Monday, May 29, 2017

Dairy, poultry operations too fragmented, says Al Mussell

Canada’s provincial marketing boards have carved up their food-processing sector so that it’s now a problem, says Al Mussell in his most recent policy paper.

While food-service and retail companies have increasingly become national, they’re finding it difficult to buy from Canadian food processors who are also national.

One of the reasons is that provincial marketing boards allocate scarce supplies among their provincial processing plants.They can't buy from farmers in other provinces.

In the chicken industry, this constrained the processors so Ontario processors bought chickens from Quebec farmers and Quebec processors bought from Ontario farmers – until the provinces banned them from buying out-of-province birds.

The situation is similar for the dairy industry where milk marketing boards allocate supplies via plant supply quotas.

Mussell says this needs to change in a world moving to large-volume efficiencies and where the gap between Canadian and U.S. prices therefore continues to widen.

“Differential growth among provinces, and also among primary, further processed, and niche products is an ongoing challenge in chicken,  despite a landmark federal-provincial agreement reached in 2014 that acknowledges these factors,” writes Mussell.

“Managing differential growth in table and processed eggs is also a challenge, especially where processing is concentrated in specific provinces and in which there are pressures to limit levies used to implement sustainable breaker egg pricing,” writes Mussell.

“The magnitude of these various issues will challenge provinces to cooperate effectively at the national level, even when the significance is much greater than on other matters in which they have cooperated quite effectively."

Another challenge is marketing surplus skim milk powder.T he World Trade Organization has already ruled that dairy supply management amounts to a subsidy on exports.

“Canada’s dairy export limitations will further tighten when the Nairobi protocol comes into full effect in 2021,  greatly exacerbating the impact of the structural surplus of skim - unless milk pricing accepted as non-subsidized is implemented for dairy exports,” Mussell warns.

(The Nairobi protocol will ban export subsidies).

He doesn’t say how much strain this would put on public acceptance – i.e. a  much lower price for milk and dairy products destined for export than Canadians will have to pay for the same milk and products from the same farms and milk-processing plants.

The full paper is available online from Agri-Economic Systems at  .

There is one solution to this provincial balkanization, and that's to make supply management national with no provincial marketing boards.

That would free farmers to trade quota from coast to coast and free processors to buy from any farmer.

That should be a huge benefit to both farmers and processors, but provincial politics will stand in the way. But that's just another of the many costs of having bureaucrats managing markets instead of allowing competition to allocate resources.