Canadian dairy sector needs to adapt

Now that we have clarity on the economic future of the CWB, attention is slowly turning toward the issue of supply management, which has arguably served our agricultural economy well for decades.

Supply management controls domestic production and imports for five specific commodities: eggs, milk, chicken, turkey and broiler-hatching eggs.

This system regulates domestic production based on consumer demand to guarantee decent returns for farmers, but Canada has had high import tariffs for these commodities.

These sectors have been unwavering, economically speaking, and consumers have long benefited from stable retail prices for these products.

However, the global agricultural landscape is shifting, and international talks now underway suggest the possibility of externally imposed agricultural reforms.

For example, the World Trade Organization’s Doha Round, which focused on addressing agricultural trade distortions, has made Canada look like a lone wolf on supply management issues since negotiations began in 2001.

However, by many accounts, Doha is all but dead.

The real menace now stems from other potent multilateral agreements: the United States and the Asia-Pacific region regarding the Trans-Pacific Partnership and the European Union regarding the Comprehensive Economic and Trade Agreement.

Our trade-friendly federal government is keen to pursue an aggressive global commerce agenda and is more than willing to put supply management on the table.

Many agree that supply management in Canada will ultimately end; indeed, many farmers working under supply management believe this as well.

The time is ripe to consider what our agricultural economy would look like in the post-supply management era.

Should supply management cease, threats to our domestic market would come primarily from the U.S., particularly to the dairy industry.

The U.S. has dairy production capabilities that are 14.5 times larger and exports that are 16.2 times larger than Canada’s. It currently produces twice the amount of dairy that is needed for its domestic consumers.

These production capabilities would allow the U.S. to flood the Canadian market with cheap dairy products, instantly jeopardizing the Canadian dairy industry.

In addition, Canada would have competition from emerging markets from more efficient countries such as Australia.

While analysts predict that the Canadian dairy market would not be significantly affected in a liberalized scenario, such forecasts are questionable, considering Canada’s inability to be competitive in domestic and international markets.

The Canadian dairy industry has strengths that can be leveraged in a liberalized market, such as the availability of abundant land and low-cost, good-quality feed and genetics, which give farmers the ability to scale their productions with cost-efficiencies.

Policy reform is needed at the international and domestic levels to position the Canadian dairy industry in a competitive place in the global market. International policy would need to focus on multilateral agreements and the Canadian-U.S. trade relationship, while domestic policy would need to focus on bilateral ventures, research and development and liberalizing the domestic market in progressive steps.

In the end, the potential for Canada’s domestic industry to leverage its strengths and become competitive will only manifest itself if interest groups put the long-term success of the dairy industry ahead of their desire for short-term inflated profit, if consumers become advocates for themselves and if government starts pushing for reform.

Reform in agriculture is a long revolution. Australia and South Korea, which previously had supply management systems, took decades to eliminate highly protectionist measures to focus more on international trades.

Supply managed industries should consider committing to their own reform agenda before Canada is asked to comply with externally generated standards.

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