Flee the Land of Quota: One farm family escaped the burden of debt needed to buy milk quota by moving its operation to the U.S.

Commentary, Agriculture, Frontier Centre

Ten months ago we sold our eastern Ontario dairy farm and ­relocated on another dairy operation 20 miles away as the crow flies, in northern New York. My son lives on the U.S. farm while my wife and I remain in Canada, from where we are actively involved in the new operation.

Money and freedom were the reasons for our decision. We moved our dairy cattle and machinery south of the border, but sold all Canadian immovable assets. The land, quota and farm buildings came to $45,000 per cow, while 20 miles away we purchased a more modern state-of-the-art operation for $5,200 a cow.

There is no milk quota in New York, so that accounted for $25,000 of the difference in price per cow. The rest was driven by a far higher price for land on the Canadian side, which is due in part to the higher price of milk, since grain prices for crop farmers are the same throughout North America.

Another contributing factor to the land price difference is the American recession causing their banks to be skittish.

Having started our Canadian dairy operation in 1981 with an 18% mortgage and a 21% operating loan, being wary of heavy debt became part of one’s DNA. Hence when my son came home from agriculture college to dairy two and a half decades later, the necessary expansion — which would have brought the farm debt to $25,000 to $30,000 per cow — didn’t balance with my Glengarry Scot sensibilities. The credit would have come courtesy of the government-created and backed Farm Credit Corp., which is Canadian agriculture’s Freddie Mac and Fannie Mae.

The average per-cow debt in Canada is $15,000 and it is $1,500 in the United States. The cost of buying an actual cow is the same either side of the border, since the actual net profit after costs and servicing debt is the same on average.

If one simply Googles Census Canada and the Canadian Dairy Commission they will find that Canada’s population has more than doubled since supply management started in 1967 and that — shockingly — the Canadian actual total milk production per year has not changed, other than slightly dipping, over those four and a half ­decades.

The stats show a 19% to 35% larger per capita consumption of dairy products — depending on the category — in the United States, as compared to Canada.  A recent study has shown that the amount of dairy imports into Canada, despite high tariffs, has risen from 8% more than a decade ago to 24% today. In 2008, it was at 17%.

So, rightly or wrongly, unlike so many others, we didn’t base our family’s future on an industry spinning its wheels, plus having an investment-to-earnings ratio similar to where Nortel was when things went into the manure pit.

Quota prices were $1,400 a cow in 1981, rising to $33,000 a cow by 2007. Farm Credit taking quota as an asset — which it didn’t used to be — freed up borrowing to unprecedented levels for dairy producers seen nowhere else in the world. They also kept expanding the payback terms from five to 25 years, so things would cash flow.

Ironically, to service that quota expansion debt, a Canadian producer — despite the continued rising price of milk in conjunction with the quota price increases — had to make milk at U.S. prices.

We made quota payments every month from 1981 to 2010 and that was always the case, although we didn’t go longer than a 10-year quota loan.

Due to milk marketing board quota policies a couple of years later, quota prices were capped at $25,000 per cow. However, it soon became virtually impossible to obtain more quota than for a cow per year, since the quota for sale was prorated and evenly ­distributed among those wanting
to buy.

Before, the highest-quota bidder got as much as he or she wanted. If this sounds like moving from a semblance of the most efficient prevailing to Joseph Stalin-type policies, it is. Totally and completely.

Provincial milk marketing boards were granted enabling legislation under the Milk Act decades ago to do whatever they want. They cost more than $100-million to operate across the nation for 13,000 producers, yet not a single politician of any political stripe has the courage to even suggest reforms at any level. Or, quite simply, removing the marketing boards’ monopoly over producers.

In the dairying sector, it’s laughingly referred to as “the Quebec factor.” Which means tremble in fear if you’re a politician.

Diversity, because of freedom, is prevalent in New York’s Franklin county’s dairy sector. Farmers range from a 2,100-cow producer to the Old Order Amish man who milks 17 and is raising nine children. Or the legal, small raw-milk producer and retailer making incredible profits, who would be arrested if living two miles to the north.

Knowing your farming operation is in a nation where, unlike Ontario, some semblance of property rights is installed in law, gives one the freedom to invest for the future.

The Canadian dairy industry is keeping its system. But it lost my son, whose United Empire Loyalist ancestor built the oldest house in Ontario.