Dark days ahead for supply management

Drop in milk price presages threat from CETA to supply management

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Sylvain Charlebois is a professor of food distribution and policy at the University of Guelph in Ontario.
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GUELPH, ON, Jan 25, 2015/ Troy Media/ – Dark days are ahead for supply management in Canada.

For the first time in 22 years, the Canadian Dairy Commission has decided to reduce the price of milk at farmgate by 1 per cent. The price reductions will commence in February.

Under its supply management regime, established in 1966, the Commission’s mandate has been to set the price of milk per hectolitre for dairy farmers owning production quotas. The new decision to reduce prices, according to Commissioners, is to stimulate domestic demand for milk per capita which has been decreasing for decades in Canada. As surprising as this decision may be, such a move from the Commission is evidence that the dairy sector is fully aware of systemic pressures on supply management.

Supply management in for big changes

Big changes are coming. If ratified, the Comprehensive European Trade Agreement would allow over 17,000 tons of cheese into our country. Currently in Europe, milk is cheap, and getting cheaper. In April, Europe ends its quota system, and many producers have started to flood the market with much more milk. There is an abundance of supply which has depressed milk prices at farmgate and retail. Prices have gone down by more than 40 per cent in some regions, which makes European cheese more competitive against our own. In addition to having concealed subsidies, European cheeses have a significant competitive advantage.

supply management
Cheaper pizza?

As such, the Commission is giving a chance for our dairy sector to compete, domestically and globally. Restaurant owners and processors alike are applauding the decision, and why wouldn’t they? This will make them more competitive, allowing them to increase margins, innovate and recapitalize some of their infrastructure.

Most importantly, this move from the Commission is indicative that it can adapt to change, at least to a certain degree. Even if many have criticized the virtues of supply management for years, we should render to Caesar what is owed to him. Price reductions at farmgate have been uncommon in Canada due to the Commission’s lopsided cost assessment scheme. This is an audacious decision, but it should not stop there. More should be done to promote excellence and productivity in the dairy sector instead of using averages as a price setting benchmark for an entire sector.

Canadians could even benefit if . . .

Indeed, the Commission operates obscurely, away from any media attention. In fact, more than 90 per cent of Canadians are not even aware of the Commission’s role, let alone its existence, and yet its influence on our lives is real. Consumers will likely be affected by this. This could very well impact the price of dairy products Canadian consumers buy regularly, like cheese and yogurt. Even restaurants could potentially pass on their saving to consumers when serving pizzas and lasagna, but whether or not processors and restaurants will pass on their savings to consumers remains to be seen.

As for our own artisan cheesemakers who are about to face tougher competition from abroad, they are still waiting for the Harper government to provide any details on support programs. Even if Ottawa has been indefinite on this issue, the Commission’s decision is likely the help they need, at least part of it. It will certainly be welcome news and may ease the burden of increased competition.

Dr. Sylvain Charlebois is Professor of Food Distribution and Policy at the University of Guelph’s College of Business and Economics.

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