Report urges Canada's dairy system to undertake bold reforms

Thursday, June 26, 2014

by SUSAN MANN

The dairy supply management system is facing intense marketplace pressures but the industry’s efforts to alter the system may be insufficient to address the weight of new demands, according to a new George Morris Centre report.

Author Al Mussell, senior research associate, says in his 18-page report called Modernizing Milk Supply Management, An Independent View, rather than retaining significant components of the current system, the industry should focus on what is wanted for a renewed system. In addition, processors must be brought in to help shape the changes to system.

Earlier this year, dairy farm leaders launched an eight-point plan called ‘a new market environment for the Canadian dairy industry’ to address challenges to the system, such as an increase in imported milk protein isolates and milk protein concentrate to replace domestic protein coming from fresh milk. The imports are coming into Canada at little or no tariffs. Some of the elements of the plan exist already.

Mussell says in his report the dairy milk supply management system in Canada appears to have quietly entered a phase where ambitious reforms are being contemplated and proposed. The changes are in response to pressures from an increasing structural surplus of skim milk powder along with increases in imports with no immediate prospect they can be offset with increased exports “let alone growth through exports,” he says. “These factors present the prospect of a shrinking or declining Canadian dairy industry, thus the urgency to act on a renewal of dairy policy.”

When supply management was formed 40 years ago it was predicated on producer objectives, he says. Processors have traditionally not played a role in shaping the system. Processors sit as ex-officio members of the Canadian Milk Supply Management Committee, which is responsible for determining policy and supervising the National Milk Marketing Plan. In the current system, processors have the role of reacting to policy rather than working to help create it.

But Mussell writes that it’s “plainly unreasonable to suppose that renewed dairy policy could be developed without the intimate involvement of processors.” Other stakeholders must also be consulted as the industry works out its modernization plans but that type of consultation process hasn’t traditionally been used in developing Canadian dairy policy and may be “uncharted territory.”

Don Jarvis, president and CEO of the Dairy Processors Association of Canada, says Mussell “has painted a very realistic picture of the policy process within dairy supply management. The system, generally across the country is predominately provincially-driven by all of the individual provincial milk marketing boards.” At the national level is the Canadian Dairy Commission, which chairs the milk supply management committee.

Graham Lloyd, Dairy Farmers of Ontario general counsel and communications director, says they heard Mussell speak at the Ontario Dairy Council annual meeting and “we support the concept of consulting and working with processors.”

In fact, with the recent launch of the new market environment for the Canadian dairy industry strategy, formerly called the ingredients strategy, Lloyd says “we instituted a consultation process with the processors and we believe efforts to improve market flexibility requires working with all stakeholders.”

Jarvis says unlike dairy farmers who can speak with one voice through their producer organization, the dairy processing sector is made up of individual competing businesses that all have different business models. That makes it challenging for them to speak with a unified voice. In addition, proposed supply management system changes impact each of the businesses in different ways, Jarvis explains. But “going forward processors see an increasing long list of challenges to the system” with the best example being the Canada-European Union trade agreement and the almost doubling of the access granted to Europeans to the Canadian fine cheese market.

“That’s going to be an immense challenge for the Canadian industry both at the milk production level as well as the cheese manufacturing level,” he notes.

The whole global liberalization of trade is impacting the dairy industry in Canada, he adds. Pressures on the system make it imperative that processors become more engaged in the formation of policy changes in Canada.

In an interview, Mussell says dairy farmers “have signaled their willingness to make fairly bold changes but I wonder if they want to go back and consider a little bit what some of the objectives of change would be and that may take them to a bolder place compared with what they’re contemplating now.”

Lloyd says Dairy Farmers supports “strategic planning with long-term vision of where the industry needs to be.”

Mussell says in his report there will be constraints on dairy policy renewal coming from both external factors, such as trade agreements, and internal ones, such as limited federal-provincial government resources to enforce regulations on, for example, labeling standards. BF