Defending The Supply Chain

CANADA - In repsonse to critiscm from the Conference Board of Canada, Dairy Farmers of Canada defends supply management for the dairy industry.

27 November 2009

5 minute read

North America

Dairy farmers have fought to maintain the three pillars of supply management for over 40 years. The need to match production to demand in any industry is obvious. Canadian and American pork producers are currently facing the harsh consequences of the imbalance between supply and demand. The Canadian dairy industry has found the way to attain the supply-demand balancing act effectively. Throughout the years, the supply management system has been in constant evolution as the environment, trade rules and market conditions change and will continue to evolve.

The Conference Board of Canada provides a good historical perspective on supply management in its paper released earlier this week. It is regretful that the authors of the paper made several errors of fact and especially chose to ignore the fact that the stability of supply management in Canada, like the relative robustness of our regulated banking system, has actually helped our industry weather the recent international storm of wild price fluctuations.

It has been clear in the last two years, that the free market principles have failed agriculture and food around the world. Anyone reading the news has some degree of familiarity with terms like food crisis, price volatility, speculation, financial collapse and bailout packages. UN Special Rapporteur for the Right to Food, Olivier de Schutter found farmers and consumers most affected by the global food crisis were those in developing countries, who found themselves unable to buy food: in these countries, 80 per cent of the population are small farmers who face prices too low to make a living. At the same time, they have seen consumer prices increase very rapidly when farm prices were high, but these prices are not coming down as fast as the farm price. We need to remember the reason why these people are the most affected: they spend up to 70 per cent of the income on food. Meanwhile Canadians spend only 10 per cent of their net income on food.

The International Farm Comparison Network found that milk is one of the most volatile commodities. It is natural for any business, farmers and processors to prefer stability. Thus the reasons supply management was first introduced in Canada are still valid today. This year, dairy farmers in Europe, US, New-Zealand and other countries suffered from prices as low as 20 years ago, combined with higher input costs. Between July 2008 and January 2009, for instance, the world prices for dairy declined by 56 per cent, while feed costs (one of many inputs) decreased by 35 per cent. Meanwhile, the Canadian dairy industry has a different story: demand for dairy products has increased modestly in the past years (while demand dropped significantly in the rest of the world) and prices have remained much more stable and fair for all - from farmers to consumers. Moreover, the Canadian system does not cost anything to taxpayers, unlike the bailouts that need to be doled out in other countries (and other economic sectors, including US banks and the automobile sector).

This Conference Board of Canada paper unfortunately provides no new argument, but rehashes arguments and propaganda made by anti-supply management ideologues before. It ignores the fact that without regulations protecting the smaller player or provider of raw material in any chain supply, the primary producer is left holding the small end of the stick, because "perfect competition" exists only in theory. In its 15 October, 2009 report, the European Court of Auditors found that between 2000 (when the EU started to relax quota regulations) and 2007, the producer price fell 6 per cent. During the same time period, consumer prices increased by 17 per cent. This summer, a report from the US-based Farm Foundation focused on the volatility of farm prices in the United States but noted that while farm prices are plummeting, real food prices are falling very little.

In Europe and the United States, governments are currently inquiring on the disparity between producer and consumer prices due to concentration power in the processing and retailing sector of the chain. Moreover, both announced multi-million dollar subsidy package to their dairy farmers in October. Is that competitiveness and consumer benefit? We don't think so.

The International Farm Network Comparison estimated this summer that only 2 per cent of world milk production can be produced at 2009 "world prices" (20$ US per 100 kg of milk)(3). Surely, anyone can understand that such farm prices are unsustainable. And retail prices across various countries show consumers are not benefiting from producer misfortune. Even headlines in papers in Europe, US and other countries blatantly tell the story: "High grocery prices don't translate to increase to farmer", "Oversupply milks farmers out of savings" (US), "Debt-laden NZ dairy farmers", "US Senator wants enquiry into retail milk price" (because it has not fallen as much as farm price), "EU auditor warns of risk linked to end of milk quotas", and many more.

Fortunately, supply management in Canada has brought stability to dairy producers, processors and consumers. Make no mistake: the efficiency and competitiveness of Canadian farmers has continually improved over the supply management years, and continues to do so. At the same time, they respond to consumer demands about food safety, animal care, environmental sustainability and more. In looking at ways to resolve economic problems in the agri-food industry, supply management is part of the solution, not the problem!