One farmer's fear: 'death by a thousand cuts'
Friday, June 6, 2014
Canada's dairy farmers are leery of the proposals unveiled at an Ottawa-based think-tank's March food summit and their industry reps believe them to be divorced from reality. But they do accept that important changes and modernization lie ahead
by JIM ALGIE
Owen Sound-area dairy farmer Rob Goodwill has taken a close interest in recent, high-profile public complaints about supply management in milk.
When he was only 16 on his parents' dairy farm in King Township, north of Toronto, Goodwill knew he wanted to farm. But the farm was on Jane Street near the future site of Canada's Wonderland amusement park, and everyone knew the neighbourhood would become "a housing jungle." So, in 1987, the family moved their Lorimarr-Lea Holsteins operation to lower-cost land in northern Grey County in search of better prospects for a fifth-generation family farm.
Rob's father's name still shows on the metal gate sign, but Lorne Goodwill died 10 years ago. Rob's mother, Marg, has moved to nearby Owen Sound, although she remains an owner in Lorimarr with Rob and his wife, Charlene. Parents of three children, including an 18-year-old daughter now in university and a younger son who does seem interested in working with livestock, Rob and Charlene milk 76 cows twice daily. They also crop 600 acres in a business that now involves Rob's brother, Terry Bracken, and a nephew.
All the talk about supply management in recent years has the Goodwills rethinking those robotic milking machines they have measured and priced. Rob bids every month on new quota to stay ahead of his costs and to balance rising production from their purebred Holstein herd.
A pair of robots and associated renovations to convert a labour-intensive, tie-stall barn would cost $500,000 or more. It's the likely next step for the Goodwills toward a possible, sixth generation in farming.
"It scares you," Rob said of recent high-profile criticism about supply management in milk. "But they say if your dreams don't scare you, they're not big enough," he added during an interview one afternoon at an oak table in a south window, just off the kitchen.
Goodwill has actually read the Conference Board report. He keeps a tablet computer powered up on the table beside him to stay in touch with markets and farm news. He remains as interested in farming as he was 25 years ago.
Rob worries about the current uncertainty in Canadian dairy policy, fuelled mainly by federal government import concessions in a pending trade agreement with Europe and current talks about the similar 12-nation Trans-Pacific Partnership.
Even so, the Goodwills likely will renovate, if not this year, then soon. Worry about policy is not much different, Rob figures, than wondering this spring when winter would let him onto the fields or last fall about heavy rains interfering with harvest.
Some change is inevitable. Rob's two closest dairying neighbours have switched to cash cropping. He mentions three others nearby who have built barns and added technology to milk more cows.
Conference Board researchers argue that Canadian dairy farmers would be better off without supply management restrictions that keep them out of world markets. Goodwill, who is also a director of the Mississauga-based Gay Lea milk processing co-operative, figures there must be ways to adapt existing controls to allow for production growth. He sees the need both to meet mounting competitive challenges within domestic markets from new industrial milk components and to explore export potential. He has many questions, however, about how that could happen.
"If farmers take a decrease, who's going to get the benefit in the end?" Goodwill wondered. "Is it the processor? Is it the retailer? If farmers just lose, the vets lose, the feed companies lose. It has to be with the whole industry in mind."
Any opening up of Canadian markets could generate a flood of subsidized dairy products from the United States. Inevitably, it would force those who continue farming to expand; but that's happening within existing limits already.
Goodwill's milking herd of 76 cows is about average for Canada (77), judging by Conference Board data. The U.S. average herd is more than double that at 187, although it includes mega-farms based in warm climate states, such as California and Arizona. The New Zealand average herd size is 393 cows.
Goodwill's milk herd depends on a total operation of about 150 animals counting heifers, dry cows and bull calves, plus the land to absorb their manure and to generate their feed.
To double the operation could require more land and other adjustments. Rob has questions about how to finance such expansion without the predictable milk prices provided by supply management.
"You have to have a new barn to get to 187 cows, so where do you get the capital?" Goodwill said. "If your milk price drops, then that's when all the unknowns come in," he said.
The Comprehensive Economic and Trade Agreement approved in principle last October allows greater access to Canadian markets for European dairy products, mainly cheese. Current talks for the Trans-Pacific Partnership (TPP) among New Zealand, the United States and others will likely bring further concessions.
"The TPP deal is not going to kill us, but there are going to be concessions," Goodwill said. "That's the thing – death by a thousand cuts. A smart old farmer told me that they don't have to kill the whole thing. They can just kill you with a death by a thousand cuts."
The cover page of a controversial Conference Board of Canada report about the future of dairy supply management depicts foil-wrapped chunks of butter as if they were nuggets of gold. The document describes a bonanza for Canadian dairy farmers if only they would embrace the potential of exports, particularly to China.
Many of the farmers most directly affected, however, just don't buy that argument. And some of those who do see new opportunities in export have conflicting concerns about a flood of subsidized milk that could flow into Canada from other countries if existing restrictions fall. In an interview, Peter Gould, general manager of Dairy Farmers of Ontario (DFO), described the Conference Board report as an economist's indulgence, long on theory and short on practicality.
"Economists like to indulge themselves in trying to count how many fairies could dance on the head of a pin," said Gould, who is himself an economist by training. "There have been repeated rounds of criticism for several years but not based on any new information and (involving) a lot of thinking about the Canadian dairy system in a relative vacuum, with no understanding of what happens in other countries," Gould said.
Most dairying nations, notably the United States and the countries of the European Union, have complex domestic subsidies that the Conference Board report fails to analyze. Even some supply management critics, such as University of Guelph agricultural management economist Sylvain Charlebois, have reservations about the Conference Board proposal.
An invited speaker at the Conference Board's March food summit in Toronto, Charlebois argued for what he called "a balanced approach" to supply management. "I actually believe Canada can become a serious global player while maintaining supply management," Charlebois told the meeting. He criticized the Conference Board report for a misleading title which refers to system reform but actually advocates abolition.
"We can't deny the fact that supply management actually has stabilized some of the macro-economic variables that other economies have struggled to manage," Charlebois told conference participants. "We can't deny either that our prices at retail haven't been quite as volatile as what we see in the United States," he added.
For his part, University of Waterloo trade policy historian Bruce Muirhead, currently at work on a book about international dairy policy, says any plan to scrap supply management and rely on world markets will put Canada's dairy farming sector at great financial risk.
"Seven per cent (of total world milk production) is traded, so it's a really tiny percentage of trade in dairy," Muirhead said in an interview. "The United States is now getting into it and the European Union. It's really volatile. These guys are suggesting that the export market is going to be going up and up and I don't see that," Muirhead says.
Australia recently completed a phased end to its controls for marketing milk. After eight years of deregulating markets, however, Australian government farm income data for fiscal 2012-13 indicate a dramatic decline for dairy in average farm cash income of 26 per cent (Australian Bureau of Agricultural and Resource Economics and Sciences National Dairy Survey).
However, New Zealand is the prime example of how to build dairy exports. New Zealand has seen significant growth in milk production over the past 20 years to the point that it has become the world's dominant dairy exporter. Kiwi strength has relied on the country's mild climate and low-cost pasture feeding.
Dairy products are already New Zealand's largest export category at about 27 per cent of total goods. It's large enough that big price drops for milk can affect the nation's currency.
Policy shifts that began in 1984 transformed the nation's agricultural sector from one of the world's most heavily subsidized to the very model of a modern major exporter, trade secretary Sarah Ireland of the New Zealand High Commission in Ottawa told participants at the Conference Board's food summit in March. Export opportunities are so great, Ireland went on to say, that her country with its population of only 4.5 million people can't meet expected demand.
Ireland also spoke directly about current talks among 12 countries in the Trans-Pacific Partnership, among them Canada, New Zealand and the United States. The stated objective, she said, is to provide "comprehensive, duty-free access" to each other's markets.
"So if you're in a situation where you're expecting more imports but you can't grow your markets through exporting, to me that points to a shrinking industry," Ireland said pointedly to her Canadian audience. She went on to identify her comment as "the most controversial thing I'm going to say."
Chinese self-sufficiency
DFO's Gould, on the other hand, describes current opportunities presented by Chinese demand as temporary and limited. China is actively pursuing dairy development, both to improve its domestic food supply and to generate rural development. As well, the world's largest milk producing country, India, has plans to double production within 15 years, he says.
"The Chinese government is totally committed to increasing milk consumption. Their parallel objective is to become as close to self-sufficient in producing milk as possible and I wouldn't bet against them," Gould says.
Since the Conference Board report appeared, Dairy Farmers of Canada (DFC) has also challenged the details directly. A written objection by DFC executive director Richard Doyle appeared on the Huffington Post website soon afterward, citing "fallacies," "misleading assertions" and "a disturbing trend of think tanks offering what amounts to bad business advice."
In an interview from Ottawa, Therese Beaulieu, DFC's strategic communications assistant director, criticized the business sense of the Conference Board recommendations. "They were so busy building a theoretical model that they forgot we live in the real world," she said.
DFC remains open to reform and interested in having a role in federal government trade initiatives, Beaulieu said. She cited a recent export initiative of the Canadian Dairy Commission focusing on specialty cheeses. The Conference Board and other critics of supply management ignore important differences between New Zealand, a remote country with a tiny consumer market, and Canada with close proximity to the United States, Beaulieu explains.
In New Zealand, a single farmer-owned co-operative, Fonterra, has a virtual monopoly, processing more than 90 per cent of milk production. The company is owned by 10,600 participating farmers and operates with 16,000 employees in 100 countries. That includes China where Fonterra has four 15,000-cow dairy farms under development.
Despite recent high-profile criticism of Canadian dairy policy, annual public opinion research by DFC shows continued general support for supply management, Beaulieu said. That may explain why Canada's trade-oriented Conservative government's maintains a long-standing defence of the concept.
Agriculture Minister Gerry Ritz is a well-known advocate of increased international trade in most agricultural commodities but he has held publicly to supply management. In an email exchange arranged for this story by his press secretary, Ritz reiterated the government's frequently stated position.
"Our government has always defended Canada's supply management system and we continue to do so in all our trade negotiations," Ritz said.
Independent finding
Conference Board research relied on financial support by the Loblaw company and major milk processors, such as Nestle Canada Inc., Parmalat Canada Ltd. and Saputo Inc. Conference Board vice-president Michael Bloom headed four years of research and a staff of about 20 people preparing the organization's food strategy. He denied in an interview that processor financing influenced the project's conclusions.
"This is an independent finding," Bloom said to suggestions of processor influence. "The content is solely the responsibility of the Conference Board. It doesn't reflect the voices of the investors."
Bloom underlined growth prospects in India, Africa and China and spoke of "the great potential" for new Canadian dairy exports. David Wiens of Manitoba, who attended the March conference and raised criticisms from the floor, doesn't see it.
Chairman of Dairy Farmers of Manitoba and DFC's designated spokesman on the subject, Wiens milks 200 cows with his brother, Charles, near Grunthal, Man., in a six-year-old barn with rotary automatic milking equipment.
"In all of this, we're being asked to come into a system that is supposedly going to create wealth downstream," Wiens said in an interview. "But we look at it and we see pricing that is unsustainable for us to go there. Is this simply a way of moving our share of the consumer dollar from the farmer to the processor or retailer?" he asks. "That's what we suspect will ultimately happen."
Although many farmers share Wiens' suspicions, not all reject potential exports. Paul Vickers, who milks about 50 cows near Meaford, also chairs the board of Gay Lea Foods Co-operative Ltd. It's a Mississauga-based milk processing firm with annual sales of $560 million, owned by 1,200 dairy farmers.
In February, Gay Lea announced acquisition of Salerno Dairy, a Hamilton-based cheese importer and processor, adding 185 employees to its existing 650-person work force. It's part of an aggressive dairy processing industry in Canada which does have a significant international profile. Montreal-based Saputo Inc. and Agropur, a 3,348-member, farmer-owned co-op based in Longueuil, Que., both operate internationally on a large scale and are both in the top 10 food processors in the country.
In March, Saputo took majority ownership of Wamambool Cheese and Butter Factory Company Holdings Ltd. of Victoria, Australia. The company's website profile claims it is among the world's top 10 dairy processors with additional holdings in both the United States and Argentina.
Agropur also continues to consolidate within Canada, merging this spring with New Brunswick-based Dairytown Products Ltd. But Agropur already processes 3.3 billion litres of milk annually in 31 plants across North America and claims sales of $3.8 billion. The company's most recent annual report includes a statement of support for supply management which, it says, "provides the Canadian dairy industry with conditions that enable planning for profitable farm operations in a conducive environment for the planning of processing operations."
As board chairman of an Ontario processing firm and as a farmer, Paul Vickers also expresses support for supply management, together with reservations about Conference Board proposals. Vickers is also interested, however, in the possibility of expanded milk production.
"Supply management has been good for the farmers; it's been good for processors and I think it's been good for the consumer," Vickers said in an interview. Retail milk prices in Canada compare favourably with elsewhere, he said.
"The business side of me says you'll never shrink your way into profitability or long-term development," Vickers says. "I think for too many years DFC has kept going with the same sort of solution, just hold supply management and we'll be fine," Vickers said. "DFC will say we have changed and evolved over the years. I think we need to do as much or more of that to help increase production."
Crucial change ahead
At the Dairy Farmers of Ontario annual meeting in January, DFO's general manager warned farmers about crucial change ahead. Gould's speech referred to policy gaps in Canada's strategy for dealing with new processes to create ingredients from milk: concentrates, isolates and liquid protein. Continuing questions about production cost calculations, competitive pricing and the impact of recent and pending trade deals mean "we may have to recalibrate our thinking," Gould told meeting delegates.
In the months following his January speech, Gould has participated in meetings with federal officials and members of Parliament about supply-management "modernization." Representatives of all 10 provincial milk marketing boards met in early April to discuss potential changes in quota policy, new ingredients, milk pricing and governance.
Gould said there is general agreement among provincial boards about the direction of change, but he urged farmers to avoid prejudging where it might lead. A quota policy review began consulting farmers this spring and is expected to take a year to complete. A new ingredients strategy depends on co-ordinating producers, processors and government, but Gould said he expects to see something in place by the end of 2014.
"We have no idea what those changes might be, if indeed there are any," Gould said of adjustments that may affect farmers individually. "Producers should not make decisions in anticipation of anything," he said. "When changes, if any, are made, they'll be the first to know." He compared current pressure with that of the North American Free Trade Agreement and World Trade Organization talks.
"These were pivoting points when you change and adapt or you suffer the consequences," he said. "One of the real strengths of the system when faced with some of those external forces is that we are able to make the types of change that allow it to continue effectively," Gould said. BF