Canadian Retailers set Dairy Prices, not Supply Management

The regulated Dairy Industry, under Supply Management, like the poultry industry, (eggs and chicken) is continuously criticized for imposing high prices on consumers but that is just not the case.

Supply Management sets the price to be consistent among all farmers, and then manages the "supply" or distribution of the product. Subsequent to the grading process, that also follows the standards of Supply Management to protect consumer health, it is the retailer who establishes the price that is set for profit. Farmers throughout Supply Management have no control over pricing. Another way to explain it is this: Supply Management sets the wholesale price and the retailer sets the "retail" price. For more information, read below:

It’s as regular as the seasons – trade talks ramp up, and so do the calls from think-tanks and researchers for the end of supply management.

It’s time for these bodies to stop hiding behind theories and rhetoric and tackle the issue out here in the real world.

Supply management exists to solve a very specific problem: price volatility. Most countries – including our partners in the United States and European Union – solve the problem with generous farm subsidies: If farmers face a bad season, the government will compensate them. In the United States, this subsidy bill runs into the tens of billions of dollars.

Canada takes a different approach. By allowing farmers to work together to match supply with demand, they earn a fair return for their labour and investment, and Canadians are guaranteed access to a supply of fresh, local, and high-quality food.

This is all very well and good for farmers, say critics. But what about consumers?

The truth is, retailers set prices based on what the local market will bear. Ending supply management does not guarantee that any reduced costs would be passed on to consumers.

Look at prices in beef and pork – pork retail prices are up 21 per cent and beef retail prices up 27 per cent over the past two years. At the same time, the retail price for chicken is up 3.5 per cent.

Take the case of Australia, which supply management critics across the board like to cite as a case of deregulation done right. First, contrary to the piece, deregulation occurred in 2000, not 1990 – and since then, the number of farms has decreased by over 50 per cent, production has fallen by 15 per cent and exports have decreased by 13 per cent.

Egg farmers in Australia are squeezed by a hyper-concentrated retail market – retailers in that country hold ‘reverse auctions’, driving farmgate prices down to the point where family farms simply cannot stay in business, and disappear.

Meanwhile, consumers in Australia are faced with higher egg prices than consumers in Canada, thanks in part to that same concentration. Two retailers – Coles and Woolworths – control 80 per cent of the market in that country, giving them leverage to drive farmgate prices into the floor and expand their margins.

The case of New Zealand shows that deregulation can also be ruinous.

It is true that NZ has a dominant position in the global dairy market. Leaving aside the protections they implemented to achieve that position – their dominant producer co-op, Fonterra, operates much like Canadian supply management boards in setting production quotas. In addition, NZ has non-tariff trade barriers in place to prevent imports – it has also left them exposed.

The global price of milk has collapsed in recent years, driven by slowing Chinese growth and a drive towards Chinese dairy self-sufficiency. Fonterra presently pays farmers NZ$4.70 per kg of milk sold, down 50 per cent from last year, and far below NZ$6 they need to simply break-even.

Consumers have not seen a cent of these savings.

Canadian supply management guarantees consumers access to fresh, high-quality, Canadian food, and ensures that a bad season will not put a farmer out of business. And by contributing $28-billion to our GDP, it supports jobs across the country.

Canada has successfully negotiated 12 trade agreements with 43 countries since 1994, all of which have opened up markets while preserving supply management. Our government knows it is a system that provides immense value to Canadians.

Source: The Globe and Mail

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