Transcript Slide 1

Empowering Farmers
The Canadian Supply
Management Experience
Bruce Saunders
1st Vice-President, Dairy Farmers of
Canada
Chapeco, Brazil, January, 2005
Outline of the presentation
• Who we are?
• History of supply management in
Canada
• Determining production quota
• Benefits of supply management
• Expectations from the Doha Round of
negotiations
• Conclusion
Economic Snapshot of the Canadian
Dairy Industry
•
•
•
•
•
•
16,000 dairy producers
Milk sales: $4.2B
Adds a net $8.3 billion to the GDP
Processed products sales: over $10B
Supports $26 B of economic activity
Sustains more than 142,600 jobs:
– On-farm:
– Farm suppliers:
– Processing sector:
50,800
25,200
66,600
Brief History
When Canada was a major
exporter, producers received
low returns.
So…Canada turned its
attention to the
domestic market.
Objectives of the Canadian Dairy
System
1) Ensure orderly marketing of milk
by balancing supply with demand
2) Balance the negotiating power
between stakeholders to obtain fair
prices for the producer
3) Ensure that consumers have access
to adequate supplies of high quality
products
Pillars of Supply Management
Depends on three pillars:
1. Import controls
2. Producer pricing
3. Production discipline
All equally important
Producers Need Market Power
• Legislation is necessary
• Canada uses legislation for
management of supply
Fundamentals of the Canadian System
Balancing Supply With Demand
Balancing Supply with Demand
Canadian Milk Supply Management Committee
Prov
Prov
Board
Prov
Prov
Board
Board
Board
CDC
Chair
Non-voting
Members
Board
Board
Prov
Prov
Board
Prov
Board
Board
Prov
Prov
Balancing Supply with Demand
Prevents Market Price Volatility
Evolution of Farm Prices in Canada and the U.S.
1990 to 2004
180.00
160.00
Index 1990=100
140.00
120.00
100.00
80.00
60.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Canada Target Price
Highest of Class III and IV Prices in the U.S.
Balancing Supply with Demand
Market Stability
million hl
Canadian Milk Production
1960, 1976, 2003
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
J
F
M
A
1960
M
J
J
1976
A
S
O
2003
N
D
Balancing Supply with Demand
Step 1: Estimating Demand Requirements
 CMSMC estimates
demand based on:





milk consumption
evaluation of stocks
expected imports
traditional exports
possible change in
markets
Balancing Supply with Demand
Step 2: Setting Supply Target Requirements
 CMSMC sets quota to
meet demand
Balancing Supply with Demand
Step 3: Allocate MSQ - Historical Basis
Province
Newfoundland
PEI
Nouvelle-Écosse
Nouveau-Brunswick
Québec
Ontario
Manitoba
Saskatchewan
Alberta
C.-B.
%
1982
0
1.9
1,3
1,3
48
31,2
3,9
2,6
6,7
3.1
%
2004
0.14
1.74
1,16
1,35
45.48
31,68
3,53
2,52
6,55
5.86
Step 4- Allocation of Quota to
Individual Producers
Producers
Producers
Producers
Producers
Producers
Production Quota
• Daily quota system: no year end
• Daily quota established on a kg of
butterfat per day
• Adjusted regularly to reflect market
demand fluctuation: upward or
downward
• Transferable
Balancing the Negotiating Power
Marketing Agreements (MA)
• Terms negotiated between:
Provincial boards and
Processors
Co-operative
Private
enterprises
• A single sales agent (provincial board)
negotiates: plant supply, milk quality, classes
and prices, and payment terms
Balancing the Negotiating Power
Domestic Price Negotiations
• The price of industrial milk sold in regular
classes is set by the CDC following a consultation
process and reflects a cost of production formula
including return on investment and equity
• The price of fluid milk is set by the provinces
• One price adjustment per year (February)
• All processors pay the same price for a given
class
Balancing the Negotiating Power
Distribution of Producer Returns
Balancing the Negotiating Power
Increased Market Concentration
Farm level
• 17,000 dairy farms
Processing level
• 3 largest dairy processors have 70% of
sales of approximately $11 billion
Retail level
• Largest retail chain has 35% of sales
• Top 10 have 90% of sales
Producer Returns (Deductions)
Deductions per hL of monthly shipment:
Transportation
$2.32
•Administration
$0.45
•Promotion
$1.22
•Research and DHI:
$0.12
Total
$4.11
The operating costs of the system are
therefore bourn by the producers.
Price of Milk
Milk Prices Paid to Producers:
2001-02 2002-03 2003-04 2004-05
Can $
per hl
US $/cwt
58.52
61.07
61.19
63.65
16.43
17.99
20.16
22.41
Ensuring Consumer Benefits
• A Canadian Paradox: Canada’s
method of implementing supply
management in the dairy industry
results in benefits accruing to all
stakeholders – not just to producers
Canada
United States
05
/0
11
/0
05
/0
12
/0
05
/0
4
3
3
2
2
1
1
0
0
9
9
8
8
8
7
7
6.48%
0.66%
0.09%
18.76%
21.31%
27.21%
23.90%
32.37%
35.55%
44.76%
38.67%
37.95%
10.62%
22.36%
17.43%
11.27%
5.28%
50
11
/0
05
/0
11
/0
05
/0
11
/9
06
/9
11
/9
06
/9
01
/9
06
/9
-11.45%
40
01
/9
6
1
30
07
/9
03
/9
$ Canadian
Ensuring Consumer Benefits
Comparison of Canada-U.S. Retail Prices
Cost of Dairy Products
AAFC Nutritional Food Basket
60
20
10
0
Ensuring Consumer Benefits
No Cost to Government
Milk
Producer Prices
Government Payments1
Federal programmes
Government Payments1
State programmes
Total
US
Canada
$15/cwt
$22.4/cwt
$6.75/cwt
__
$1.45/cwt
__
$23.20/cwt $22.4/cwt
1- US Agricultural Support, Grey, Clark & Shih, January 2005
All price in $US per cwt
A System Under Threat
Three Pillars:
• Import controls
• Price setting
• Production
planning
A System Under Threat
WTO – Impending Threat
Each Pillar Can Be Affected:
1-
Market
Access

Import
Controls
2-
Domestic
Support

Producer
Pricing
3-
Export
Competition 
Production
Discipline
Conclusion:
Supply Management Benefits at Stake
• Producers’ ability to get revenues
from the market
• No cost to government
• Stable and reasonable prices for
consumers
• Stable and steady supply for
processors
• High quality products
Conclusion (continued):
Supply Management Benefits at Stake
• Maintenance of family farms
• Benefits rural development and
environmental sustainability
• Production discipline which
prevents surplus production that
distort both international and
domestic markets