Reform means ending price setting, opening export markets, and
compensating farmers fairly for milk production quota
OTTAWA, March 6, 2014 /CNW/ - Consumers would enjoy a long-term
reduction in dairy prices and the industry could be even more
profitable than it is under the existing supply management system,
under a reform proposal released today by The Conference Board of
The report, Reforming Dairy Supply Management: The Case for Growth, proposes a three-part reform in which Canadian consumers could
eventually save an estimated $2.4 billion annually, and farmers could
gain almost $2.5 billion from exporting high-quality dairy products to
markets where demand is growing rapidly.
"A win-win reform package needs to be accompanied by a new vision for
industry growth," said Michael Bloom, Vice-President, Industry and
Business Strategy. "Dairy producers and rural communities have a lot to
gain from reform under a growth scenario. More efficient producers are
more likely to see an upside. But we have to change the way we do
Supply management reform needs to co-ordinate three policies:
liberalizing prices, unwinding milk production quota and reducing trade
A temporary consumer levy on dairy products could serve as transitional
funding as the system is reformed.
Under reform of supply management, consumers would see lower prices over
the long-term and Canadian producers would more than make up for lower
domestic prices through export sales.
The report argues that the transition to a new system must address
issues of funding, efficiency, equity, and duration (FEED) in a
"Supply management reform must coordinate the three major aspects of
supply management: price setting, quota, and trade barriers. Cutting
out any single part of the reform makes the entire system unstable,"
Production quota reform
Production quota is, in effect, a licence to produce milk, which serves
to limit the supply. Quota has become a valuable asset in the dairy
industry, with large sums of money tied up in its purchase and sale.
Any policy change must address quota reform; the Conference Board
recommendations that it be done through a book value buyout-(the price
paid for the quota at purchase). Such a reform would cost an estimated
$3.6 billion to $4.7 billion, according to the report.
This approach is particularly important for farmers who have recently
bought quota and therefore not yet realized the full value of the
quota, which takes about 10 to 15 years. A market value buyout is
unfair because it would compensate farmers for quota where they have
already realized a return, effectively paying them twice for the same
The buyout cost could be funded through a consumer levy on dairy
products, as was done in Australia. In the short-term, Canadian
consumers are unlikely to see a significant change in dairy prices from
current levels, which the Organisation for Economic Co-operation and
Development has estimated costs about $2.6 billion more than prevailing
world prices, or $276 per family. Within about five years, prices would
likely settle at about the world average and consumers would see this
amount returned to them in lower prices.
While price and quota reforms are taking place, trade policy negotiators
need to gain access to international markets for Canadian dairy
products. The worse-case scenario is one in which the domestic market
opens to dairy imports before Canadian farms are ready to compete by
scaling up production.
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 Canada
For further information:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448