Cash cows of new trade deal

How Canada’s dairy in­dus­try can sur­vive

Winnipeg Sun - - NEWS - SYL­VAIN CHARLEBOIS Charlebois is dean of the Fac­ulty of Man­age­ment and a pro­fes­sor in the Fac­ulty of Agri­cul­ture at Dal­housie Univer­sity, se­nior fel­low with the At­lantic In­sti­tute for Mar­ket Stud­ies, and au­thor of Food Safety, Risk In­tel­li­gence and Benchm

The United States-mex­ico-canada Agree­ment (USMCA), or NAFTA 2.0, could be the wa­ter­shed mo­ment Cana­dian dairy farm­ers have been wait­ing for.

The fed­eral gov­ern­ment of Prime Min­is­ter Justin Trudeau has com­mit­ted to com­pen­sat­ing the dairy sec­tor for ei­ther lost sales, higher per-unit costs or the loss in value of quo­tas.

The gov­ern­ment has been clear on in­tent but woe­fully short on de­tails. What we can be sure of, how­ever, is that the amount the feds will come up with won’t be to farm­ers’ lik­ing.

But giv­ing away bil­lions in com­pen­sa­tion would be more dam­ag­ing to farm­ers than the ef­fects of the trade deal it­self.

If the Lib­eral gov­ern­ment re­ally wants to sup­port the sec­tor in its pur­suit for a brighter fu­ture, it should think be­yond sim­ply com­pen­sat­ing for losses that don’t ac­tu­ally ex­ist.

The quota sys­tem has ar­ti­fi­cially cre­ated wealth for a small group of farm­ers. By re­strict­ing pro­duc­tion and sup­press­ing com­pe­ti­tion at the bor­der, dairy farm­ers who re­ceived quo­tas for free when the sys­tem was es­tab­lished al­most 50 years ago have ac­cu­mu­lated as­sets worth above $5 mil­lion - per farm.

For ev­ery litre pro­duced, dairy farm­ers in Canada re­ceive 72% more than the world av­er­age. As a re­sult, the av­er­age fam­ily in­come for dairy farm­ers ex­ceeds $160,000, which is well above the Cana­dian av­er­age. Dairy farm­ers are not part of an underprivileged group - far from it.

Farm­ers do work pun­ish­ing hours and should be much ad­mired for the work they do for all of us. But many other Cana­di­ans put in the same amount of work and con­trib­ute equally to the econ­omy.

For dairy farm­ers, wealth and salaries are the­atri­cally in­flated by a highly pro­tec­tion­ist sys­tem. Com­pen­sat­ing af­flu­ent farm­ers when many other Cana­di­ans re­main food in­se­cure would be dif­fi­cult to sell po­lit­i­cally.

A sense of en­ti­tle­ment is so en­trenched in the sec­tor that it’s im­pos­si­ble to have con­ver­sa­tions about the its fu­ture and how it could move for­ward with­out quo­tas.

It’s all eco­nomic fan­tasy for most peo­ple out­side the sys­tem.

Sup­ply man­age­ment think­ing has al­ways been based on our do­mes­tic needs. Ob­vi­ously, al­low­ing more im­ports is only per­ceived as losses for the in­dus­try in­stead of an op­por­tu­nity to ex­pand and

Dairy farm­ers des­per­ately need to be­come more mar­ket-fo­cused and in sync with an in­creas­ingly frag­mented mar­ket.

look for mar­ket open­ings else­where.

USMCA adds to the pres­sure gen­er­ated by two other trade agree­ments signed in the last few years.

Ac­cord­ing to Dairy Farm­ers of Canada, mar­ket-share losses from re­cent trade deals with Asia, Europe and now North Amer­ica to­tal 18%, or about $1.8 bil­lion to milk pro­duc­ers.

Given that sup­ply man­age­ment is about pro­duc­ing what the do­mes­tic mar­ket needs, that would equate to al­most 1,800 dairy farms we no longer need. It is a ze­ro­sum game, with very few con­ver­sa­tions about how to re­pur­pose these farms.

Sup­ply man­age­ment’s legacy is about per­cep­tions of eco­nomic rel­e­vance.

The dairy sec­tor has con­vinced it­self that it’s in­no­va­tive and for­ward look­ing. But it sim­ply isn’t.

Any­one who trav­els to the U.S., Europe, Aus­tralia or Asia sees how lim­ited our dairy of­fer­ing is in Canada — high qual­ity but uniquely ho­moge­nous, a mir­ror im­age of our dairy sec­tor.

Any­one who has at­tempted to pro­duce or­ganic or raw milk in Canada, or tried to mar­ket a new out-of-quota prod­uct, can tes­tify to how un­bend­ing the sec­tor is.

Dairy farm­ers des­per­ately need to be­come more mar­ket-fo­cused and in sync with an in­creas­ingly frag­mented mar­ket. With more al­ler­gies, in­tol­er­ances, and dif­fer­ent culi­nary tra­di­tions and tastes, con­sumers are look­ing for dif­fer­ent food prod­ucts. Imag­ine blue moon, ba­nana cream or black cherry low­fat, lac­tose-free milk. These ex­ist - but not in Canada. Vodka made from milk is also in­creas­ing in pop­u­lar­ity, but other coun­tries have beaten us to the punch.

The Cana­dian econ­omy needed this deal. But be­fore we make sense­less de­ci­sions on how to sup­port our dairy sec­tor, a clear vi­sion and strat­egy for its fu­ture is im­per­a­tive, with a for­ward-look­ing fo­cus on do­mes­tic and for­eign mar­kets.

The Cana­dian Dairy Com­mis­sion will need to en­tice dairy farms to be­come more com­pet­i­tive by chang­ing the pric­ing for­mula that com­pen­sates farm­ers.

In­stead of go­ing with av­er­ages, it should cre­ate high-per­for­mance bench­marks.

A quota sys­tem for ex­port mar­kets should be put in place to al­low new en­trepreneurs and new ways of think­ing to en­ter the mar­ket.

And, as other coun­tries have done be­fore us, an exit pro­gram should be cre­ated as soon as pos­si­ble to en­cour­age farm­ers who don’t see them­selves par­tic­i­pat­ing in an open econ­omy.

Not ev­ery­one wants to com­pete but this should not be at the ex­pense of hard-work­ing tax­pay­ers.

All of this can be achieved with min­i­mal sub­si­dies. Cana­dian farm­ers are in fact less sub­si­dized than Amer­i­can farm­ers, but just barely.

In Canada, 9.6% of all farm rev­enues are sub­si­dized com­pared to 9.9% in the U.S., ac­cord­ing to the Or­ga­ni­za­tion for Eco­nomic Co-oper­a­tion and Devel­op­ment.

In Aus­tralia, where a sim­i­lar sup­ply man­age­ment scheme was dis­man­tled in 2000, only 1.7% of gen­eral farm rev­enues are sub­si­dies. Sub­si­dies can help for a while, but should be con­sid­ered as a stop-gap for farm­ers, not an in­dus­try norm.

With­out these mea­sures, any com­pen­sa­tion to dairy farm­ers is just agri­cul­tural wel­fare.

Our dairy farm­ers de­serve bet­ter. Cana­di­ans ex­pect more. It’s the only way we can keep some of our Cana­dian dairy farms.

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