Monday, December 3, 2012

Milk supply management needs reforms

 The George Morris Centre says Canada’s supply management system for milk needs some big reforms, else it’s heading into crisis issues.

The centre’s third in a series of reports on the dairy industry is particularly critical of provincial measures to ration milk among processing companies.

It says barriers to inter-provincial trade combined with rigid allocation policies makes it difficult for processors to adjust to the exciting innovations occurring in global markets where new products and technology are expanding markets.

Canadian processors are limited in their ambitions to develop larger facilities that could finance high-cost adoption of new technologies and their difficulty in obtaining more milk at a provincial level makes them hesitant to try making new products that would require a lot of milk under existing marketing categories.

Only relatively small volumes are available to test-market new products.

Another issue is provincial caps on quota prices which limits farmers’ opportunities to buy quota to take advantage of economies and technologies that depend on greater production.

Another major issue is slow growth in sales. Fluid milk sales have only increased from 27.93 million kilograms (measured in butterfat content) in 1998-99 to 29.13 million kilograms in 2011-12, indicating population has increased by more than fluid milk sales. This is “exceptionally slow growth,” says the George Morris Centre report.

Cheese, butter and skim milk powder sales are all relatively flat; yogourt has “shown steady growth”.

While Canada protects the dairy industry with tariffs of, for example, 245 per cent for cheese, 313 per cent for butter and 295 per cent for whole milk, imports increased by 50 per cent between 2004 and 2009.

Exports are capped by trade rules at 91 million kilograms.

Canada’s tariffs enable farmers to price milk to reflect production costs and a return on their labour and investments, and that amounts to a government “subsidy” of half the price dairy farmers are paid for milk, according to analyses by the OECD (Organization for Economic Cooperation and Development).

That is by far the greatest degree of support for any Canadian farm commodity; it is also at risk of declining, perhaps sharply, as a result of trading negotiations underway with the European Community, the United States and Pacific nations involved in the Trans-Pacific Partnership talks and others.

The “imminent threat of imports” means Canadians ought to be implementing innovations and technologies that will improve their competitive position.

The George Morris Centre says the leaders of Canada’s dairy industry are well aware of the issues, but so far they have only managed to implement “marginal changes”.

The system can take more shocks that the leaders seem to appreciate, the report says, reminding them that there was an 18 per cent decrease in market-sharing quota in 1976.

The authors of the report are Al Mussell, Bob Seguin and Janalee Sweetland.