Dairy sector urged to embrace exports

Supply management alternative | However, an academic says exports could increase even under supply management

TORONTO — Low-cost, grass-based milk production can fill only so much of the world’s future demand for dairy products.

That leaves the door open to Canada.

“We expect demand to increase and we expect prices to increase as demand outstrips supply,” Sarah Ireland, first secretary and head of the trade section with the New Zealand High Commission, told the Canadian Food Summit in Toronto March 18.

“There is no way New Zealand can meet that demand and so there is an opportunity for other countries.”

There is interest within the dairy industry to increase exports.

The industry-supported Conference Board of Canada released a supply management report last week that calls for a radical shift to liberalized trade, which includes an orderly exit strategy for the marketing system.

Less efficient farmers may leave the industry, but the report suggested that the overall industry could capture a greater share of the global market.

Sylvain Charlebois, a marketing and consumer studies professor at the University of Guelph, said a better option is to maintain supply management for the domestic market while at the same time boosting production in targeted areas, including the export market.

Dairy Farmers of Canada board member David Wiens said the organization is interested in export opportunities but only if they’re profitable for producers.

“We can’t see the export market as an opportunity now. If the world price could hold at Canadian levels, that would open up opportunities,” he said.

“What the Conference Board of Canada is suggesting is bad business advice.… It’s about moving our share of the consumer dollar downstream from the farming community.”

The global trade in dairy products, mainly milk powder, butter and cheese, is relatively small compared to overall production. The conference board puts it at seven percent.

Still, that’s an increase from previous levels and dairy exports are expected to rise.

New Zealand accounts for much of the export trade. Ireland said the country’s 6.4 million dairy cows represent three percent of world production, but 96 percent of that is exported.

New Zealand also has a reputation as the world’s low-cost milk producer.

The conference board report said that’s no longer true and expects the country to eventually be weaned away from its pasture-based foundation.

“New Zealand milk is now produced at the same cost as in North America. The New Zealand shire is running out of free grass.”

Bruce Muirhead of the University of Waterloo said the conference board may have been selective with the data used for its analysis.

Muirhead, who has been investigating dairy marketing systems for the past four years, just returned from New Zealand. He said the cost of production there remains the lowest in the world.

Wiens said there has been a shift away from a purely pasture-based system in New Zealand, but that is primarily taking place in the shorter-season South Island where the dairy industry is expanding.

New Zealand and Australia’s dairy industries operate without government regulation or direct support. The transition from a regulated industry in New Zealand was re-markably smooth after reform was introduced in the 1980s.

However, Wiens said New Zealand’s farmer cooperative, Fonterra, which handles 95 percent of farm production, mimics government programming by restricting competition.

Consumer milk prices in New Zealand are similar to those in North America, and Ireland said a national inquiry has been conducted in response to consumer complaints.

The conference board report didn’t deal with the impact of deregulation in Australia, but Muirhead said it’s been a disaster for farmers there.

Wiens said dairy production is subsidized in most developed nations, including the United States and the European Union.

He said it cost his family $3 million to build a new dairy barn for 200 milking cows, while a similar barn built in the Netherlands would receive $1.5 million in government support.

Charlebois sees a need for supply management to continue in Canada but feels there may be an opportunity to pursue the export market at the same time.

He recommended changing the milk pricing system so it’s based on the production costs of the top 25 percent of farms in terms of efficiency. That would give other producers the incentive to improve.

He also recommended a second class of quota for new producers with a focus on new market opportunities, including exports.

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