Dairy sector given dire warning about future

New report says Canada could lose half its dairy farms by 2030 if supply management isn’t ‘fundamentally changed’

The Canadian dairy industry must radically restructure to become financially viable, to retain public support, and to survive the likely loss of market protection.

That’s the view of three analysts who looked at the industry’s viability and trends, as well as public attitudes toward dairy farming.

“Canadian’s do not want to see the end of the domestic dairy industry,” write Sylvain Charlebois, Jean-Luc Lemieux and Simon Somogyi in Supply Management 2.0: A Possible Roadmap for the Canadian Dairy Industry.

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But financial, economic and consumer trends suggest that “if supply management is not fundamentally changed, Canada could see half of its current dairy farms disappear by 2030.”

The analysts suggest a revamping of the industry and the supply management system so that dairy producers can face foreign competition. Measures in their plan include:

  • A quota buyout program to take away the equal amount of domestic production that has been handed over to foreign dairy producers in recent trade deals.
  • Reducing import tariffs to prepare efficient Canadian producers to face competition and also to be able to export onto the world market.
  • Eliminating interprovincial trade barriers that encourage inefficiency and stifle innovation.
  • Developing an export strategy that prepares farmers for the world market and identifies opportunities.
  • Enhancing the Canadian brand in dairy to keep domestic consumers willing to support the industry and buy Canadian products.
  • Spreading out dairy farming so that it is less heavily concentrated in Quebec and Ontario, and closer to Canada’s consumers from coast to coast.

Charlebois, Lemieux and Somogyi surveyed thousands of consumers and found a Canadian population that has a fondness for a Canadian-based dairy farming system.

But it’s a consumer population that risks falling out of love with Canadian dairy if producers don’t address some fundamental concerns.

“Canadians have made their wishes clear for the direction of the supply-managed dairy industry,” they say.

Those include “greater transparency, less environmental impact, more awareness related to animal welfare, and an increased variety of products.”

Without being able to convince the public that dairy farmers care about those issues, the industry risks losing the public support that has given it much political heft and the ability to erect structures to protect itself.

The authors accuse dairy producer organizations of often being unwilling to consider fundamental changes to the industry, despite grave structural problems.

“Dairy farmers, as a group represented by boards, have always voiced their opposition to radical and sustainable changes,” they write.

“But individual dairy farmers do see challenges ahead with no solution in sight.”

Those challenges are comprehensive, with government money encouraging weak producers to stay in the business, production constraints promoting inefficiency, and low profitability preventing efficient producers from embracing innovation and becoming world competitive, they say.

The federal compensation payments for the eight percent of Canada’s dairy market given away to foreign dairy products are a problem, they believe, because they keep inefficient producers in business. That money should be used to buy back quota from the inefficient producers to allow the more efficient producers to be more viable and attractive to the consumer.

“The federal government has opted to overcapitalize our dairy production system by compensating farmers over eight years and not entice farmers to adhere to specific performance metrics related to issues that matter to consumers.”

Dairy product pricing needs to be overhauled to send signals to farmers about what consumers value, they say.

“Why are there only supply-focused prices for milk at farmgate, regardless of what markets are looking for?”

Having 74 percent of Canada’s dairy production concentrated in two provinces where 58 percent of the national population lives might not be sustainable in keeping the support of the consumer, they say.

The authors say over 20 years import tariffs should be reduced steadily so that farmers will be able to face foreign products both in Canada and on world markets.

Unlike some arguments that focus on the economic contradictions and dire trends within Canada’s supply management system, Charlebois, Lemieux and Somogyi do not call for an end to supply management. They say throwing domestic industries open to the world market too quickly has had devastating effects in some places, including Australia.

But by retooling supply management and the Canadian dairy farming population, Canada’s industry might be able to both survive and prosper in a competitive world.

Failure to retool and restructure will mean inevitable decline, they warn.

The Dairy Farmers of Canada did not respond by deadline to questions from The Western Producer.

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