Milk Supply Controls Affect Dairy Industry Growth

US - A new study of government-mandated supply controls and their impact on the dairy industry in other countries shows that added controls on milk supply do not prevent price volatility and can have an adverse effect on an industry poised for growth.
calendar icon 8 October 2010
clock icon 3 minute read

The report by Informa Economics, "An International Comparison of Milk Supply Management Programs and Their Impacts," examines what happened in Canada, the European Union and other countries when government-mandated supply controls were implemented and enforced. It outlines the negative impact a government-run supply-control policy has on the industry, especially at the farm-management level.

"Instead of relying on theoretical computer models, this study looks closely at what has happened to dairy industries in countries where a form of milk supply control is used and clearly maps out consequences, both intended and unintended, for their producers, processors and consumers," said Connie Tipton, president and CEO of the International Dairy Foods Association (IDFA), which commissioned the study.

"Dairy farmers still face price volatility in countries that have implemented supply control, but end up managing their farms according to government dictates on how much milk they can produce."

The study concludes that supply control programs limit exports, create an economic incentive for imports, increase consumer milk and milk-product prices, and add layers of bureaucracy to government oversight systems.

"We support policies and plans that give farmers a safety net, such as margin insurance, and the tools they need to make choices leading to more efficient and profitable operations," said Ms Tipton.
",br>We don't think a government-run program that takes away a farmer's ability to decide their own operation's production level and growth patterns is in the best interest of the U.S. dairy industry."

The report, released today, was completed by Informa Economics, Inc., a world leader in broad-based domestic and international agricultural and commodity/product market research, analysis, evaluation and consulting. It shows that:

  • Milk supply-control programmes in other countries have not reduced price volatility or slowed the number of dairy farms going out of business.

  • Milk supply control programs have constrained dairy industry and job growth in the European Union and Canada, and limited export growth in these countries.

    Consumption growth for fluid milk, cheese and butter has been slower or declining in countries with milk supply control programmes.

Growth in Specialty Products, International Markets "Consider that since 1975, overall milk production in the United States has increased by 64.1 per cent, while fluid dairy product sales grew by only 2.4 per cent," Ms Tipton said.

"That additional supply has gone mostly to cheese production. And cheese is a market that continues to grow, both in consumer consumption and in exports. Limiting milk production growth also limits overall market growth and opportunity for new products."

Other specific findings of the report show that:

  • All countries, including those with milk supply-control programmes, saw a steep drop in milk prices during late 2008 and early 2009.

  • Due to growth constraints at home, Canadian and European processors are looking to invest in other countries, like the United States, for expansion and growth opportunities.

  • Once in place, milk supply controls are difficult to dismantle. New programs tend to be placed on top of old ones in an attempt to fix, not scrap, policies that aren't working.

A 2009 report by Bain & Co., sponsored by Dairy Management Inc., found that the US dairy industry has a huge opportunity to expand production of cheese, yogurt and other products in global markets. Conclusions of the Informa study, however, indicate that a supply-control policy will create a barrier to taking full advantage of the opportunity, because growth and expansion will stop without an ample milk supply.

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