Dairy Farmer Appeals Dairy Quota Squeeze Play

Frontier Centre, Marketing Boards, Rural, Uncategorized, Worth A Look

OTTAWA – Chris Birch isn’t the first farmer to face foreclosure, but he may be one of the first to be shut down by his own industry association.

The Barrie, Ont., dairy farmer has been selling directly to the United States for over two years, a practice the Dairy Farmers of Ontario has decreed must stop within months. The group – part lobby, part regulator under provincial legislation – says his business is now illegal after a World Trade Organization ruling that Canadian milk exports are illegally subsidized.

But Mr. Birch and about 100 other dairy farmers say the WTO decision is a pretext and the real motive is reasserting the complete monopoly of the provincial milk marketers.

The case cuts to the heart of the milk system in Ontario and Quebec, where most of Canada’s milk is produced. In Ontario, farmers pay $27,000 to the Dairy Farmers for a licence to milk one cow. With an average herd of 60, the cost of getting into the industry is prohibitive for many. The number of dairy farmers in Canada has fallen by over one-fifth since 1990 to 19,000 today.

In return for paying for the quota, farmers get a guaranteed buyer and price, currently about $60 a hectolitre. Mr. Birch says he can sell export milk at a profit, including transportation costs, at $25 a hectolitre.

Mr. Birch held down a factory job to help carry the loan on his 55-cow quota until the plant shut down in 1992, then struggled on until 2000. “The quota was always too big a burden,” he said in an interview. Then he got an idea – sell the quota, pull out of the domestic industry entirely, and ship all his production straight from the farm to the United States, where with an import licence he was able to sell it to plants producing cheese.

Because he is completely outside the domestic industry he says he and his fellow non-quota farmers, about 35 of whom he represents directly, are not subsidized and should not come under the net of the WTO decision. That decision, based on a complaint from the United States and New Zealand, found Canadian dairy exports are illegally cross-subsidized by virtue of the high prices guaranteed by the domestic supply management system.

In reply, Gordon Coukell, chairman of Dairy Farmers of Ontario told his regulations to bring Ontario into compliance with the WTO decision. These plans include… all producers will be required to hold the minimum of five kilograms of quota.”

Bringing non-quota farmers back into the system will kill their ability to say they are unsubsidized, representing the death of Mr. Birch’s business plan. The alternative would be to return to selling domestically, and Mr. Birch said he will not go back to the bad old days of struggling to pay the bank loan on his quota.

“I’m 46 years old and I’m not going to mortgage over 20 years,” he said. “I’d sell out of dairy and do something else.”

Mr. Birch’s Georgian Bay Milk Co. has launched an appeal of the Dairy Farmers decision, an appeal that must be heard by the Dairy Farmers’ own board. Mr. Birch has also launched an appeal through an Ontario tribunal on rural affairs.

The Dairy Farmers say they are acting consistent with the federal government’s interpretation of the WTO ruling.

“It’s as a result really of direction from the Department of Foreign Affairs and International Trade. The interpretation they’re delivering is that all export contracts end,” said Bill Mitchell, spokesman. He said federal officials told the group, “fighting for such a small volume of milk could put the whole system back under [WTO] challenge.”

André Lemay, spokesman for the federal department, agreed the government interpretation is that the WTO decision covers all producers, whether they are in the quota system or not.

But, he added, “the provinces have to decide how they want to treat these people. That’s really up to them. Whatever the provinces want to do, we’ll offer advice on how to make it WTO-compliant.”

Mr. Birch doesn’t see much chance of the Dairy Farmers trying to make his life easier, suggesting other farmers eager to try his way have been waiting to see what happens to him.

“It’s very difficult to go to the Canadian public on a regular basis and tell them you need more money for milk every year when there’s a group that can produce milk at much lower prices,” he said. “There’s been no evidence that non-quota producers in the last two years have caused any harm to supply management.

“At the end of the day there has to be right and wrong. Saying we can’t export milk … that’s wrong, quite frankly.”

see Reforming Milk the Australian Way