The $25,000 cow

That’s the average value of a milk quota per cow under a supply-management system

The $25,000 cow

Don Mason/ GETTY IMAGES

I have a proposal I’d like to run by you. As you’re no doubt aware, the Canadian pundit industry has been going through some difficult times of late, not—God knows!—through any fault of our own, but what with the economy, and fluctuating advertising revenues, and that whole Internet thing?.?.?.?Anyway, we’re a resourceful industry with a proud history, so we’re not looking for any handouts, but what I was wondering was if maybe there was some way just to bring some order to the marketplace, so we wouldn’t have to deal with these wild swings in market conditions that, I can tell you, make it impossible to plan.

What I have in mind is some sort of scheme whereby the government would restrict the supply of opinion in magazines and newspapers to some fixed number of column inches per year, with a view to propping up—er, stabilizing—salaries at a target rate. Naturally I am sensitive to the concerns of magazine readers, not to mention magazine owners, but I don’t imagine it would raise the cover price of magazines by more than about 200 per cent or so.

No? Foolish? Extortionary? Outrageous? Then allow me to introduce you to the world of supply management: an actual policy pursued by the governments of Canada and the provinces for the past 40 years. Only I’m not talking about comparative fripperies like magazines (we have our own indefensible support programs, though not, ahem, on the same scale). I’m talking about basic foodstuffs, the kind the typical Canadian family eats every day: dairy products (milk, cheese and butter), eggs, and poultry (chicken and turkey), whose prices are maintained, by means of a strict regime of production quotas, at two and three times their market levels.

If it were proposed today to tax food—even at five per cent, never mind such punitive rates as these—it would be instant political suicide: consider the ruckus that erupts whenever some stray academic suggests the GST should apply to groceries. But because it is the status quo, and because the tax is implicit rather than explicit, and because “it’s to help farmers,” the policy is not only tolerated, it is impossible to remove. Or at least, it has been until now.

The system works much as I have described. Different agencies are responsible, and the programs differ in some details, but in essence the federal government sets a national quota, and divides it up between the provinces; the provinces are responsible for allocating quota among farms. The quota is tailored to support a target price, more or less as a function of farmers’ costs. (In Quebec and Nova Scotia, the price of milk is further regulated at the retail level.) Once upon a time, the aim may well have been merely to stabilize prices. But over time, the effect has been to drive prices of supply-managed products relentlessly skyward.

Dairy drain

Getty Images; Chart source: OECD

One way to look at this is to compare prices in Canada with those across the border, where no such restrictions apply. (See chart.) From relative parity 30 years ago, prices in supply-managed goods have risen to between two and three times those in the United States. Another yardstick is provided by the external tariffs required to maintain the domestic quota regime, lest it be undercut by foreign imports. These range from 168 per cent for eggs, to 238 per cent for chicken, 246 per cent for cheese, all the way to 299 per cent for butter. (To be sure, these apply only above certain “minimum access commitments” required by the World Trade Organization (WTO), allowing a certain amount of imports to enter at much lower tariffs. But these are minimum indeed: eight per cent of the domestic market for cheese, for example, or one per cent in the case of yogourt—enough, as the veteran Canadian trade negotiator Michael Hart has written, to supply every Canadian with a rounded teaspoon of yogourt a year.)

Because competition, either within or across national boundaries, is so constrained, there is little incentive to control costs, doubly so when prices are set relative to cost. While the consumer price index rose by about a third over the previous decade, according to the C.D. Howe Institute, prices of dairy, eggs and poultry products rose, respectively, by 51, 54, and 61 per cent. Since the measure of costs, moreover, tends to be those of the least efficient producer, two further consequences follow. One, farms in supply-managed sectors are far less likely to fail than their counterparts in other sectors. Just six per cent of dairy farmers, for example, were unprofitable in 2005, according to the Organisation for Economic Co-operation and Development (OECD), versus 33 per cent of all farmers. And two, profit margins tend to be much wider than the norm: operating profits in the dairy industry, at 25 per cent, are twice the all-farm average.

So: expensive for consumers, but a sweet deal for farmers, right? Well, sort of. To the extent that a quota entitles its possessor to a premium over market prices, it has a market value, much as a stock has value based on the profits a company is expected to earn. Indeed, like stocks, quotas are traded on provincial exchanges; their value need not be guessed at, but can be observed directly. As supply-managed prices have risen, so have the value of the quotas, by nearly 10 per cent per year (though there have been efforts to cap prices in recent years). The right to ship the average cow’s production of a kilogram of butterfat a day is currently worth roughly $25,000, meaning an average dairy farm with 60 cows is sitting on an asset worth $1.5 million. All told, supply-management quotas are worth about $28 billion, three-quarters of that in dairy.

If you’re one of those farms that were around in the early 1970s, when quotas were first handed out, gratis, that’s a nice retirement package. But if you’re a new farmer, it’s a major barrier to entry: as much as 75 per cent of start-up costs. So even with their wider operating margins, supply-managed farmers earn a comparatively meagre return on equity. Moreover, many had to go into debt to purchase quota, leaving them bearing heavy interest costs (though quota, once paid, can also be used as collateral to borrow more—another reason Canadian farmers tend to carry heavier debt loads than their U.S. counterparts).

Partly as a result, the number of farms in supply-managed sectors has been shrinking at a quite extraordinary pace, much faster than for the agricultural sector as a whole. At the end of the Second World War, there were half a million dairy farms in Canada. By 1971, when supply management in dairy went into effect, that figure was down to 122,000. Today, there are fewer than 13,000 dairy farms in Canada, roughly half of them in Quebec, another third in Ontario. (There are just 2,800 farmers in the chicken business, and 550 turkey farms.) A policy that was enacted in the name of saving the family farm has instead led to its near extinction. Those that remain are typically much larger than farms in other sectors.

Such is the industry’s decline that, even with the productivity gains that come from such consolidation, milk production is actually lower than it was four decades ago. Which is fine, in a sense, because consumption of dairy products has been declining steadily for decades, at a rate of one per cent per capita annually—perhaps in response to rising prices, perhaps because of the relative lack of innovation and variety on offer in an industry that is almost entirely cut off from the outside world. Less than five per cent of Canadian dairy shipments are imported; an even smaller proportion is exported. The figures are comparable for other supply-managed commodities. Farmers in these sectors might find they could grow their business by expanding into other countries. Instead, they prefer to hang on to a monopoly of our own shrinking market, their numbers shrinking along with it.

Of course, it isn’t only their own horizons that are limited in the process. Higher prices for primary producers translate into higher costs for those further downstream, who use their products to make processed foods, and who then complain, with some justice, that they cannot compete with their foreign rivals. To be sure, special dispensations are made to accommodate them, for example, allowing the makers of frozen pizza to import more mozzarella than would otherwise be permitted. But that only leads to complaints from their rivals in the pizzeria business. Vast sums are wasted in this way, lobbying and counter-lobbying, putting patches on patches: just another of supply management’s many inefficiencies. Though it costs consumers, according to OECD calculations, nearly $3 billion annually, the benefit to farmers has been estimated at little more than half of that. The rest is what economists call “deadweight loss”: sheer waste.

To sum up: Canada’s system of supply management has led to higher prices, fewer farms, less product innovation, and general inefficiency up and down the value-added chain. Naturally, it enjoys all-party support. And not just all party: every member of every party swore undying support for supply management in a House of Commons vote in 2005.

Small though their numbers may be—supply-managed sectors account for just 10 per cent of Canadian farmers, who are themselves less than three per cent of the workforce—supply-managed farmers, dairy farmers in particular, wield disproportionate support. In part, that’s because rural ridings tend to be overrepresented; in part, it’s because of the Quebec factor. The last time a federal government attempted to rein in dairy supports, in the mid 1970s—remember that picture of Eugene Whelan, federal agriculture minister at the time, splattered with milk—it was credited with helping to elect the first Parti Québécois government. Though it holds only five seats in Quebec, the current Conservative government is as foursquare in support of supply management as any of its predecessors, as is every party in every provincial legislature—east of Manitoba, that is.

This is another oddity of the current regime. Not only does supply management only apply to certain sectors, but these sectors are heavily concentrated in certain parts of the country. This puts the federal government, this one in particular, in a bizarre situation. Even as it is taking up the cause of grain and cattle farmers in the West, who export most of what they produce and desire only to expand their access to world markets, it is attempting to preserve an essentially autarchic regime in the supply-managed sectors of the East. The same government that boasts of its commitment to dismantling the Wheat Board’s monopoly, in the name of allowing farmers to sell on the open market, takes enthusiastic part in preventing other farmers from doing the same. It’s a profoundly hypocritical position—though no more so than the “progressive” opposition’s support for a system that, by driving up the price of food, costs the poor much more, proportionately, than the rich.

And there we would remain, were it not that our trading partners have grown weary of the game. Canada may have been able to exclude supply management from the Canada-U.S. Free Trade Agreement, as it did later in NAFTA. But the continuing attempt on the part of the world’s fourth-largest agricultural exporter to have it both ways, demanding greater access to others’ markets while essentially prohibiting access to ours, has already resulted in our exclusion from negotiations on the new Trans-Pacific Partnership trade area; it contributed to stalling the Doha round at the WTO; and it remains one of the major obstacles to signing trade deals with the European Union and India. Once, when countries like Australia and New Zealand maintained similar regimes, we might have had allies. Today, we are literally alone.

With all of these negotiations on tight timetables—there is a renewed push to complete Doha by year’s end, while the European and Indian agreements are scheduled for each of the next two years—Canadian business is growing alarmed. In an open letter to the new government shortly after the recent election, the president of the Canadian Council of Chief Executives, John Manley, pointedly noted that “the time is right” to phase out supply management. Indeed it is: because, one way or another, it is going to happen. Eventually, Doha will be signed, bringing with it steep cuts in the tariffs on which the system depends. The question is not whether supply management will be reformed, but how: chaotically, amid drastic declines in quota values, or gradually, with appropriate compensation and adjustment times.

Australia and New Zealand have shown it can be done, transforming their formerly supply-managed sectors from protected backwaters into competitive dynamos. (Oddly, this is used as an argument by the farm lobby against reform, as in: “If we let New Zealand’s exports in, they’d ruin us.”) The federal government could, as the C.D. Howe Institute has suggested, sell more quota on the open market, allowing more efficient farmers to earn back some of what they give up in lower prices via higher sales. The proceeds could be used to help others to exit the industry, and to compensate quota holders, with a view to completing the process in 15 to 20 years.

In the end, however, the question cannot be avoided: why we should have one set of rules for some farms, and another for the rest; and why, if our aim is to keep farmers on the land, we should have chosen the most inefficient, unjust, counterproductive, and internationally obnoxious way to go about it.




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The $25,000 cow

  1. According to “Statistics of the Canadian Dairy Industry – 2011 Edition” (released by Agriculture and Agri-Food Canada) the average quota is actually $27,129.  This means that the aggregate quota value is actually closer to $30 billion. Ridiculous.

  2. Meanwhile the USA is looking at introducing Supply Management:

    “New dairy bill introduces supply management plan”
    http://www.addisonindependent.com/201107new-dairy-bill-introduces-supply-management-plan 

    http://www.farmanddairy.com/news/how-will-supply-management-affect-the-dairy-industry/17906.html

    http://dairybusiness.com/articles/2011-07-22/fftf–time-for-dairy-reform-to-walk-in-realit

    I don’t know – this is more complex than simple supply and demand.  Many US dairy farmers went bust during the financial crisis in 2009.  Dairy cows do not have an on-off switch. 

    Call me stupid but I don’t mind paying more for dairy products that are BGH free, will not be contaminated with melamine, and the cows are treated well.

    • It has nothing to do with the ‘quality’ of milk, it has to do with the ‘quantity’ of milk.

      • But that is my point – I don’t mind paying more for “quality”.

        • You are paying more, for ordinary milk.

          • Le_o is willing to pay more for milk and milk products that are uncontaminated with bovine growth hormone (U.S) and melamine (China).  So am I,  thanks.

          • You are paying more for ordinary milk….just as contaminated as any other milk. You are being taken for a ride.

          • untrue, do your homework

          • you are not paying more for ordinary milk, the quality control dairy farmers in Canada have to follow cost them a fortune, they have to be paid for the extra work that consumers demand. The US doesn’t have strict guidelines for their milk.

    • Emily is right. (Not something I am heard to say often.) Quality of milk is a completely separate issue. We do not require marketing boards and supply management to maintain quality. Currently, hormones are not allowed in Canadian dairy cows (but they are in beef). That would not change if supply management were ended.

      • Actually, RagingRanter, if you removed supply management, you would be encouraging farmers to produce more milk, so that they can make up the income they’ve given up in lower price. BST/BGH hormone is used to increase a cow’s milk production. Therefore, whether the hormone was legal or not, there would be incentive for a farmer to obtain and use it. Under the current supply management system, there is no incentive to produce excess supply, therefore there is no incentive to use BST.

        Perhaps, you should consider what has happened in the rest of the non-supply managed agriculture industry in Canada. Lower-than-cost-of-production prices have driven so many pork and beef producers out of the industry, and too many regs have closed so many processors you can barely buy a Canadian product. 2 years ago when milk prices were in the basement, U.S. dairy farmers were going bankrupt. You may pay a little more (the gap is relatively small), but you are getting Canadian milk. There are minimal regulations monitoring imported food. Pay less, risk not getting what you think.

        • Pork and beef farmers were forced out of the industry because there was a glut of protein supply.  The world is a cruel place and farmers are entrepreneurs, they should not be isolated from the harsh facts of economics.  You also fail to point out that supply management harms non supply managed farms by limiting our access to foreign markets and and causing higher costs for inputs, most notably land.  Eastern Canadian land values are grossly overvalued because of the increased leverage quota equity gives SM farmers.

          Lastly, BST shouldn’t even be mentioned in the debate, it has been legislated as unsafe for consumption in Canada and would not exist regardless of the marketing scheme in place 

          • it was not found to be unsafe for consumption. it was not approved on basis of putting too much pressure on the cow. Hence, imported dairy products from countries which use rbST are perfectly fine. And with the US industry 10 x the size of the Canadian dairy industry, guess what could happen if it increased production by a few % points? you really think you will be able to find milk without rbst in Canada? unless it`s specifically labelled as such – and regulations may not actually permit it…

          • Honestly, as a person who has worked on numerous farms over the past 10 years, I can tell you that there are farmers in Ontario that are most certainly using hormones to increase their production… you do realize that they have incentives and sometimes need to up their production if they have lacked previously, right?  You’re all fools to think that just because something is “illegal” that it would never be used… (for example, under age drinking…)

          • Canadian Milk is constantly tested, so no, actually they won’t use it. If they tried, they would be busted. An internet claim to working a farm is worthless. You worked “many farms” for 10 years, and then what? Decided to move on to being a hipster blog commentor? O RLY. This article is a joke. It identifies a massive trend (declining number of farms), picks an arbitrary point, and says look at what happened since then. The trend was already there. The quota system produces a high quality product (sorry but you can evade that in the debate), AND produces price stability. Which prevents farmers from going bankrupt in bad times, or flooding the market in good times. The so called “inflation” figures released by Western governments are all BS and held artificially low by free trade with slave labor countries and “hedonic” adjustments (look it up). The rise in Milk Price compared to the MONEY SUPPLY (amount of money printed out of thin air by the banking structure) is unchanged and if anything LOWER then it was in the 70s. WAKE UP to what is really going on in the world. Having PRICE STABILITY and a PROPER HIGH QUALITY PRODUCT in the FOOD STAPLES is a good thing. It’s not anti-democratic, or anti-capitalism, its common sense. Canada doesnt have free-market hospitals, and we dont need free market milk either.

        • There is already great incentive to produce as much as possible per cow. The quota allows a farmer a certain quantity of milk and the pressure is always there to fill that quota with the lowest number of cows.

  3. Well, Mr Harper is just starting out on a 4 year majority, so he has plenty of political capital at the moment….and Cons have long claimed to be against supply management….so… now is the time.

    • Wow, I actually agree with something OE wrote.

      • Then there is hope for you yet.  LOL

    • For the 2008 and 2011 elections the Conservative platform included support for Supply Management.

      • They’ve turned on a dime on a multitude of policies, so that needn’t deter them.

        • OriginalEmily1, I’m confused by these above posts; have the CPC “long claimed to be against supply management” like you said, or have they supported supply management in its 2008 platform (pg 21) and in its 2011 (pg 59) platform? Surely you weren’t wrong.  Please come up with another post deflecting how you were wrong, and trashing the CPC.

          For the record, I’m against supply management, especially if it’s holding up free trade agreements with the EU and India.

          • Yes, Harper and Co used to be against supply management…as protectionism….and they still are, but only when it comes to wheat
             
            However Harper has done a U-turn on eggs, milk, poultry….potash…etc.

            In fact probably all 80 boards in this country.

            http://ipolitics.ca/2011/04/10/harper-affirms-support-for-dairy-cartel/

            Even though it’s harming our ability to trade.

            http://fullcomment.nationalpost.com/2011/01/17/john-ivison-%E2%80%9Cfree-trading%E2%80%9D-conservatives-hold-onto-supply-management-system/

          • “In fact probably…”

            That’s what I’m looking for.  Well done.

          • Stop me if I’m wrong, but doesn’t this amount to the same “agricultural protectionism for Ontario & Quebec but market forces for the rest of the country” we’ve grown to know and love from the Liberal Party?

            (Short of the much feebler protectionism of the NWB, of course.)

          • @Shenping:disqus 

            There are marketing boards all over the country apparently, run by both provincial and federal govt depts.

      • Yes, this support for supply management was a sop to Quebec more than anything. Now, the question is, will Harper throw his remaining six Quebec MPs under the bus in order to get a trade agreement with the EU? I hope he does, and with the extra 30 seats or so destined for Ontario and the West before the next election, there is no reason for him not to. On the other hand, he, like all PMs before him, has a serious Quebec hang-up. We’ll see I guess. 

        • This has nothing to do with pandering to Quebec interests. This is a rural vs urban issue. There are dairy farmers accross the country, which all profit from the supply management system.

          • Supply management is very much a Quebec issue.  Quebec agriculture at the farm gate level is less then half the size of Ontario’s yet Quebec has 38% of the Canad’s dairy quota.  The rural vote in that province is huge and the UPA (the provinces farm association) is very strong, organized, well funded, unified, and will be disruptive to make their point.  A few years ago I toured the UPA headquarters and was preached to about why supply management is so good. I cannot speak for them but preserving supply management seems to be their top priority.

          • Absolutely true, but to be fair to the province, the quotas were handed out at the ratios that existed at the time without a plan for dealing with future development of the industry.

            If one wanted to argue that this was part of a conspiracy to prevent change to the status quo, I suppose it’s as good as argument as any.  However, given the choice of lack of foresight versus conspiratorial competence, I usually go with lack of foresight.

            Just to churn up the argument, are the quotas not more or less tradeable on the open market?  Or are they restricted by province or region?

          • Most of Harper’s Quebec MPs are right in the heart of Quebec dairy country. If it doesn’t start out as a Quebec issue, it will become one soon enough. You are correct about it being about rural ridings. There are pockets of SM farms in Manitoba too, and in other provinces. Said pockets are generally hard core Conservative, as are all rural ridings. If Harper does jettison SM (and as I said, he may have to to get his EU deal) he’s going to have to spend several billion dollars compensating the SM farmers. No way does he get off the hook on that. Same goes for any PM from any party, but no PM has ever been so beholden to the rural vote as this one. 

          • There are also would-be dairy farmers across the country, who are gored by supply management.

        • You got that right.  The dairy industry and lobby is king in Quebec and they have the Canadian government by the testicles.  A no go zone in federal politics

    • What’s this stuff about Cons been long against supply management?  They are not, to every man and woman.  Andrew Coyne is correct.

  4. A-freaking-men, Andrew.  Play up the “overpriced burden to single moms trying to feed milk to their kids” angle, though, if you want any traction.  Best of all, it’s actually true.

    Feel free to also highlight the “gas, milk and eggs run” that motivate gazillions of same-day dashes into the USA every year.

  5. Where are the references? Price of milk is 2 to 3 times higher in Canada? Here is a study from 2002 http://goo.gl/UEpoR It shows the price of milk paid to farmers as $15.57/C with the price in the US ranging from $10.60 to $15.60 with an average of $12.40. 

    For retail prices check the chart from this document on page 1 http://www.themilkweed.com/Feature_09_Feb.pdf  I don’t see any huge price disadvantages for Canadians there. 

    “Markets can remain irrational longer than you canremain solvent.” – John Maynard Keynes

      • Knave,
        Is the $2.25/L for Inuvik?
        Here in Kingston, Ontario we pay around $5 for the 4L triple-bag (in some stores a bit more, in others a bit less).

        • Bring it up with Statistics Canada, not with me.

          But even your anecdotal price ($1.25/L) is 45% more than the American quoted price. 

          • When I moved to Ontario from the west, I was amazed by the much lower cost of groceries.  (Especially on the stuff originating from western Canada or entering the country in Vancouver.)  What would have been a $165 grocery order in Sask came to $92 in southern Ontario, and Sask groceries are cheaper than Alberta’s and Manitoba’s.  There’s a lot more price manipulation going on than supply management, which at least benefits one group of non-ultra-rich Canadians.  For kicks I did a price comparison between southern Ontario with a friend in Winnipeg, and there was close to a 100% difference.

          • Um, actually I found the precise opposite. Moving from Winnipeg to Ottawa, my food bill, especially my dairy bill (I’m a total dairy fiend) went up substantially. I was paying $3.33 for a 4L plastic jug of milk in Manitoba in 2005. Here I could not get 4L for less than $4.00 ($4.19 now) and that’s only in those stupid plastic bags. 

          • Alot of times US milk is quoted as whole milk and here in Canada it is quoted as only 2%, It makes the spread even more.

          • the quota system controls what the farmers are paid, not what you pay. Compare American Farmer’s rate to Canadian Farmer’s rates. You will never come close to the silly variances people are commenting on, and the article references. Brian Burt’s comments are dead on, and you can get any year’s numbers and see the same thing.

        • I pay $4.19 for a 4L bag of Sealtest (my favourite standard brand as it has less “off” taste than some of the others) at Mac’s Milk here in Ottawa. 

          I vastly prefer the microfiltered varieties over the standard ones, but they’re absurdly expensive, so I only buy them when they’re on sale, which is rare. 

          • Ranter,
            Thanks for your info, which confirms an important point. 
            At roughly $1 per litre, milk is in the ball-park (in terms of price) with bottled water and soft drinks.
            One is nature’s “perfect drink” in terms of nutrients, another is a scam, and the third is an unhealthy mix of sweeteners, flavourings and water.
            One involves twice-a-day chores, the occasional cow-kick to various body parts, frequent swats in the face with a juicy tail, mastitis woes & other vet bills, and endless manure. 
            The other two involve healthy corporate profits in industries which probably spend more on containers and advertising as on the actual ingredients.

            I’m sure readers are sharp enough to figure out which is which,
            $4.19 for quality milk is a bargain.

          • did you know that Australia is in a kuffufle because one chain dared to LOWER the price of milk to 1$/L? NZ consumers paying more or less the same right now than Canadians on popular format. what is behind the price?

          • For some reason it won’t let me reply to TMB2001 below, so I’ll post it here.
            TMB, thanks for that. 
            The Cdn $ is just over the Aussie $, and if Oz price just got lowered to $1, what this nonsense from JoeB that milk price Down Under is one-third our price?

          • Rick, I guess there are only limited replies… the confusion lies in people taking snapshots in times and confusing farm and retail prices. 2006 = low world price at FARM. JoeB - CDHowe, and others are not talking about retail price there! 2007, world price jumped by 50%! dropped in 2009, climbed again in 2011. in 2006 FARM prices in NZ were significantly less – than FARM price in Canada. Right now, “world price” for dairy (skim milk powder and butter – not fluid milk) is very high! Now what is the story at story at RETAIL level? fluctuating prices hurt consumption claim US food manufacturers… MeanwhileCanadian dairy price have remained more stable while other vary a lot – CPI shows 2-4% increase while bread is +20% this year. Of course subsidies in the US and EU also influence farm price volatility. And not all countries have the same weather conditions. Too many variables to make a straight comparison and pretend like JoeB that what true at one point in time is true gospel all the time!

    • As for your website, the graph is unitless so it only shows the change in each country’s price relative to itself in 1987, not relative to each other.  The table at the end shows the actual prices (that I assume the farmer receives) but gives them in different units to be deliberately misleading.

  6. Brian Burt,

    Check out recent studies by the CD Howe Institute, Conference Board of Canada, Informa Economics (in the US) and OECD Economic Survey of Canada that all show Canadian prices two to three times higher than US and Australian prices. We also have higher prices than New Zealand, the EU, etc. Pure and simple, supply management hurts consumers, especially low income families.

    • Joe,
      We pay about $5 for a 4L triple-bag.
      I was in Syracuse, NY recently and didn’t see any milk at half that price, let alone one-third. But we continue to hear stories of the financial struggles of NY dairy farmers which is consistent with what one sees along Interstate 81: things look pretty rough on almost every farm.

      Second, when most people think of unaffordable food, I believe most people would think of beef, not dairy products. Yeah, good old unregulated “free-market” beef. The sector where Cargill and XL reap record profits and Canadian family farmers cannot survive.

      Supply management provides a stable system for cows, farmers, processors, retailers and consumers. I know plenty of dairy farmers, not one of whom drives a Cadillac or a Mercedes. They do work that many Canadians would not stoop to do.
      As for low income families, that’s what the old-timers remember prior to supply management, with milk literally being dumped and farm families having no money.

      • I am from Calgary, an area where there are lots of ranches.  The beef industry in Alberta is thriving although it did take a hit with BSE and the ranches would prefer a lower Canadian dollar.  As for beef being an “unaffordable food”, you must admit that it depends of the cut you are talking about.  Good business people run good businesses and that included ranches and farms. 
        To suggest someone is not rich because they don’t drive a “Mercedes or a Cadillac” is ridiculous.  Not all people flaunt their wealth.  Many invest it in land and stocks.  Some also have very fat bank accounts.   

        • HCI,
          I accept your point about some people not wishing to flaunt their wealth. 
          I will make my point more directly: I know many dairy farmers here in eastern Ontario. I have never examined their bank statements, but I feel very safe in stating that they are not rolling in dough, getting rich at the expense of hard-pressed consumers. 

          As for the beef sector, I know that here in Ontario the majority of beef farms survive because of off-farm income. I can’t comment on the Alberta situation. 
          But I do believe the data from this 2008 study of the beef industry which you say is thriving (but is it thriving primarily for the packers?):
          http://www.nfu.ca/briefs/2008/LivestockEXECSUMFINAL.pdf

      • I have dairy farmer neighbors that are dumping milk down the drain because they are “over quota” and Iam in return buying a bag of homogonized milk for close to 6 bucks at our local store for my young family of 3?

        • I have a hard time believing that dairy farmers literally dump milk down the drain. Experienced farmers are pretty good at ensuring that their production is within the quota allocation. 
          Does your neighbour run a dairy operation without calves? 

          • If they are over quota, instead of being fined for over shipping, the milk gets dumped down the drain.. Very commonly done when dairy farmers are over quota.

          • Not commonly done as it is costing them and no one wants to be in the position of losing that money but it does happen. They could give it away but quality rules do not allow for the risk to the people as the milk will not have been pasteurized. But that is a different debate.

    • The wealth of the turkey farmers is what galls me the most. Some of them are incredibly wealthy, even those with small operations. Having a quota for turkeys is as close to a licence to print money as you can get these days. 

  7. Well, Rick I can only tell you what I know about Alberta – My family is in the ranching business.  This province produces more beef than any other in the country – 39% of the total produced.  As 50% of that is exported (3/4 of it to the US), BSE was devastating.  I know that the high Canadian dollar is tough on the industry as well.  However, things like radiation in Japan’s beef supply will open new markets in Asia.  The report you pointed out is 3 years old and if you check today’s auction prices, they show that the prices continue to fluctuate, indicating that the high dollar is more responsible than the processors.
    The beef producers have never supported a beef board.  They have always been in favour of a free market system.  As I said earlier, farms are a small business and like any small business, if they aren’t run by people who are knowledgable, they do not thrive.   My family are 4th generation ranchers in Alberta.  They have a lot of expertise.  They are frugal and they take no vacations.  In a word, they are typical small business owners.

  8. Jennifer, you have no idea whether or not the some of the dairy farmers with quotas are already using hormones to increase milk production.  One thing that has been a bone of contention for beef producers since the BSE crisis in 2003, is the practice of feeding protein in the form of ruminant feed to dairy cows.  You can watch a dairy farmer on youtube doing just that. 
    As for your comment about the pork producers and the beef producers going out of business because they have no board to protect them….Andrew just make the point that the boards with their limited number of quotas to hand out…make it impossible for anyone to break into the dairy business in the first place.  I do not know why you people worry so much about people who can’t run a business properly “going out of business”.  How is it any different for a farmer to go out of a business than a store owner?  Should we prop up every business?  The fact that so many don’t go out of business should tell us something.

    • Sorry I was not more clear in my comment. I absolutely agree that as small business owners, farmers need to be as efficient and innovative as any other business, regardless of their industry. I am in no way proposing propping up farms, but I believe there is room for different marketing models in this country. 

      For as many flaws as supply management has (and as a young person in agriculture, I certainly recognize it has some), it also continues to guarantee Canadian consumers can buy Canadian milk and have confidence in what they’re buying. 

      While our food costs more, it does not cost much more. At an average less than 12% of our income is spent on food; only the U.S. & UK spend less than that. I don’t suggest our food is cheap, but relative on a world level, we should be careful to understand why we aren’t spending more. When you look at the rising prices in other commodities lately, especially rice & wheat, SM has kept milk price fairly constant, at the farmgate.

      Finally, the playing field between the U.S. & Canada is hardly a level one. The U.S. Farm Bill provides huge direct-payments to farmers, allowing them to continue producing food for cheap. You might also have heard they are in a massive debt crisis, and the farm bill is on the chopping block. 

      • US farm bill has nothing to do with inflated dairy products on Canadian shelves. The consumer is directly “subsidizing” the dairy market buy paying inflated prices.

    • If you want the cheapest lowest cost food you will be getting the cheapest lowest cost way of producing that food. Quality does not play into that equation. In Canada it is illegal to use hormones for increased milk production and it is also illegal to feed animal protien back to cattle. These are measures to keep quality and safety in place. These rules do not exist in the US. 

      Lots of farmers do go out of business every year.Because they don’t run it ”properly” or because of situatuions out of their control have piled up on them?  People aren’t lining up to get into farming. The work load is huge. We can run out of food in North America too.

      • It is not illegal to feed animal protiens to animals here or in the U.S. Pork can be fed to ruminants and ruminant can be fed to pork.Hormones are used here in Canada also, very easy to get and use not legal but still goes on. Alot of dairies in the US are now BST free, the dairyman get a premium for nonBGH milk.

        • It is illegal to use BST on dairy cattle to enhance milk production in Canada. Should enforcement be stronger? Obviously.When an american dairy gets a premium the consumer pays more for the product. Don’t mislead people thinking every store has two different jugs of milk on the shelf. It is not highly available.  
          I had thought that all animal protien was banned but you are right as I have since found out that non ruminant protien can still be legally used in cattle feed. I do not know of this happenning right now but as producers we should be standing up against this.

          • Some states are BST free, I belive Mighigan is  currently. I f you are worried about BST in your milk than do not drink chocolate milk, alot of it is brought in from the US because it is a altered dairy product, you know the 99* milk that is on sale at times here in Canada or more specifically Ontario. The consumer does not pay more for milk in the US if a dairy gets a premium for his  or her milk! The premium is a lot to do with cheese making, the higher the quality of milk the better and easier the cheese making is.

  9. Supply management certainly seems like a really poor way of doing business, but I can see some value to ensuring that Canada retains at least some level of dairy production: much as the US has outsourced most of its manufacturing and is now paying the economic price, I’m concerned what happens if we start to essentially outsource our food production.  There is some public value in having a domestic food producing industry.

    Are there better ways than supply management? Probably.  But letting the market simply rule this sphere could put us at a strategic disadvantage further on down the road.

    • My thoughts exactly. 

      Just imagin if the price of dairy bounced around the way the price of gas does!!!!

      • well it does in US. It does in New Zealand. It does in Europe – farmers protested by spraying milk on their lands hoping to move buyers to give them a better price. Wasted effort – they got better price when “world market price” rebounded. Never mind the impact of the snow in NZ right now, seems price of milk is a hot issue for struggling families (and other countries as well).  http://www.bayofplentytimes.co.nz/news/families-struggle-to-buy-milk/1068048/

        • Thanks for the link.  NZ seems to be in a bit of a political flap over milk prices.  Interesting that their Fonterra is basically a monopoly co-op owned by the farmers.   Meanwhile Australia’s supermarket duopoly are having a “milk war” driving down the price of milk so that now the farmers are hurting.

          What a crazy world – SM is looking not so bad.   Hey, Canadian cheeses are beating out France and ”Missy”the Holstein from PEI just sold for $1.3 million so we must be doing something right, lol. 

  10. I grew up on the farm back before supply management come into being.  It was a turkey farm and my father did not like the idea either.  However, we understood the real issue, probably better than anyone. 

    At that  time, prices rose and fell based upon surplus or shortage, the usual economics response.  The Canadian farmer’s problem was that a surplus in the US would completely destroy us as they could dump their product in mass quantities and we would be broke before we could complain.  No bank would finance you under these conditions.  Also, if they had a shortage and we tried to ship there, the locals would put up signs in their stores “demanding” that the consumer BUY AMERICAN and the customer always would.  This was a no win situation.

    Now we must admit that the American way is the Wal-Mart way.  First you destroy the competition and then you take over the market.  This is what has happened everywhere that the Americans go.  You just have to look at the fears in Mexico and the complete destruction of farming communities in much of Africa because the locals can not compete with the price of foodstuffs being delivered to their constomers there.  

    So Andrew, when you state that there are only 13,000 farms in Canada, you have to understand that there would be very few dairy, chicken, egg or turkey farmers in Canada at all in a free environment because the banks would refuse to provide financing for feed, or anything else for that matter, until the product was ready for market. 

    Can we come up with a better solution?  Probably, but I haven’t yet figured out a better way that has a reasonable transition plan.  Have you?

    Yours reasonably
    Dale Tuck   

  11. 15 years ago there were over 1000 daily farms in Manitoba. Today there are about 200. My dad sold out his quota and retired a multi-millionaire , and my chance of farming was gone to hell.

    http://website.ws/jonanthony

    • So true all across the country. It is a “elite club” that does not accept new members or encourage new clubs to start.

  12. “Canada’s system of supply management has led to higher prices, fewer farms, less product innovation, and general inefficiency up and down the value-added chain”. The quota system leads to higher prices, but not fewer farms.   Quota may influence the number of new producers coming into the industry, but not the number dropping out.  If you want to see the number of dairy farms drastically reduced, then just open the border to milk from the States or end the quota system.  If the price of milk in the supermarket is reduced (which it would be without the quota system) the end result would be lower profit margins per cow and the need to increase herd size per farm until you reach the average US herd size – which, as the article states, has 10X the number of cows per farm compared to Canada.  That will mean fewer farms, not more.
    Just look at the declining number of pork producers in Canada to see what happens when you operate without a supply management system.  The Canadian pork industry has been reduced from over 223,000 producer in 1961 to less than 8,000 in 2010.  Is that system working?  In another 20 years, I predict the bulk of the pork eaten within Canada will be sourced from outside Canada. The ease in which US dairy and poultry products can reach Canada’s major cities, means that if you end the dairy and poultry supply management system you will essentially end dairy and poultry production in Canada.  Do you want cheaper food or a country that produces its own food with its own producers?

    I am not convinced that ending Canada’s quota system is an experiment worth conducting.

    • Stat Canada can provide more enlightment – In 1961, 11.7% of the Canadian population was active in farming. in 2001, it’s 2.4%. Regardless of supply managment or not, Canada has a whole has become more urban.

  13. Supply management is a cartel that forces consumers to pay a subsidy to the producers. Period. But I will say one thing in favour of it. A subsidy paid only by consumers of the product is far superior than one paid by all taxpayers. Those who consume the milk/poultry/eggs pay for the subsidy. Those who don’t consume those products, do not pay.

    With the billions in direct ag subsidies, however, EVERYONE pays out of their tax bill, whether they consume those products or not. A person who is allergic to wheat gluten doesn’t buy wheat products, but his taxes still go to subsidize wheat farmers. Worse still, he is subsidizing food consumption in OTHER countries, as much of those subsidies are designed specifically to support exports. A person who is lactose intolerant, however, is not forced to subsidize the dairy industry. That only happens if he buys the product.

    SM is imperfect, distorting, unfair, and inefficient. But the rest of the agriculture subsidy racket outside of supply managed industries is even worse. Much worse. And until we can be certain that ridding ourselves of supply management won’t create an even worse subsidy pig than we’ve got already, we should probably stick with it.

    • Where are the subsidies going to wheat farmers? Not in Canada. Canadians eat cheaply off of the american subsidy program. The same program provides cheap feed grain to american dairy farmers whereby they can produce milk cheaper. The playing field is not level yet Canadian farmers are told to stop with organizations that provide them the sustainability the rest of the western world farmers recieve through subsidies. There is a reason people have so much money too spend on things other than food. If they want to keep pushing the farmer into higher and higher risk areas so they can save some on a jug of milk there will be repercussions.

  14. Excellent article. But more than the premium paid by consumers and other market distortions is the incredible waste these policies engender. Consider the way egg laying chickens are managed in Alberta: they are only allowed to lay eggs for a year before they are disposed of, usually gassed. Small farmers that take on these chickens, before they’re disposed of, find their feathers grow back and they can lay well for about a decade.
     
    But as with all well entrenched policies and interests, there is insurmountable inertia here. Most producers have invested about twice as much in quota, as in livestock and equipment, so how would they be recompensed if the system were discontinued.

    • The simplest solution is to have a sunset date after which anyone may enter the industry. The date is set by determining the typical pay-back period for quota (any first-year finance student can do this) which allows the last buyer to recover their costs but make no monopoly rents. At the same time the extremely high tariffs, some as high as 300%, would be lowered giving Canadian consumers lower prices (last year in Las Vegas large roasting chickens were U$.59/ lb).

      The meaning of liberalism in market economies is this: Mutually advantageous, voluntary exchange. Neither condition is met when one party is a monopolist cartel member.

  15. As a dairy farmer, I have found a few fallacious things in this article, but I must admit I am generally a fan of Andrew Coyne.

    My situation is unique. My dad sold our dairy when I was 12. I spent the next 16 years hoping to dairy farm. I saved money and worked like crazy to get to the point where we could buy an empty farm without debt. We renovated the barn, borrowed for cows and quota, and are now raising our 3 young kids on a dairy farm. It’s a dream come true. And we did it without help. It is possible for those who are willing to put in the work. Problem is, a lot of the people taking pot-shots at dairy farmers aren’t willing to wake up at 4am 365 days a year to milk cows. If it’s so great, why doesn’t Andrew Coyne or anybody else buy a dairy farm?

    The fact that quota values are high makes sense. Agriculture is a mature industry. In any mature industry, if you want to get in and enjoy the stability of established markets, you pay the price. This is the case in “open market” agriculture like grain farming, where people will pay thousands of dollars an acre for land, it’s true in suppy managed farming where you pay for quota, and it’s true for opening a Tim Horton’s franchise as well.

    As far as trade deals being a no-go because of supply management, I think that’s a case of Canadian self-flattery. Canada is simply not that influential. The current Doha round of the WTO has been stalled, to be sure, but that has nothing to do with our dairy system. There’s controversy regarding non-agricultural market access, developing countries special needs, etc. Add to that that all countries have “one-off” industries which are seen as sensitive. Canada is hardly unique .

    And lastly, one thing that I think gets lost in all of this is the fact that in reality, what supply management does is give the same market power to farmers that all of you merely take for granted. Without some market power, farmers are price-takers on both ends. We buy inputs at prices not determined by us, and we sell our product at prices not determined by us. Farmers are the only group of people who buy everything at retail, and sell everything at wholesale. In any other industry, a manufacturer/producer prices his product at his cost of production, plus what he deems to be an acceptable margin. I bet none of you went to a Tim Horton’s for your coffee this morning, and had the clerk as you what you were paying for coffee that day. They price it in order to cover their costs plus a margin. If that’s too high for you, don’t buy it. It will not help your case to say “hey, look at coffee chain X in the US. They have a way bigger market, but they lose money on every cup they sell”.

    The problem with price comparison is this. Farm gate prices do *not* correlate to retail prices. As a Canadian dairy farmer, I’m sure I often gross twice as much as a US dairy farmer. But the retail prices are much closer than that. When farmgate prices plummet in the US, processor margins just get bigger as retail prices are maintained. When the farmgate prices go up, the processor is unwilling to shrink his margin, so the retail price increases accordingly. Using 2006 as a reference year (as was done here) is interesting. I wonder what this would have shown in the last 5 years with very volatile world prices for milk. Canadians are paying more or less the same retail prices today as they did then. The rate of increase here has been much more conservative than in non supply managed countries.

    Lastly, all farm numbers have been declining for decades. In the dairy industry, the rate of decline in Canada has been significantly slower than it has been in the US. If one of the benefits of having a profitable, stable agricultural sector is to keep farms in operation and supporting the rural economy, then this is a positive side-benefit of a system that benefits producers, processors, and ultimately consumers.

    • It’s a dream come true. And we did it without help.  ”Protected cartel as enforced by the power of the state” is disqualified as “help” how, please?
      If it’s so great, why doesn’t Andrew Coyne or anybody else buy a dairy farm?  If it’s so awful, why did you, and, supplemental, why did you call it a dream come true?

      • “Protected cartel as enforced by the power of the state” is disqualified as “help” how, please? – Andrew’s point is that the cost of quota prevents new entrants. It didn’t in our case.

         If it’s so awful, why did you, and, supplemental, why did you call it a dream come true? – It isn’t awful. We’re loving it, and wouldn’t raise our children any other way. But that’s more than just economics. It’s a way of life. You won’t hear me complaining about it, but I think it would be safe to say that Andrew enjoys a better paycheque than I do, and that’s fine. I could have chosen to go into his line of work, if that’s what I wanted. I just find the sour grapes to be a bit silly. It sounds to me like “I don’t want to do X, but nobody doing X should do well, and for sure not better than me”.

    • Glad to hear you got to buy a empty farm and buy quota and cows. From what I heard is that a ongoing operation has to be purchased to start up today? The price on a ongoing operation is added to the quota and the quota price is in the $40000 dollar range to start up. Also Tim Hortons does not stop or are they allowed to stop other franchises from selling coffee. The Dairy Farmers of Ontario have full and complete control of all milk produced in Ontario, that is a example of a monoply.

  16. I’d like to add to what mtplett said. American farmers live under a subsidy regime where taxpayers pay to keep agricultural products cheap and plentiful. To compare Canadian dairy products prices to American ones is nowhere near a fair comparisom. For all the people who have been ranting about the price of a jug of milk; would you rather pay higher taxes?

    Also I agree with mtplett that Mr. Coyne is misleading in claiming that Canadian farm numbers have been reduced greatly under supply management. Has he actually looked at the American numbers? They have gone down at a faster rate than we have so that arguement is null.

    I would like to help Andrew understand what the conservative motive is behind thier stance though. He can’t seem to understand why they would remove a sinlge desk seller in the cwb, and still leave supply management untouched. 

    It is no secret the conservatives have a big farm/big agribusiness agenda. They are moving as fast as they can to a solely corporate agribusiness sector. The removal of the cwb takes the marketing of billions of dollars of grain out of a farmer controlled orgaization (Cwb) and puts it directly into a few huge multinational corporations.(Cargil, Bunge, Viterra, etc..) It also removes the government guaranteed loan system under where the Cwb recieves a very cheap 1%interest on money loaned for operations( a few billion per year)and moves that into the banking system where 3% and higher interest rates are the norm. Two very powerful lobbies, Grain multinationals and the Banks, are set to do very well from this deal.

    Now as far as SM goes. The banks are heavily invested in quota. They are securing 100′s millions of dollars in farmers loans with it. See where this leads? So the government easily gives big loans(through FCC) to supply managed farmers for them to increase their size, which leads to a higher demand for quota,which leads to higher quota prices. The banks say leave SM alone because we make good money off of farmer loans. Big money talks to this gov.

    It is an unfortunate thing but lots of SM producers have gone down that road and are carrying very large debt. Which will cause bankruptcies and farms will get swallowed up into others. SM will be blamed but it will be the push for bigger that will have been the cause.

    This is a complicated issue. But people need to know this- If you take the quality and food security that SM gives you for granted, it will not be there in the future. If you say ”Screw the farmers, I’ll get it cheap from the states or elsewhere”, realize that now you will be relying on the price of oil to remain cheap to transport those products, or better yet, the american economy not failing so that thier subsidies will remain in place. Two things that don’t seem very likely.

    • Iam not sure why you insist that small farms give the consumer higher quality? It is not always true.

      • Small farms may not always provide the best quality, but the point is that the rules that maintain quality are a stumbling block for the larger farms to get larger cheaply. That is why they are removing them. Its quite fine to be big but if you can only get that way by running over everything else I don’t see the benefit for consumers, the economy, or the country.

  17. The Canadian system has the advantage of being more transparent then the American system and more consistent in terms of production. 

    Here is a study re: the subsidies paid to farmer in the US; http://www.greyclark.com/docs/US_FED__STATE_SUBSIDIES_TO_AG_NOV_2010.pdf

    Oddly enough this sounds much like the “tax on food” that Andrew talks about.

    Consistent production based upon demand does not strike me as an inherently inefficient system. It allows farmers to make plans in the short and medium run that make sense and are most cost efficient. 

  18. From the article; “Because competition, either within or across national boundaries, is so constrained, there is little incentive to control costs, doubly so when prices are set relative to cost.”

    I fail to see how economic theory demands this conclusion. In fact since production is limited then farmers have two choices by which to increase income. Purchase quota to ship more milk or increase efficiency in current (fixed) production. Prices are set on the aggregate so incentives always exist for individual farmers to reduce costs.

  19.  Supply management is far from perfect, but Andrew Coyne has not told the whole story,

    Lets start at his conclusion:

    “In the end, however, the question cannot be avoided: why we should have one set of rules for some farms, and another for the rest”

    There are just a handful of supply managed products (dairy, eggs, poultry) because these are industries where the supply CAN actually be managed. When eastern Canadian potato growers tried to set up supply management in the late 1980′s, Irving owned Cavendish Farms was able to convince a Federal Court judge in Ottawa that it shouldn’t be allowed. One of the winning arguments: potato production is tightly linked to weather, and the supply can swing wildly year by year, so controlling supply through acreage quotas just wouldn’t work. The same goes for most field crops. Livestock producers have looked at supply management as well, but production in Western Canada is so linked to U.S. exports which would have to be given up, that it’s been a  non-starter.

    Coyne portrays the lack of exports of dairy products as an indication of its inefficiency. In fact international trade rules virtually prohibit the export of dairy products (about 2% is exported)  because Canadian farmers do get a higher domestic price,  and that’s seen as a “subsidy” by trade panels that would allow Canadian farmers to undercut competitors in export markets.

    Yes Canadian do pay more than Americans for  milk and dairy products (the difference varies by location), but there are two important points to be made here. One is that Americans pay twice for milk:  once at the supermarket checkout, and again as taxpayers through the multi-billion dollar  U.S. Farm Bill.  Canadians on the other hand just pay the once at the checkout. The other point is really made by Coyne himself:

    “…… farms in supply-managed sectors are far less likely to fail than their counterparts in other sectors. Just six per cent of dairy farmers, for example, were unprofitable in 2005, according to the Organisation for Economic Co-operation and Development (OECD), versus 33 per cent of all farmers.”

    I’m sure if a third of (pick any business or industry) was unprofitable someone would say there’s something wrong here, yet it’s fine for a third of farmers to be losing money because that assures us that consumers aren’t being ripped off.

     Coyne  writes this:

    “Since the measure of costs, moreover, tends to be those of the least efficient producer….”

     That’s simply not true, or there wouldn’t be any dairy farmers losing money, which there are. In fact it’s costs of the top tier of efficient dairy farmers that’s used, and the price has to meet several tests:

    “Support prices are established for butter and skimmed milk powder by the Canadian Dairy Commission. Support prices are based on the following elements: results of the cost of production study, arguments presented by various stakeholders, an evaluation of the processors’ margin, economic indicators such as the consumer price index as well as their own experience and knowledge of the industry.”

    Andrew Coyne is on firmer ground  that the high cost of quota  is an indication of something wrong in the system. It makes it hard for new entrants to get in, and raises questions that consumers are paying too much. When supply management first started in the 1970′s then Agriculture Minister Eugene Whelan insisted that the quota belong to the government, and that the quota would have no value. That has slowly changed over the years to the point now the quota contract the dairy farmer has is the most valuable thing on the farm, and can be used as collateral at the bank. Dairy farmers are slowly trying to address these issues. Quota value is not included in the cost of production formula, and most provinces now have programs collecting pools of free quota to allow new entrants into the game.  And don’t forget  that there are many industries that limit entry, which drives up the price of getting into a business (permits or licensing). As well in many professions (lawyers, doctors, accountants) people pay a lot of money for “goodwill” to buy an established business with an assured customer base and some guarantees of income. Do consumers pay for these costs?  Of course they do.

    Coyne’s arguments about the competitiveness of  dairy export powerhouse New Zealand also has merit.  New Zealand’s climate allows livestock farmers to use outdoor pasture year around which does a lot to control their costs.  There are huge processing co-operatives which have geared their business to supplying export markets, but producing cheap commodities does have costs. Here’s one example of many from what they call “dirty dairying” in New Zealand:

    From: http://www.stuff.co.nz/business/farming/3474039/Minister-turns-hose-on-dirty-dairying

    “Dairy farming earned $9.9 billion in exports for the year to March 2008. Tourism earned $9.3b.

    Last November, the British Guardian newspaper lambasted the country’s green image in an article entitled “New Zealand was a friend to Middle Earth, but it’s no friend of the earth” which criticised, among other things, the agricultural sector.

    The same month, the Manawatu River was named one of the most polluted rivers in the Western World.”

    Coyne also mentions that Canada has been excluded from  trade negotiations with Europe and Asia because of Canada’s insistence on protecting supply management. Europe in particular insists it wants entry into  Canada’s consumer markets. There’s a lesson here too. Europe has the most generous production subsidies of any economic block, but with no quotas to limit production, Europe has ended up with huge surpluses of butter and skim milk powder. Would they like to get these into export markets and get some kind of return on the government investment? Of course they would, and this is a good opportunity to twist Canada’s arm to do that.

    Then there is the welfare of dairy cows.   Most (not all) U.S. dairy producers give their cows daily shots of a dairy hormone called rBST (produced by our pals at Monsanto).  It increases the amount of milk cows produce, so allows farmers to get a cheaper price.  The health risks for consumers is complicated, and I won’t pretend to be an expert. What’s always horrified me is this: calcium is  a large component of milk, and because cows with rBST produce much more than they naturally would,  the calcium is sucked out of their hooves. This is very painful for the cows in the latter stretch of the lactation cycle.  When Monsanto tried to get rBST into Canada, Eugene Whelan and PEI’s Wayne Easter were able to prevent it after agriculture committee hearings. They made the case that because Canadian dairy farmers are paid properly, there was no need to produce the extra milk.  And don’t forget there are dairies in Vermont and California at least that produce milk without rBST, and many consumers are more than happy to pay more to get it.

    My final point is this. It’s been changing, but the average dairy herd in Canada is roughly 60 cows. The size of the average herd in the United States is more than double that, with many large U.S. dairy operations milking thousands of cows every day, something we don’t see in Canada.  The 60 cows gives a Canadian farm family a reasonable living. They can take the necessary steps to protect the environment, plan for the future, have something of value to pass on. These are all things most other Canadian farmers can only dream about.

    Ian Petrie
    Iona
    PEI
    C0A 1A0
     

    • Thanks for a knowledgable, point by point explanation.  I have many fond memories visiting my in-laws dairy farm just outside Ottawa,  Cows even got to listen to classical music at milking time, lol.   Nice to know the family dairy farm is alive and well – hope it stays that way.

      Sixth Generation Farmer Looks to the Future
      February 3, 2011 Dairy Farmers of PEI, Issue 5 No Comments

      While the Freetown dairy farm of Steven Reeves traces its roots back six generations, it runs on cutting edge technology.

      His free-stall dairy barn has a double-six parallel milking parlour. Computer programs help determine feed requirements for each cow, measure milk production and quality, and enable him to keep close track of the performance of every animal in his herd.

      He is steadily building up herd genetic quality with purebred stock. When he began, he and his father, Farrell, were milking more than 70 cows to fill their quota. Now they are milking 55 to 60 cows, production keeps rising and their protein feed costs have dropped by eight percent.

      “One of my goals is to always keep improving the value of the operation,” he said. “In this business, you can never get complacent and you have to constantly keep re-evaluating what you are doing. When opportunity presents, you have to be prepared to move in a hurry.”

      The farm is very much a family business. They farm 240 acres in a three-year rotation of potatoes or corn, followed by grain and hay. Land is traded with other farmers in the area. Along with his father Farrell, his mother Kate and wife Jessica share in the milking and other chores. Even the seventh generation, Steve’s five year old son Luke, is starting to help with the chores.

      Steve says managing the debt-load is one of the most challenging tasks in the operation. The farm was essentially debt-free when Steve returned, and the needed investments were closely analyzed to determine if they made financial sense.

      Although Steve clearly enjoys the lifestyle and the satisfaction that comes from farming, his hard-nosed approach to the bottom line is what drives the business. He also recognizes the importance of having a life beyond the farm. He is an avid sportsman, and makes time to be with family and friends.

      • All very nice, glad to here they are doing well.

    • Using BST  most certainely does not allow dairyman in the US  to take a lower price for their milk. Many dairy farms today are using synthetic  hormones for reproduction and breeding in Canada, is there a difference in using hormones for reproduction then in milk production? Dairymen in the US are very efficient and pay tremedous detail to the cows welfare, better looked after cows produce more milk. The US dairyman have to look after their cows extremely well, its their bottom line and they are not protected by supply management.

      • Better looked after cows do not always produce more milk. In fact cows that produce at the high levels that most dairies strive for have a very low life exepectancy. BST lowers this even more. Most dairy cows do not last more than three lactations. US dairymen do have to look after thier cows well but the use of BST allows them to push the cows harder than they would normally produce and they burn out. If you want cheaper production, margins are narrower, quality and corners get cut. 

        • Cow comfort, i.e stall design, venilation, proper milking techniques, clean water lead up to 80% of milk production. The hormones used for reproduction in the dairy business can have more impact on humanes than BST.  As for quality of milk in a recent survey put out by DHA a recording system for dairy farms to measure prodution, dairy farms with the greatest number of milking cows(over 250) had the highest quality of milk, lower somatic cell(mastitius indicator) compared to smaller dairies. Larger dairies have more of a protocal when it comes to handling and sick or treated cows than a small farm.

          • Not necesarily. Large dairies have way more cows to be watching. Much easier for a sick animal to go unnoticed. Especially now with robot milkers and such. I would debate that bovine reproductive hormone treatment is harder on humans. While i’m not in favor of it, humans use as much or more on themselves in that regard. Cows may get one or two doses a year to encourage or regulate estrus, where lots of women give themselves the same dose monthly in the form of birth control.
              I’m not against big farms or innovation but when you change the rules to push the small farmer out it is not good for the economy or the country.

    • Agriculture is being subsidized in Canada through easier-than-average access to loans, below-market interest rates, subsidized electricity rates and agricultural property tax concessions.

  20. I don’t think I have every read such a twisted perspective of a stable, successful industry with a made in Canada solution to market volatility.  The honorable Members of Parliament have a reason to support supply management, it draws its income from the marketplace, NOT from the government coffers.  It is a system that is the envy of the world of food production.  Production is limited to what the domestic marketplace demands.  There are no surpluses that must be dumped on the world market, a practice that distorts milk prices at the cost of the taxpayer.  Please, Mr Coyne, check your facts.
    K Allen

  21. The concept of the marketing boards was a good one in the 70′s. I t is no longer a good way, it is a monoply that pays it’s producers very well, and in change takes it out on the consumers. It is a club within the farming world, almost a status. The debate on milk in stores(US VS CANADA) is quite a difference on most dairy products, the other thing is milk is quoted in the US as whole milk(homogonized) and here it is quoted as 2%, so for people to think it is priced fairly simular, make sure it is the same being priced. There is no growth currently in the dairy industry and it is being protected by the board and goverment. There is no outside people allowed to startup in the industry. Afew years ago a group tried to start up producing milk and were squashed by lawyers from the milk board(DFO),this group was sued and forced out of business. The group known as  Georgian Bay, were going to export products and were not even going to be part of the domestic system but the milk board wanted no competition and with deep pockets forced Georgian Bay out of business. The issue with  quality here vs the US is silly, the US dairyman are paid a premium for high quality milk and strive for that incentive, they do not have that incentive in Canada.

    • There is no growth in any farming right now supply managed or otherwise. Farm numbers are shrinking and farms are getting bigger. It is a policy of government. Where do you find consistant quality in the US? In the states where it is highly regulated they pay way more.

  22. Ever bit as costly is that Supply Management precludes free trade for the rest of the farming community.  No country is willing to agree to allow us to trade with them on products we are good at producing (grains, beef, pork) but not allow them to trade in the products they are good at producing (cheese, yogurt, milk, butter).

  23. the United States are trying to implement a “supply management” to stop corporate farms, decrease the amount of growth hormones being used, and also saves billions of dollars that is the taxpayers money.. and we are looking to get rid of supply management?? ridiculous. people are buying playstations instead of milk for their kids.
     

  24. People complain about the price of dairy products, but they don’t seem to mind going to McDonald’s and paying 4$ for a burger, or paying 25$ for a 5$ pizza at a pizzaria.  You can’t compare Canadian Dairy with American Dairy, the quality control we have here in Canada comes with a price, it cost dairy farmers thousands a year to keep up with the quality controls we have.  You can’t compare Canada with New Zealand, look at our climate.  You must compare apples to apples and oranges with oranges. 

    • rBST is not given daily but every 14 days by producers who chose to use it.  It is a natural hormone in the cattle which is enhanced much like GMO crops.  On track to have 9 billion mouths to feed how long will the devloped world watch their fellow man starve to death before they let the best and brightest ag producers do their job and use science to maximise production. Supply management has been in effect in the U.S. for years it used to manage supply like CWT which is paid for by the U.S. dairyman, there are no quotas though.  Subsidies from taxpayers are implemented when world prices crash to a maximum of 11 cents a liter not 31 cents Dairy Farmers of Ontario president is recently quoted as saying.  I milked cows in Canada and now do so in the U.S.  I have realtives who milk in the U.K. and they are carrying a worthless paper asset which like canadas quota was once worth a lot of money.  The Canadian goverment and dairy leaders need to start damage control and look at all possible scenerios before it is too late.  Quota is a major Quebec issue everything andrew wrote has hit the nail on the head.  I disagree with farm amalgamation being a bad thing it is a business get over it and move on their may one day be less than 5000 dairy farmers in Canada
      Mac Cumming

  25. To bad you do not understand the industry. Canadian farmers have the highest self-imposed standard on their dairy products. It is a totally unsubsided industry. We pay for all promotion of dairy products.
    Please study the American dairy industry, note the gov’t money that buys all their excess produc. We try to keep a stable system.
    I have always enjoyed listening to you Andrew Coyne, but on this topic you under informed.
    Study the US system, study what happened in Europe and New Zealand. There is a big mess, because of the wave of under/over production of dairy products.US would love to have supply management. T 

    • Based on my information, farmers are subsidized through agricultural property tax concessions, below-market interest rates and easier-than-average access to loans, and subsidized electricity rates.

  26. It’s important to note that the U.S. (and some other countries) provide subsidies to farmers and the food industry in a way that the Canadian government does not. These subsidies are reflected in the prices of foods at retail in the U.S., and are often a sore spot in trade negotiations between the U.S. and other countries looking to gain access to it’s market.

  27. The comments I’ve read here are as close to a intellectual level of debate over supply management that I’ve ever seen or heard. If only debates among politicians, or articles from political pundits, started at this level.

  28. While cheese and dairy are bad, supply management for chicken is even worse.

    For example:

    1) The #ChickenMafia have imposed bogus FCR (Feed Conversion Ratios) inflated by 16.3% for over 10 years, taking about $1 Billion per year of ill got gains from Canadian wallets.

    2) Between 30% to 80% of raw chicken in grocery stores today are contaminated with deadly pathogens (E.Coli, campylobacter, listeria, salmonella, etc.).

    3) Many of the chicken factories in Canada regularly feed caffeine, antihistamines, antibiotics, acetaminophen, and Prozac-like antidepressants to the chickens so they grow faster, and thereby maximize their monopolistic profits.

    4) Canadians are charged between 200% to 300% more for chicken that comparable meats sold in US and internationally.

    5) There are only 1,114 chicken factories in Ontario, about 2,700 across Canada, and they have 99.97% market share. The #ChickenMafia use their delegated governmental powers to oppress and tyrannize the 35,000 small flock poultry farmers via the #ChickenPolice, enforcing the Chicken Apartheid policy in Canada where the minority controls and oppresses the majority.

    6) Health Canada states that 7.6% of Canadian families can’t afford the food they need to feed their families. Many food banks have struggled to support the 75% increase in food bank usage in the last 3 years. People who can’t afford the food they need are forced to buy what they can afford, often much higher in carbohydrates. Poor nutrition causes or contributes up to 75% of the major disease epidemics of today (eg. cancer, diabetes, rheumatoid arthritis, Metabolic Disease, blood lipid problems, high blood cholesterol levels, cardiovascular disease, Alzheimer’s Disease, etc.). In spite of this, the #ChickenMafia have continuously increased the price of chicken by 3.56% per year for the last 17 years or more, taking it from the cheapest meat to unaffordable, now double the price of turkey.

    6) Many more examples exist.

    All of the above are documented with objective facts on our Blog: http://canadiansmallflockers.blogspot.ca/

    Isn’t it time that Canadians know the truth?

    Glenn Black
    Small Flock Poultry Farmers of Canada

  29. Why is there no mention of Europe ending its dairy quota system in 2015?

    • Two years I believe Andrew should do a follow up commentary on this. He could listen in on dfo”s annual meeting being held at the “royal York” in Toronto. Canada will be on a quota island in less than a year. I will be happy to forward him my pay checks for American milk. All sympathy was lost this weekend for the system, ( my family used to work in) when a college friend told me his neighbor near Ottawa was building a $4million barn for 180 cows. There is one dairyman whom I consider one of the smartest I ever met 20 minutes south of the Cornwall border crossing who spent similar money to build facilities to milk 1800 cows. Now who would anyone with logic bet on as being able to survive in the dairy industry? $25000 for the quota, $25000 for the building, plus machinery, taxes, interest payments, the actual cow cost, living, & land. Could it be actual investment per cow, unless already paid for is exceeding $75,000. @$7500 debt cow in the US you need to be very careful with a dollar. $1600 /cow for her barn, say high at $2000 to buy a top cow you are $3600 in the US to milk one more cow and need only to tell your milk hauler I will be expecting to ship more milk tommorrow when you expand.
      Also will not hide behind a fake name on the Internet
      Mac cumming
      273 seventy road
      Burke ny
      12917
      5183534774

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