6 September 2012

2 minute read

North America

Canada’s Supply-Managed Dairy Policy: How We Got Here, authored by the George Morris Centre for the Conference Board’s Global Commerce Centre, is the first of a series that considers supply management from the dairy industry’s perspective.

“Though most Canadians drink milk or eat yogurt or cheese, few are aware of the long-standing, complex supply management system that establishes milk prices and supply at the farm level and limits dairy imports,” said Al Mussell, co-author of the report and Senior Research Associate at the George Morris Centre.

The study explains how historical low returns for farmers and chronic dairy surpluses led to the creation of supply management as the core element of dairy policy. Canada was a dairy product exporter in the early 20th century and was a significant supplier (especially of cheese) to the United Kingdom during World War II. Following the war, as continental European dairy production recovered, Canadian cheese exports declined sharply.

The Canadian dairy industry responded by shifting production to serve the domestic market. But the transition led to milk supply surpluses and depressed dairy farmer incomes. In response to these market conditions, post-war federal and provincial governments intervened to stabilize markets. As the government costs of surplus removal became burdensome, policy shifted to limit the production eligible for subsidy, and later to limit production as a means of directly stabilizing prices.

Fragmented federal and provincial policies began to coalesce into a national supply management system beginning in the mid-1960s:

• provinces streamlined their producer agencies involved in milk marketing.
• the federal government established the Canadian Dairy Commission in 1967 and introduced subsidy eligibility quotas.
• an interprovincial market-sharing agreement on industrial milk was reached in 1971.

Milk supply management evolved throughout the 1980s. Lowering the costs of handling or disposing of surplus dairy products was a major influence on government policy. In the past 20 years, supply management has faced pressure under Canada’s free trade discussions with the United States and later with Mexico, as well as the multilateral Uruguay Round Agreement on Agriculture. The industry also had to contend with market changes brought about by substitute dairy products.

“As it has evolved to changes, Canada’s milk supply management regulation has created some unintended costs and burdens. The challenge for the Canadian dairy industry – and policy-makers – is to foster changes in the supply management system that reflect today’s market conditions and economic policy context without handicapping industry stakeholders, including dairy farmers, processors and consumers,” said Mr Mussell.

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