Global Dairy Producers Fighting over a Small Slice of the Pie
Early next week, the Supply Management Committee of the Christian Farmers Federation of Ontario is meeting with representatives from a number of supply managed commodity boards. The goal is to learn more about growth for new entrants and plans for long-term sustainability.
The CFFO Supply Management Committee invited Dr. Bruce Muirhead of the University of Waterloo to speak at its meeting in January. Dr. Muirhead presented his research on global dairy market systems. He was quick to point out that supply management isn’t the solution for all markets or for all commodities. However, he sees benefits for certain sectors, such as dairy.
Muirhead compared the dairy industries in New Zealand, Australia and the US. These countries have often been suggested as models of deregulation that Canada could follow.
Along with the European Union, New Zealand, Australia and the US are engaged in a cutthroat fight for a sliver of the international dairy market—which actually amounts to only about 7% of total global production.
This tiny wedge of opportunity, according to Muirhead, has led to major upheaval for dairy in all three countries. Readers are likely familiar with the details:
New Zealand is the largest exporter of dairy products in the world. Nevertheless, the industry is extremely stressed. Debt runs into the billions. Despite expansion, return on equity is negative, and the environmental degradation caused by expansion pressures has earned the industry the nickname “Dirty Dairy.”
In Australia, where dairy was deregulated in 2001, production has steadily declined. Because of the limited marketing options, supermarkets control the price of milk, which has also been declining. As in New Zealand, Australian farmers have been forced to increase efficiencies and compete against subsidized industries on the international market. In the words of one of Muirhead’s Australian contacts, most producers are now “farming on the margins.”
In 2014, The American Farm Bill promised US$1 trillion in subsidies over 10 years. The main problem in the US dairy industry today is overproduction. Production increases 2-3% each year, while the export market and global prices are shrinking. Dairy producers are forced to dump excess milk.
If Canada were to lose supply management, Muirhead warns, local producers could potentially be buried by US imports. Consumers might see the price of milk go down, but then again, they might not. The price of milk in the US is slightly lower than here, but the price in New Zealand is actually higher.
A top concern for Muirhead is rural sustainability. He suggests that supply management enables families to earn a living with an average of about 75 cows. In the US, the average farm size is about 230 cows, with many farms crossing the 1000+ mark. Farms this large impact both the environment and the health of rural communities. Muirhead offers his own hometown of Elmira as an example. It’s a thriving town in the heart of southwestern Ontario farmland. “If Elmira had one farm with 7000 cows,” he says, “there’d be no town.”
In contrast to the fluctuations experienced by exporting commodities, supply management provides stability for rural communities and local farm-related businesses. Nonetheless, the system requires constant calibration to make sure it’s working well and providing opportunities for new growth.
The CFFO believes in the future of farming and in supporting opportunities for new growth. We look forward to meeting with commodity boards next week to discuss programs for new entrants and sustainable growth. If you are a member and would like to attend, please contact the CFFO head office for more information.
* The original version of this email reported that “One Australian farmer commits suicide every four days.” Thank you to the thoughtful reader who forwarded this article, with correct information.
Marie Versteeg is Manager of Executive Board and Committees for the Christian Farmers Federation of Ontario. The CFFO Commentary represents the opinions of the writer and does not necessarily represent CFFO policy. The CFFO Commentary is heard weekly on CFCO Chatham, CKXFM Chatham, CKNX Wingham, and UCB Canada radio stations in Chatham, Belleville, Bancroft, Brockville and Kingston.