The escalating value of dairy quota is the Achilles heel of the system, threatening the economic base of supply management and undermining the ability of defenders to argue the case, a Quebec economist told dairy industry leaders last week.
“The value of quota is the weak link in the chain, the Achilles heel of the system,” Laval University economist Daniel-Mercier Gouin told the annual meeting of Dairy Farmers of Canada Feb. 9. “As an economist, I am concerned.”
Gouin spoke after presenting an analysis of the system that argued supply management remains the best system for the industry, processors and consumers.
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Nova Scotia dairy farmer Barron Blois, a former DFC president, shares the economist’s concern.
Blois has warned for years that paying more for quota when the future of supply management is in doubt because of world trade talks is not a good business decision.
“Paying $30,000 or more for quota for one cow assumes the system will be there 15 or 20 years down the road and I don’t know that you can assume that,” he said last week.
“It’s also a problem because spending that much money locks up our ability to invest in other technologies and bring them to our farms to make them more efficient. The other issue is that these are dollars leaving the industry when people sell and at the end of the day, the biggest benefitter is the taxman.”
He has been one of the leaders in a Dairy Farmers of Nova Scotia experiment to reduce at least some of the cost of quota by making some available for free.
Gouin told DFC delegates quota values, which can cost as much as $3 million for the right to milk 100 cows, undermine the system by convincing consumers that dairy prices are too high if they allow farmers to invest that much in the business.
He warned that farmers are mistaken if they are bidding up the price of quota on the assumption that if the system collapses because of a World Trade Organization deal to cut tariffs, there will be a federal quota buyout.
Other countries that have ended the protectionist dairy quota system have not made payments to compensate for quota value loss, he said. Federal compensation for the end of the Crow Benefit subsidy on grain transportation in 1995 may not be a precedent.
“Nowhere have governments compensated for loss of a virtual asset,” said Gouin.
He said the dairy industry should begin to deal with the implications of quota value increases in an era of trade rule uncertainty and consumer skepticism. “The ball is in your court.”
Blois said the dairy industry leadership should deal with the situation by beginning to reform the system to lower quota costs.
In Nova Scotia, anyone selling quota must transfer five percent back to the provincial marketing board to be distributed to other producers or eventually to new entrants for free.
“In this past year, I’ve paid $30,000 for some quota that I needed for my farm because of production increases and it’s not easy,” Blois said.
No other province has yet followed the Nova Scotia example of injecting some free quota into the system to temper costs. The dairy quota is a system started four decades ago with free quota that quickly gained value and an auction price.
