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Empowering Farmers

Empowering Farmers. The Canadian Supply Management Experience Bruce Saunders 1st Vice-President, Dairy Farmers of Canada Chapeco, Brazil, January, 2005. Outline of the presentation. Who we are? History of supply management in Canada Determining production quota

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Empowering Farmers

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  1. Empowering Farmers The Canadian Supply Management Experience Bruce Saunders 1st Vice-President, Dairy Farmers of Canada Chapeco, Brazil, January, 2005

  2. Outline of the presentation • Who we are? • History of supply management in Canada • Determining production quota • Benefits of supply management • Expectations from the Doha Round of negotiations • Conclusion

  3. Economic Snapshot of the Canadian Dairy Industry • 16,000 dairy producers • Milk sales: $4.2B • Adds a net $8.3 billion to the GDP • Processed products sales: over $10B • Supports $26 B of economic activity • Sustains more than 142,600 jobs: • On-farm: 50,800 • Farm suppliers: 25,200 • Processing sector: 66,600

  4. Brief History When Canada was a major exporter, producers received low returns. So…Canada turned its attention to the domestic market.

  5. Objectives of the Canadian Dairy System 1) Ensure orderly marketing of milk by balancing supply with demand 2) Balance the negotiating power between stakeholders to obtain fair prices for the producer 3) Ensure that consumers have access to adequate supplies of high quality products

  6. Pillars of Supply Management Depends on three pillars: • Import controls • Producer pricing • Production discipline All equally important

  7. Producers Need Market Power • Legislation is necessary • Canada uses legislation for management of supply

  8. Fundamentals of the Canadian System Balancing Supply With Demand

  9. Prov Prov Board Board Prov Prov Board Board Non-votingMembers CDCChair Board Board Prov Prov Board Board Board Prov Prov Prov Balancing Supply with DemandCanadian Milk Supply Management Committee

  10. Balancing Supply with DemandPrevents Market Price Volatility

  11. Balancing Supply with Demand Market Stability

  12. CMSMC estimates demand based on: • milk consumption • evaluation of stocks • expected imports • traditional exports • possible change in markets Balancing Supply with DemandStep 1: Estimating Demand Requirements

  13. CMSMC sets quota to meet demand Balancing Supply with DemandStep 2: Setting Supply Target Requirements

  14. Balancing Supply with DemandStep 3: Allocate MSQ - Historical Basis

  15. Producers Producers Producers Producers Producers Step 4- Allocation of Quota to Individual Producers

  16. Production Quota • Daily quota system: no year end • Daily quota established on a kg of butterfat per day • Adjusted regularly to reflect market demand fluctuation: upward or downward • Transferable

  17. Balancing the Negotiating PowerMarketing Agreements (MA) • Terms negotiated between: Provincial boards and Processors Co-operative Private enterprises • A single sales agent (provincial board) negotiates: plant supply, milk quality, classes and prices, and payment terms

  18. Balancing the Negotiating PowerDomestic Price Negotiations • The price of industrial milk sold in regular classes is set by the CDC following a consultation process and reflects a cost of production formula including return on investment and equity • The price of fluid milk is set by the provinces • One price adjustment per year (February) • All processors pay the same price for a given class

  19. Balancing the Negotiating PowerDistribution of Producer Returns

  20. Balancing the Negotiating Power Increased Market Concentration Farm level • 17,000 dairy farms Processing level • 3 largest dairy processors have 70% of sales of approximately $11 billion Retail level • Largest retail chain has 35% of sales • Top 10 have 90% of sales

  21. Producer Returns (Deductions) • Deductions per hL of monthly shipment: • Transportation $2.32 • Administration $0.45 • Promotion $1.22 • Research and DHI: $0.12 • Total $4.11 • The operating costs of the system are therefore bourn by the producers.

  22. Price of Milk Milk Prices Paid to Producers:

  23. Ensuring Consumer Benefits • A Canadian Paradox: Canada’s method of implementing supply management in the dairy industry results in benefits accruing to all stakeholders – not just to producers

  24. Ensuring Consumer BenefitsComparison of Canada-U.S. Retail Prices

  25. Ensuring Consumer Benefits No Cost to Government

  26. A System Under Threat Three Pillars: • Import controls • Price setting • Production planning

  27. A System Under ThreatWTO – Impending Threat Each Pillar Can Be Affected: Market Import Access  Controls 1- Domestic Producer Support  Pricing 2- Export Production Competition  Discipline 3-

  28. Conclusion:Supply Management Benefits at Stake • Producers’ ability to get revenues from the market • No cost to government • Stable and reasonable prices for consumers • Stable and steady supply for processors • High quality products

  29. Conclusion (continued):Supply Management Benefits at Stake • Maintenance of family farms • Benefits rural development and environmental sustainability • Production discipline which prevents surplus production that distort both international and domestic markets

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