Empowering Farmers

1
Empowering Farmers
The Canadian Supply Management Experience Bruce
Saunders 1st Vice-President, Dairy Farmers of
Canada Chapeco, Brazil, January, 2005
2
Outline of the presentation

• Who we are?
• History of supply management in Canada
• Determining production quota
• Benefits of supply management
• Expectations from the Doha Round of negotiations
• Conclusion

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Economic Snapshot of the Canadian Dairy Industry

• 16,000 dairy producers
• Milk sales 4.2B
• Adds a net 8.3 billion to the GDP
• Processed products sales over 10B
• Supports 26 B of economic activity
• Sustains more than 142,600 jobs
• On-farm 50,800
• Farm suppliers 25,200
• Processing sector 66,600

4
Brief History

• When Canada was a major exporter, producers
  received
• low returns.
• SoCanada turned its
• attention to the
• domestic market.

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Objectives of the Canadian Dairy System

• 1) Ensure orderly marketing of milk by balancing
  supply with demand
• 2) Balance the negotiating power between
  stakeholders to obtain fair prices for the
  producer
• 3) Ensure that consumers have access to adequate
  supplies of high quality products

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Pillars of Supply Management

• Depends on three pillars
• Import controls
• Producer pricing
• Production discipline
• All equally important

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Producers Need Market Power

• Legislation is necessary
• Canada uses legislation for management of supply

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Fundamentals of the Canadian System Balancing
Supply With Demand
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Balancing Supply with DemandCanadian Milk Supply
Management Committee
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Balancing Supply with Demand Prevents Market
Price Volatility
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Balancing Supply with Demand Market Stability
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Balancing Supply with Demand Step 1 Estimating
Demand Requirements
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Balancing Supply with Demand Step 2 Setting
Supply Target Requirements
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Balancing Supply with Demand Step 3 Allocate
MSQ - Historical Basis
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Step 4- Allocation of Quota to Individual
Producers
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Production Quota

• Daily quota system no year end
• Daily quota established on a kg of butterfat per
  day
• Adjusted regularly to reflect market demand
  fluctuation upward or downward
• Transferable

17
Balancing the Negotiating Power Marketing
Agreements (MA)

• Terms negotiated between
• Provincial boards and Processors
• Co-operative Private enterprises
• A single sales agent (provincial board)
  negotiates plant supply, milk quality, classes
  and prices, and payment terms

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Balancing the Negotiating Power Domestic Price
Negotiations

• The price of industrial milk sold in regular
  classes is set by the CDC following a
  consultation process and reflects a cost of
  production formula including return on investment
  and equity
• The price of fluid milk is set by the provinces
• One price adjustment per year (February)
• All processors pay the same price for a given
  class

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Balancing the Negotiating Power Distribution of
Producer Returns
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Balancing the Negotiating Power

• Increased Market Concentration
• Farm level
• 17,000 dairy farms
• Processing level
• 3 largest dairy processors have 70 of sales of
  approximately 11 billion
• Retail level
• Largest retail chain has 35 of sales
• Top 10 have 90 of sales

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Producer Returns (Deductions)

• Deductions per hL of monthly shipment
• Transportation 2.32
• Administration 0.45
• Promotion 1.22
• Research and DHI 0.12
• Total 4.11
• The operating costs of the system are therefore
  bourn by the producers.

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Price of Milk
Milk Prices Paid to Producers
2001-02 2002-03 2003-04 2004-05
Can per hl 58.52 61.07 61.19 63.65
US /cwt 16.43 17.99 20.16 22.41
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Ensuring Consumer Benefits

• A Canadian Paradox Canadas method of
  implementing supply management in the dairy
  industry results in benefits accruing to all
  stakeholders not just to producers

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Ensuring Consumer Benefits Comparison of
Canada-U.S. Retail Prices
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Ensuring Consumer Benefits No Cost to Government
Milk US Canada
Producer Prices 15/cwt 22.4/cwt
Government Payments1 Federal programmes 6.75/cwt __
Government Payments1 State programmes 1.45/cwt __
Total 23.20/cwt 22.4/cwt
1- US Agricultural Support, Grey, Clark Shih, January 2005 All price in US per cwt 1- US Agricultural Support, Grey, Clark Shih, January 2005 All price in US per cwt 1- US Agricultural Support, Grey, Clark Shih, January 2005 All price in US per cwt
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A System Under Threat

• Three Pillars
• Import controls
• Price setting
• Production planning

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A System Under Threat WTO Impending Threat
Each Pillar Can Be Affected

• Market Import
• Access ? Controls

1-
Domestic Producer Support ? Pricing
2-
Export Production Competition ? Discipline
3-
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ConclusionSupply Management Benefits at Stake

• Producers ability to get revenues from the
  market
• No cost to government
• Stable and reasonable prices for consumers
• Stable and steady supply for processors
• High quality products

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Conclusion (continued)Supply Management
Benefits at Stake

• Maintenance of family farms
• Benefits rural development and environmental
  sustainability
• Production discipline which prevents surplus
  production that distort both international and
  domestic markets