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Banking on supply management

The supply management system in Canadian agriculture continues to be a contentious issue, most notably between dairy farmers and opponents who advance free-market ideals.

The Schuurmans family own and operate Milky Wave in Floradale, a dairy farm with 210 cows, which produce some 2.8 million litres of milk each year. Back row: Tom, Emily, Lize, Jim and Eric. Front row: Bettina and Henk. [Submitted]
The Schuurmans family own and operate Milky Wave in Floradale, a dairy farm with 210 cows, which produce some 2.8 million litres of milk each year. Back row: Tom, Emily, Lize, Jim and Eric. Front row: Bettina and Henk. [Submitted]
Against this backdrop of continuing calls for deregulation from right-wing pundits and consumer groups, the Dairy Farmers of Canada met last week in Ottawa for their annual policy conference.

Supply management was top of mind, DFC president Wally Smith said.

“In Canada the stability of our system is something we are very proud of and it is something that farmers are defending strongly. It is something that even though it is in play in trade talks (internationally), what we have been advised by the government is that it is something they plan to really stand up for. All countries have sensitive sectors and Canada is no different in that respect and we shouldn’t be treated any different as a result.”

Supply management was implemented in the 1960s in Canada to even out the booms and busts of volatile agricultural markets. The system, which sees government agencies – for dairy, it’s the Canadian Dairy Commission –  implement a quota system to ensure domestic supply stays roughly equal with domestic demand. The regime also enforces stiff tariffs on dairy imports, sometimes as high as 200 per cent in order to protect Canadian producers.

In Ontario, the system falls under the umbrella of the Ministry of Agriculture, Food and Rural Affairs, which provides some background information website.

“Since the inception of supply management, oversight and control of the fluid milk market (milk and cream consumers drink) has been a provincial jurisdiction. This includes production controls at the farm level. Since the mid-1990s, regional pooling agreements govern many aspects of production and, to a lesser extent, policies related to the allocation of milk to processors.”

Ontario is part of a pool that also includes Quebec and the Maritimes. A similar regional pool exists in western Canada, called the Western Milk Pool, with membership of British Columbia, Alberta, Saskatchewan and Manitoba.

“The Dairy Farmers of Ontario (DFO) has price-setting authority. Prices vary with the end use of the milk. DFO sets most prices based on those established by the national processes.

“DFO purchases all raw milk produced in the province, sells this milk to processors, and pays producers. The regulated prices vary with the end use of the milk. Under national and regional agreements, Ontario milk revenues are pooled with the revenues in other provinces before being paid to Ontario producers. Each producer receives a blended price that reflects fluid and industrial sales.”

It’s been a good setup for dairy farmers like the Schuurmans family of Milky Wave Inc. in Floradale.

Owner/operator Henk Schuurmans is a ninth generation dairy farmer originally from Holland. He started working at the farm – then Coopon Flora – in the mid 1980s after immigrating to Canada.

He took over the farm in 2009 and now has 210 dairy cows that are milked three times daily, producing 2.8 million litres each year.

For the Schuurmans, supply management has afforded security in an otherwise fickle market.

There are a lot of factors that play into the business which could wreak havoc if left unchecked. Take feed prices, for example.

“We had a couple of tough years getting the crops (for feed) on the market,” Henk Schuurmans said. “The weather didn’t cooperate very well and caused the feed prices to get very high. They have come down nicely since, which is reflected in the cost of producing milk.”

But critics argue the system leads to artificially inflated prices. They’d rather let the free-market determine prices, allowing farmers to negotiate with retailers on their own while also competing with international producers.

Former deputy prime minister John Manley, currently the president and CEO of the Canadian Council of Chief Executives, articulated this line of reasoning in the National Post last month.

“Provincial dairy marketing boards are perhaps the most egregious barriers to internal trade in Canada,” he wrote. “They have monopoly powers to control and restrict the sale of dairy products. They set quotas that tell farmers how much they are allowed to produce, and they impose strict limits on interprovincial shipments – the combined effects of which force consumers to pay higher prices. Even more unfortunate is the way supply management hurts low-income families. What better way to stand up for hardworking Canadians than to make reform of supply management the centerpiece of the government’s push to create one national economy? Supply management doesn’t just affect consumers. The existing system harms Canada’s international reputation as a champion of open markets.”

Proponents point to the stability the supply management system has brought to the prices consumers pay and the wages farmers receive.

“There are a lot of benefits of supply management that run right through to the consumer,” Smith said. “One very strong positive for dairy farmers with supply management is the stability that it brings to the whole food chain, whether that be fair returns for producers or fair prices for high quality products for consumers. The stability of the market allows for good planning for farmers as well as stability for rural economies. When we hear in Canada are facing a recession when you look at the oil market, where disciplined production is out the window and they just keep producing; you here about oil rigs being shut down and about layoffs and that doesn’t happen in the dairy industry domestically. It happens internationally because of the wild price swings.”

Elmira resident and University of Waterloo professor Bruce Muirhead is a leading scholar on Canadian agricultural politics and history.

He supports the supply management system.

“I actually think supply management, if you were going to describe it to a person on the street, it is a system that benefits society as opposed to the individual,” he said. “So you’re not trying to drive your neighbour out of business, because it wouldn’t necessarily benefit you.”

He points to trends in the United States that see dairy farming becoming increasingly concentrated in California where massive operations have become the norm.

Where the average dairy farm in Ontario has roughly 75 cows, mega farms in America can have tens of thousands.

These operations are not good for the animals, and they are changing the character of rural communities.

“Supply management benefits the community because everybody works together,” Muirhead said. “In a sense, that creates a kind of ambience in the community which is really useful for community existence. Like Elmira, I really like living here, but I don’t think if we didn’t have supply management we would be living in a community like this; it would be quite different than the way it is now.

“There probably wouldn’t be as many people and it would be much more of a bedroom community than it is now. There would be a different sort of atmosphere around the place, I think, if you have a farm on the outside of town that’s milking 30,000 cows with not too much else between us and them.”

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