Dairy supply management system needs reform: Success hinges on growth
Global markets offer dairy producers enormous growth potential
OTTAWA, March 3, 2014 /CNW/ - Reform to Canada's outdated dairy supply management policy must be accompanied by a push to expand into global markets with rapidly-growing demand, according to The Conference Board of Canada's second release of findings from its analysis of dairy supply management.
"Dairy supply management is an old solution to an old problem. When the current system came into effect, international trade in dairy products was very limited. Today, countries such as China are growing markets thirsting for quality dairy products. We're not in a position to take full advantage because our system is now outdated," said Michael Bloom, Vice-President, Industry and Business Strategy.
The Conference Board report, Canada's Reforming Dairy Supply Management: The Case for Growth, argues that a win-win reform package needs to be accompanied by a new vision for industry growth. Since dairy consumption in Canada is stagnant, export markets are key to industry growth.
Global trade in dairy products was valued at about US$33 billion in 2010, about five times greater than in 1961. Demand is expected to grow by double-digit percentages annually over the next decade in commodities such as butter (21 per cent annual growth), cheese (11 per cent) and whole milk powder (13 per cent).
In addition, countries such as China are looking for foreign-supplied milk powder out of concern that their domestic milk is unsafe. And current global trade flows suggest that dairy products could be shipped relatively cheaply from Canada to Asia.
Canada was a net importer of dairy products in 2012 and exported just $27 million, making it a marginal player in dairy trade compared to peer countries such as New Zealand (US$9.4 billion in net exports), Australia (US$2.3 billion), and the United States (US$2 billion), respectively. However, large exporting nations are struggling to keep up with demand, opening opportunities for Canadian producers.
Canada's current share of the world market in traded dairy products is microscopic: 0.02 per cent in whole milk skim powder, 0.29 per cent in cheese, and 0.01 per cent in butter. In contrast, Canada has about 10 per cent of global trade in oilseeds and almost 14 per cent of the market in wheat.
The number of dairy farms in Canada has fallen from over 174,000 in 1967 to around 12,500 today, with an average herd size of 76 head of cattle. The Conference Board's analysis suggests that Canadian dairy farms would have to more than double in herd size, to average 187 head (similar to the U.S. average) to compete internationally.
Canada already has dairy farms that are among the most sophisticated in the world. Although farms would grow larger, they would likely remain mostly-family owned and equivalent to a small business -- in terms of revenue, about the same size as a typical Tim Horton's franchise.
The analysis outlines three scenarios:
- status quo -- Canada remains a marginal dairy exporter
- moderate growth -- Canada's production would grow by 6 billion litres to 14 billion litres
- aggressive growth -- Canada would produce about 12 billion more litres annually to 20 billion litres by 2022.
Under the aggressive growth scenario, the number of dairy farms would actually increase by 2.1 per cent over 10 years and industry employment would grow by about 14 per cent. Yet, Canada's export volumes would still be half that of New Zealand.
The full report with recommended reforms will be published Thursday, March 6.
This report is one of 20 being produced by the Centre for Food in Canada. Since 2010, the Centre has been engaging stakeholders from business, government, academia, associations, and communities in creating a Canadian Food Strategy —one that will meet the country's need for a coordinated, long-term strategy on industry prosperity, healthy and safe food, household food security, and environmental sustainability.
The strategy will be launched at the 3rd Canadian Food Summit 2014: From Strategy to Action, March 18-19 at the Metro Toronto Convention Centre.
SOURCE Conference Board of CanadaFor further information:
Yvonne Squires, Media Relations, Tel.: 613- 526-3090 ext. 221