A36-Lancast«r Farming, Saturday, Decamber 6,1986
Mandator
BY FRED WEBSTER
University of Vermont
Editor’s Note: This article is the
third in a series of seven dealing
with supply management
Conditions leading to
the quota program
Milk production and marketing
from farms in Canada has changed
drastically in this century. As the
industry developed, farms near the
cities concentrated on supplying
fresh, fluid milk needs and more
distant farms produced milk for
storable dairy products.
However, die regular dairy
demand for fresh, high-quality
milk in fluid markets made for
unstable prices and frequent
marketing changes as processors
sought extra supplies to cover
shortages or limited their milk
receipts to avoid a surplus. Also,
increases in productivity per cow
and per farm meant (hat fewer
farms were needed to supply the
market.
Market uncertainty meant high
risk for investment in the modem
dairy production facilities needed
to make use of new technology.
In response to these problems,
the Canadian Dairy Commission
was established in 1967 to oversee a
supply management program for
the dairy industry. Today, quotas
appear to be strongly supported by
the Canadian dairy industry.
Components of the
Canadian program
As in the U.S., the Canadian milk
marketing system divides milk
according to use as fluid milk and
industrial milk (for use in
manufactured dairy products).
Farmers may or may not belong to
a cooperative but they all have to
pay a hauling charge for getting
their milk to a receiving plant and
each pays part of the cost of the
price support program through
assessments.
Beyond that, the system is far
different.
For one thing, Canada is a
federation of large provinces
each with a great deal more in
dependence than individual states
in the U.S. Due to their size and
geography, no milk for fluid use
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The Canadian Milk Quota System
moves between provinces. Also,
milk marketing quotas to control
production, prices for each class of
milk, rules covering transfer of
quotas, and assessments to cover
program costs are set by each
province not the federal
government.
The supply management effort is
coordinated by the Canadian Milk
Supply Management Committee.
The Committee is made up of
representatives of provincial
producer marketing boards,
provincial government agencies,
and the CDC. All major policy
issues are normally set by
unanimous consent of all the
provinces, usually after being
discussed at two meetings of the
committee.
Canadian dairy farmers receive
two quotas one for fluid and one
for MSQ (market-sharing quota) of
industrial or manufacturing milk.
Fluid quotas are determined by
each province based on estimates
of its fluid needs.
Industrial milk needs are
estimated nationally by the CM
SMC and the MSQ allocated to
each province on a historical basis.
The provinces, in turn, allocate
fluid quotas and MSQ among
producers. Market share of MSQ is
expressed as kilograms of but
terfat. If supply or demand
changes sharply, the kilograms of
quota may be adjusted up or down
on a proportional basis.
The responsibility for exporting
dairy products that are surplus to
domestic requirements rests with
the CDC. Since world market
prices of dairy products are highly
subsidized in most cases, the
disposal costs incurred by the CDC
are met through levies on all
producer shipments of industrial
milk.
The CDC determines the an-
ement: A Dair
Year
1970
1975
1980
1985
ticipated costs of surplus disposal
prior to each new dairy year and,
after discussion with the CDCMSC,
sets the levies required to defray
the anticipated costs.
Both within-quota and over
quota levies are used.
The within-quoU hry is needed to
cover the cost of exporting skim
milk powder and to defray surplus
removal costs of product made
from within-quota milk not needed
to meet Canadian requirements.
The ovtr-qtota hvy is set at a level
high enough to market surplus
whole milk products on world
markets. It is this over-quota levy
which makes supply management
effective, because it is so high that
it discourages most producers
from over-supplying their market
shares.
The policies used to administer
the market sharing quota system
vary from province to province but
must conform with the provisions
of the national plan. For example,
in Ontario the provincial allotment
of market sharing quota was
initially divided among all the
producers in accordance with their
manufacturing milk shipments in
a base period.
While MSQ is an annual quota,
fluid quota is set on a daily basis.
Both are transferable among
producers. Producers wishing to
buy or sell MSQ or fluid quota
submit their offers by a computer-
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Structural Changes in the Producing Sector
of the Canadian Dairy Industry-1970 to 1985
Milk Dairy Shipments per
shipments farms dairy farm
Bil. lbs. Thous. Pounds
16.8 136.8 122,920
16.0 84.3 189,350
16.3 56.4 289,113
16.5 44.6 369,289
Source: Statistics Canada, Canadian Dairy Commission.
operated quota exchange. Volumes
and prices of quota submitted by
potential buyers and sellers are
matched.
All transfers must take place
over the exchange, except for
within-family transfers and
transfers involving ongoing farm
operations. Both used and unused
MSQ can be transferred, but not
loaned or rented. With the ex
ception of within-family transfers,
transfers of quota are subject to an
assessment of IS percent.
Producers must market at least
85 percent of their quota. A
producer marketing less than this
amount may have his quota
reduced unless he sells the amount
of quota subject to reduction.
The purpose of the maintenance
requirement is to encourage high
utilization of quota within the
Province, and to ensure that
producers will not short the
market.
It is difficult to separate the
results of supply management in
Canada from other features of the
industry. During the 15 years
under this system, substantial
changes have occurred in the
structure of the Canadian In
dustry. Dairy farm numbers have
dropped by some 92,000 or 67
percent.
Newton, N. J.
BUILT BY:
Polic
Experience with the
Canadian program
Total production has remained
to
don
Average
herd size
Cows
18
24
31
38
relatively unchanged and is
presently in the order of 16 to 17
billion pounds a year. Herd size
has about doubled white milk
production per farm has tripled.
One way to compare returns to
Canadian farmers with their U.S.
cousins is to look at recent returns
for a well-managed, actual Ontario
farm.
This farm was slightly above
average size (for Ontario) and had
nearly its maximum quota. On
tario Dairy Board policies limit
quota per farm. The farm had an
annual quota of 373,517 pounds
fluid milk, 1,023 pounds per day,
and 226,761 pounds of MSQ, about
621 pounds per day.
To match production with quota,
the owner followed a careful
culling program geared to the
farm’s quota, not just the
productivity of individual cows.
This farmer received Canadian
$23.13 per cwt. for fluid milk and
Canadian $18.06 per cwt. for in
dustrial milk in 1985. Total milk
marketed was over quota by 8,080
pounds.
The average price, including
federal subsidy and deducting
various levies was Canadian $19.81
per cwt. or about U.S. $13.86 per
cwt. After allowance for hauling,
milk and other fees, the
average price was Canadian $18.56
per cwt. or U.S. $12.99 per cwt.
(Turn to PageA37)
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