Supply management provided a stabilizing factor for dairy and poultry farmers in the pandemic’s first year, a new academic analysis argues.
“The initial impacts on these two sectors were less than others due to the stability and co-ordination provided by the supply management marketing systems,” writes a team of University of Guelph researchers in an April 28 analysis.
However, they found major differences in the severity of damage done to the dairy, chicken meat and eggs industries, with dairy suffering little overall, chicken producers taking significant losses, but egg producers suffering severely, seeing an enormous loss in consumption.
There were differences as well in how processors were hit during 2020-21, with each industry’s exposure to restaurant, institutional and other commercial customers combining with different pricing and ownership models creating significant spreads in impact.
The Guelph researchers, writing in the Canadian Journal of Agricultural Economics, found that the dairy industry faced an initial shock from the early lockdowns, but bounced back sharply. Food service customers were lost, but consumers began cooking and baking like never before and high-end butter and cheese products flew off grocery store shelves. Since those go at premium prices, that allowed producer returns over the year to be good.
But even though chicken and egg sales at grocery stores also increased, that wasn’t enough to make up for lost egg sales to the food service industry, nor for a slump in wholesale chicken prices.
“Although retail sales increased, it was not enough to compensate for the reduction in demand from the closure of the food service part of the supply chain and consequently wholesale chicken prices fell,” Alfons Weersink, Michael von Massow, Brendan McDougall and Nicholas Bannon write.
“In contrast to sales, (which rose), retail chicken prices in Canada declined throughout the spring of 2020 and into the summer.”
Chicken and egg processors didn’t find a lucrative way out of the early pandemic problems as dairy processors had thanks to shifts to higher value products.
“The same increased sales of high-value products were not experienced by poultry and egg processors, therefore the pandemic affected them more severely than their dairy counterparts,” the researchers write.
“The demand shift from food service to retail reduced margins for poultry processors as the items sold in the hospitality sector tend to require further processing and have higher margins. In addition, these higher margin products cannot easily be moved from food service to retail.”
Egg and chicken farmers initially benefitted from supply management’s structure, which isn’t based on open market prices.
“Farm prices for these products are set, so processors cannot discourage production through prices changes, although the prices received from the wholesale market vary with market conditions.”
That has led to sharp reductions in chicken processing for early 2021.
Dairy producers also faced less price shock in the initial months of the pandemic than producers in free market livestock industries. The Canadian dairy council offset producer losses from the pandemic’s disruptions by boosting the price of butter.
“This approach to determining the farm price highlights a major difference in the supply management sectors from the other livestock sectors in which prices responded to market pressures.”
Supply management had many other effects on Canadian producers that were different from the experience of farmers in the United States, which does not have the system.
The researchers found that Canadian dairy farmers were forced to dump less milk than U.S. farmers due to the supply management system’s ability to co-ordinate deliveries within and between provinces, and amongst processors.
U.S. poultry producers were also exposed to the challenges faced by the vertically integrated systems in which virtually all are involved, while Canadian farmers saw their price and production risks mitigated by supply management.
The pandemic’s first year saw major early shocks, and overall production slumps for chicken and egg producers, but the supply management systems each operate under cushioned the blows for farmers.
While COVID-19 is not yet gone, the researchers think the supply-managed industries’ real challenges come from bigger and long-term changes to the structure of their markets.
“Rather than the minor adjustments and volatility relating to COVID-19, the more significant longer-term impacts on these sectors moving forward are likely associated with trade agreements and consumer concerns about production processes,” they conclude.