Compensating dairy farmers for scrapping the supply management regime would cost a fraction of the oft-cited estimate of $20-billion-plus, according to a soon-to-be-released Conference Board of Canada study.
Government could buy out the owners of Canada’s 12,500 dairy farms for as little as $3.6-billion to $4.7-billion, the board estimates in a report on supply management to be released next week.
The study is part of an effort by the independent Ottawa-based think tank to demonstrate that Canadian farmers and processors are missing out on a vast and expanding global market for their products, particularly in Asia.
“There is a big prize out there for our dairy farmers to go after,” Michael Bloom, the Conference Board’s vice-president of industry and business strategy, said Wednesday in Ottawa at a panel discussion organized by the Ottawa Economics Association.
The estimated buyout price tag is based on the book value of the quota that farmers now hold to produce milk in Canada’s protected and tightly regulated dairy industry.
Book value is a fairer measure than the higher market price because many farmers acquired their quota free when the system was created in the 1970s, or long ago wrote off the cost, Mr. Bloom explained. “If there is going to be a buyout, using book value is a better way to do it.”
The Conference Board pegs the market value of dairy quota at $23-billion, in line with numerous other previous studies. It can be the largest asset farmers own, often used as collateral to finance other farm activities. Quota for chicken, turkey and eggs is worth another $7-billion at market value, according to Mr. Bloom.
Canadian farmers are prohibited from exporting all but a small amount of product because domestic price and production controls are considered subsidies under World Trade Organization rules.
Canada’s dairy industry is facing unprecedented threats from new trade agreements, including the recently negotiated deal with Europe and the proposed 12-country Trans Pacific Partnership.
Foreign suppliers are eager to grab even a small slice of the Canadian market, which boasts some of the highest prices and margins in the world, Université Laval agricultural economist Bruno Larue said at the same event. A steep tariff wall protects the market, but Canada gives up additional duty-free quota with each new trade agreement to protect supply management, he explained. In the European deal, Canada gave Europe the right to sell an additional 18,500 tonnes of cheese here.
“Foreigners like our market because the prices are high,” Prof. Larue said. “They don’t have to export a lot to make a lot of money in Canada.”
He suggested that producers in Europe, the United States, Australia and New Zealand are actually better off with supply management because they make so much money selling small quantities here. “They just want a bigger piece of the action,” he said.
Canada’s high prices are the result of “successive monopolies” and “cascading high margins” throughout the supply chain, from farmers to processors and grocery chains, he said.
The industry will lose in the long run unless it reforms now because more and more foreign product will come over the tariff wall, Prof. Larue added.
Among his suggested solutions: significantly boost production quota, break down provincial barriers and make it easier to buy and sell quota. The longer farmers and governments wait, the more costly it will be to phase out supply management, he said.