Canadian Manufacturing

Dairy supply management: what it is and why it’s part of the TPP talks

The OECD has said ending the system could see Canada add six to 12 billion more litres of milk annually and generate $1.3 billion in efficiency gains



OTTAWA: Canada’s dairy supply management system is in the cross hairs of several players in the Trans-Pacific Partnership negotiations. Stephen Harper has vowed to protect it. Here are some things to know about Canada’s dairy supply management system:

What is it: Supply management controls levels of milk production by tying it to Canadian consumer demand and limiting foreign competition through high tariffs. Similar systems also regulate production of cheese, poultry and eggs.

History: Canada established a national system in the early 1970s to stabilize prices and dairy producer incomes, although its origins can be traced to provincial marketing boards in place decades earlier.

Farms: The number of dairy farms has shrunk from 145,000 nearly 40 years ago to less than 13,000 today. The system supports 215,000 jobs and contributes about $19 billion to Canada’s GDP and $3.6 billion in taxes. However, the Conference Board of Canada says dairy production quotas cost the economy $28 billion per year.

Prices: The price for milk paid to the producers is based on the costs of production set by farmers, not the market. As a result, Canadians pay about twice as much for milk than Americans. One litre of milk sold for $2.33 in Canada on average in August, according to Statistics Canada, compared to US$3.39 per gallon_ or C$1.20 a litre _ according to the U.S. Bureau of Labor Statistics. However, milk prices vary by province. This week’s grocery flyers say filtered milk sells for about $5.49 for two litres in Quebec and $3.99 in Ontario.

Subsidies: Canadian dairy farmers receive no direct government subsidies, while the United States pays about US$4 billion a year and the European Union 55 billion euro to their farmers.

Imports: Imports are limited through high tariffs. The system originally banned all imports, but that ran afoul of global trade rules. So now about five per cent of dairy products on Canadian shelves are imported tariff-free. Another 18,500 tonnes of cheese will be imported from Europe under a proposed trade deal. That will mean European cheese will rise to nine from five per cent of cheese consumed in Canada.

Exports: Milk production caps limit export opportunities, especially to rapidly growing Asian markets. Global dairy export volumes have been growing by seven per cent annually, but the OECD projects that butter demand will increase 21 per cent from 2013 to 2022, cheese by more than 11 per cent and whole milk powder by 13 per cent. It said ending the system could see Canada add six to 12 billion more litres of milk annually and generate $1.3 billion in efficiency gains.

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