Canada’s dairy supply management system a hindrance: report

A new report released this week from the Conference Board of Canada finds that Canada’s existing dairy supply management system results in lost opportunities for all Canadians – including milk producers.

The report, called Making Milk: The Practices, Players, and Pressures Behind Dairy Supply Management, examines how the system works in practice and whether it is in the national long-term interest.

Supply management also reduces innovation

Glen Hodgson, senior vice-president and chief economist, says in the release that “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.”

The report also 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.

Other effects of supply management

The supply management system also has other effects: it distributes benefits unfairly, makes it difficult to become a dairy producer, and reduces the international competitiveness of many dairy processors.