The Future of the Canadian Dairy Sector: In a Post Supply Management Era

Policy Series, Agriculture, Sylvain Charlebois

Executive Summary

This paper reviews the current state of the Canadian dairy industry in order to highlight the potential effects of a liberalized global market on the domestic market. The authors argue that there is need for advanced discussion on a liberalized dairy market because domestic policies in foreign states are already positioning their dairy industries to function under a liberalized framework, and the international community is convening to discuss liberalized multilateral agreements with negligible support for continued supply management.

These international conditions point toward the possibility that the Canadian dairy industry will be forced into a framework for which the Canadian industry is ill-prepared. To investigate the competitiveness of the domestic dairy industry, the authors review influential domestic and international factors, in combination with anticipated industry scenarios to identify the likely consequences of a liberalized dairy environment. The paper finds that the Canadian dairy industry is not positioned to succeed if the dairy industry were to liberalize in short order. In this scenario, the U.S. dairy industry would likely devastate the Canadian dairy industry by flooding the market with low-cost dairy products. In addition, Canada would not be positioned to benefit from access to emerging markets due to an inability to offer cost-effective products. Finally, this paper provides a road map for future reform using domestic and international focused policies that work to increase Canada’s competitive advantage in a liberalized dairy framework.

An Introduction to Supply Management

The Canadian dairy industry is run by supply management systems that control production quotas, administer prices and regulate imports by placing limits and tariffs (Canadian Dairy Commission, 2010; Drummond, 1960). Supply management is not unique to the dairy industry, as the Canadian poultry and egg industries are managed this way (Lang, 2011). Provincial and federal marketing boards that collaboratively manage prices, production quotas, subsidy payments, export programs, bookkeeping, and among other duties, run the dairy supply management systems.

Initially, supply management was applied to the dairy industry to stabilize prices for producers and consumer, and to secure supply for processors. However, the industry’s ability to fulfill these measures is a contested issue, as critics argue that supply management is detrimental to consumers and market efficiencies (Tamilia & Charlebois, 2007). On a global scale, supply management contributes to trade distribution through domestic support programs, setting prices, and placing limits and tariffs on imports. International forces are currently working to liberalize the markets for agricultural products in an effort to stabilize prices. The Doha Round is an international agreement directed toward this objective; however, there is no sign of the agreement coming to a close.

The Doha Round would have many implications for the global dairy industry. In the Canadian context, it would mean the elimination of supply management and freer market access to and for Canadian consumers, with many implications for farmers, consumers and the agricultural sector at large. This paper will discuss the impact of the Doha Round on the Canadian dairy industry and present a broad policy framework that could enhance the industry’s competitive advantages in a liberalized global market.

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