KEMPTON Matte, chief Ottawa lobbyist for dairy processors, stood before a roomful of dairy farmers last week and pleaded with them to stick with the nascent export market.
In some years past, he has been given a cool or hostile reception at these conventions, perceived as an enemy of dairy farmers representing companies that would like cheaper milk.
This year, he was given an easy ride despite his controversial plea. In fact, dairy farmers seem intent on becoming part of the export market, in line with Ottawa’s view that increased exports are the future of Canadian agricultural policy.
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From a dairy industry perspective, a reasonable question is why? It is an uncertain market with no guarantee of returns.
Canada faces expensive World Trade Organization challenges from the United States and New Zealand over its dairy export practices. Future rules, and volatile world prices, make it a market with no guarantees and fewer prospects for profit.
And in the grand scheme of things, it is small dairy potatoes.
Within their regulated domestic market, protected by tariffs and benefiting from cost-of-production pricing, dairy farmer revenues are $4 billion.
By contrast, the value of the export market peaked at $450 million two years ago, falling to as little as $250 million this year.
Even if farmers received 40 percent of the value of those sales, it would represent just $60 million in farmgate receipts.
Beyond that, the export drive has the potential to undermine domestic political support for supply management.
While Canadian consumers are forced to pay a price dictated by a cost-of-production formula, farmers seem determined to pursue export markets, which pay a fraction of domestic prices.
At the Dairy Farmers of Canada policy convention, retiring president John Core from Wyoming, Ont., reminded producers that the export market is a risk.
“Your predictable, stable market is the domestic market,” he said. “Complete dependence on the export market will be a high-risk venture.”
So why is Matte insisting that dairy farmers should “not give up on the export market? Why is a $60 million or $200 million export market worth jeopardizing the secure $4 billion domestic market, which depends on political support?
Matte said later he understands developing an export market is high-risk. It could undermine political support for domestic regulations and raise questions about why Canadians should be paying higher prices than farmers are prepared to charge internationally.
But he figures dairy farmers have no choice. Matte said the domestic controls that guarantee higher Canadian dairy prices are inevitably going to fall by the wayside in trade liberalization talks.
When domestic protections are lost, Canadian producers will have no choice but to fight lower-cost imports and a niche in lower-priced foreign markets.
“I do think, as we go through trade negotiations and trade challenges, that the existing system will be increasingly difficult to maintain,” Matte said.
“I think they have to establish themselves in export markets if they are to avoid total disaster.”
A two-edged sword indeed.
