President Trump makes milk shake
For the first time, U.S. President Donald Trump has acknowledged that he knows of the existence of supply management, also known by the global community as Canada’s milk cartel.
For years, dairy farmers in Canada have been resistant to any change or reform to their policies. With NAFTA 2.0 on its way, Canadian dairy farmers are about to find out that decades of defending the status quo was the wrong strategy.
It would have been fascinating to be in the briefing room when Trump got his first Canadian dairy briefing. Anyone who has attempted to explain supply management to Americans would appreciate how interesting the reaction is. Mainly, it is one of disbelief.
Supply management is about producing what we need for dairy, poultry and eggs. Given that 80 per cent of agricultural cash receipts are within supply management, dairy has always attracted more attention. Such a program could be expected in an emerging market, or even in a highly organized economy.
No one would expect supply management to exist in a developed economy such as Canada’s. Since Europe eliminated quotas several months ago, Canada is the only developed economy in the world with such a scheme.
Quotas are given to farmers so that they can produce the commodities needed. Given our obsession with marketing boards, we are accustomed to it.
We see our boards to be a natural, effective model to protect our farmers. Farmers can only get the price oligopolistic powers are willing to pay. Farmers are often highly vulnerable.
Often, dairy farmers around the world are exposed to high milk-price fluctuations, and must adapt quickly. On the other hand, supply management allows our dairy farmers to rely on predictable revenues year in and year out. A simple approach, really, but maintaining such a system for more than five decades has come at a tremendous cost.
First, our dairy industry is highly inefficient. Several studies over the years have pointed to how costly milk production is in Canada compared to other industrialized economies. Switzerland is the only place where milk production is more expensive.
High farmgate milk prices are not allowing our dairy processors and restaurant owners to become more competitive. The entire food chain has been held back for years.
Also, supply management in dairy has led to a sense of institutionalized entitlement. The words consumer or even customer have no meaning.
Over the years, dairy farmers have become great cost managers, as it is the only way for them to earn more by doing the same thing.
By virtue of maintaining supply management, dairy farmers are, to all intent and purposes, bureaucrats, not entrepreneurs. They work for the state, not for the economy.
The lobby group Dairy Farmers of Canada has spent hundreds of millions of dollars over the years promoting milk to Canadians, while consumption of fluid milk per capita has dropped for almost three decades. No strategy whatsoever. Value chains and/or design-thinking are irrelevant concepts to them.
However, a growing number of dairy farmers are indeed entrepreneurs and want to think differently, but are dragged down by the mediocre class.
As Canada was standing still, the world changed. For years, many have called for changes to supply management, but in vain. Scrapping supply management all at once would be a mistake, since quotas are worth more than $30 billion. Our system has a lot of fiscal baggage, unlike Europe’s former system.
Most importantly, we are just north of the U.S., where dairy farms are much more competitive than ours. Getting rid of supply management overnight would lead to a collapse of our dairy industry.
For a strong agricultural economy, Canada needs a plan to maintain some domestic production capacity to support our processors, where the value adding and the innovation really occur.
What is unfortunate is the current world economic climate, which is led by the Washington administration, Brexit and everything else. We are about to see an entire industry filled with dedicated workers on alert. Instead of giving ourselves a vision for a dairy sector and taking ownership of our own destiny, we are about to see changes based on someone else’s terms.
Jobs in rural Canada and young generations of farmers are at stake. Dairy farmers have lobbied Ottawa hard for decades to maintain the current system, and Ottawa listened and bowed.
However, let’s be clear — dairy farmers are not to blame, since they were protecting assets and defending the next generation. Who wouldn’t? But the leadership should have come from Ottawa.
Several federal governments have consistently shown weak leadership on this file. Little strategic foresight was given to our supply-management regime. And now, dairy farmers will pay for this.