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Spilled Milk: Canada’s Dairy Policy Leads to Lost Opportunities


Ottawa, November 23 — Canada’s existing dairy supply management system results in lost opportunities for all Canadians—including milk producers themselves— according to a Conference Board report that examines how the system works in practice and whether it is in the national long-term interest.

“Supply management largely meets its stated goal of improving producer incomes. But it also prevents milk producers from capitalizing on opportunities in global markets, while thwarting Canada’s international trade objectives, and reducing competitiveness and innovation,” said Glen Hodgson, Senior Vice-President and Chief Economist.

Most Canadians are unaware of the elaborate behind-the-scenes machinations involved in the dairy supply management system. Since the 1970s, agencies under government authority have set the prices that farmers receive for their milk, and limited production through quotas to match anticipated Canadian demand for milk, cheese, butter, and other dairy products at those prices. To maintain high farmer milk prices and not undercut Canadian production, most dairy imports are restricted by tariffs of between 200 per cent and 300 per cent.

The report, Making Milk: The Practices, Players, and Pressures Behind Dairy Supply Management, finds that the system:

Discourages the industry from addressing long-term challenges – The system relies on price increases or new regulations rather than addressing long-term challenges—such as declining milk consumption per capita.

Leaves milk producers ill-prepared for a more competitive environment – Since the system provides weak incentives to be more competitive and efficient, if and when Canada fully or partly liberalizes its dairy policies, farmers will find themselves at a competitive disadvantage.

Restricts farmers’ ability to seize global opportunities –Global dairy demand is expected to continue its long-term growth, especially among the middle classes in China and India, and Canada’s higher-price system limits its competitiveness in these emerging markets. As well, supply management has restricted Canadian dairy exports up to the World Trade Organization subsidy limits—Canada exported only $255 million worth of dairy products in 2008.

Weakens Canada’s ability to access global markets —Defending supply management in trade talks compromises Canada’s ability to secure market access for other Canadian goods and services — including other agricultural products. Canada’s current negotiations for access to the European Union market may be compromised by the status quo dairy system.

The supply management system has other effects: distributing benefits unfairly, as buyers of dairy products pay more and effectively subsidize dairy producers; becoming a dairy producer is difficult, since it costs about $28,000 just to buy the right to sell the milk of roughly one cow; and reducing the international competitiveness of many dairy processors.

This study considers the policy dimension of dairy supply management as it relates to the competitiveness of the Canadian economy. The report does not study the politics of supporting a rural lifestyle or health and phytosanitary concerns.

It forms part of the CanCompete project, a three-year Conference Board program of research and dialogue designed to help leading decision makers advance Canada on a path of national competitiveness.

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