
The concept, in its simplistic form, is pretty straight forward: produce the food to meet the demand. Supply-demand equals supply management.
For the dairy sector, the producers in Canada supply just over 94% of the dairy products the consumer demands. The remainder is supplied by required imports of dairy products through various negotiated trade deals.
In order to control the supply of dairy products the quota system was implemented. In the dairy system, the quota is calculated by volumes of the various dairy products demanded by consumers and then the right to produce that commodity – ie. quota – is allocated or purchased by farmers to produce, and processors to process the dairy products.
Producers’ quotas are expressed in terms of kilograms of daily butterfat. By matching the total supply of the product available in Canada with the market demand, supply management systems aim to provide efficient producers with fair returns, provide a consistent high quality product to processors who in turn provide Canadian consumers with an adequate supply of the product at reasonable prices.
Dairy producers sell their raw milk to Dairy Farmers of Ontario, who in turn sell the milk to processors, pays producers, inspect farms and dairy handling facilities, coordinate collection and transportation of milk, conduct research, and provide educational and nutritional information to producers and consumers.
Raw milk is used to make fluid milk (milk and cream that consumers drink) or industrial products (eg. yogurt, cottage cheese). Each producer receives a blended price that reflects fluid and industrial sales and the processor pay for products based on their classification.
What is a fair price for everyone in the food supply chain? Who should pay?
Supply management regulates prices at the producer and processor level and includes a cost of production formula to fairly compensate primary food producers for increased production costs.
In return Canadian producers receive a fair price for their products, processors receive a consistent product when they need it and consumers receive high quality dairy products. Canadian producers receive no subsidization from the Canadian government.
Consumers in other countries, like the U.S. and E.U., pay twice for their dairy products; once at the checkout & again at tax time. Canadian consumers only pay once for their dairy products.
Recent numbers show that dairy producers in the US receive as much as 50% of their income from government subsidization.
What do we pay for dairy products?
The Farmer’s share of a restaurant glass of milk is 21 cents out of $2 and just 69 cents for the cheese on an $18.50 restaurant pizza. Canadians spend 10% of their disposable income on food, one of the lowest in the world, including 1.5% on dairy products.
Canadian dairy farms contribute 15 billion dollars to Canada’s GDP and create 215,000 sustainable jobs. Canada produces over 94% of their domestic needs for dairy products.
In the world, 93% of dairy products are consumed domestically. When the border closed to beef, exports of pork dried up, and producer pricing plummeted well below the cost of production, the consumer price in the grocery stores did not change.
Supply management provides a fair return and pricing for all levels of the food value chain, without pricing support or dependence on volatile export markets.
As a dairy business owner who has heard many hardships from previous generations who farmed in Europe and before supply management was implemented in Canada, I have the luxury of knowing the difference, and the stories and issues remain the same: pure economics.
Janet Harrop is a Dairy farm business owner
