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Empowering Farmers

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

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Title: Empowering Farmers


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.
  • SoCanada 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
Balancing Supply with DemandCanadian Milk Supply
Management Committee
10
Balancing Supply with Demand Prevents Market
Price Volatility
11
Balancing Supply with Demand Market Stability
12
Balancing Supply with Demand Step 1 Estimating
Demand Requirements
13
Balancing Supply with Demand Step 2 Setting
Supply Target Requirements
14
Balancing Supply with Demand Step 3 Allocate
MSQ - Historical Basis
15
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 Power Marketing
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 Power Domestic 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 Power Distribution 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
2001-02 2002-03 2003-04 2004-05
Can per hl 58.52 61.07 61.19 63.65
US /cwt 16.43 17.99 20.16 22.41
23
Ensuring Consumer Benefits
  • A Canadian Paradox Canadas method of
    implementing supply management in the dairy
    industry results in benefits accruing to all
    stakeholders not just to producers

24
Ensuring Consumer Benefits Comparison of
Canada-U.S. Retail Prices
25
Ensuring Consumer Benefits No Cost to Government
Milk US Canada
Producer Prices 15/cwt 22.4/cwt
Government Payments1 Federal programmes 6.75/cwt __
Government Payments1 State programmes 1.45/cwt __
Total 23.20/cwt 22.4/cwt
1- US Agricultural Support, Grey, Clark Shih, January 2005 All price in US per cwt 1- US Agricultural Support, Grey, Clark Shih, January 2005 All price in US per cwt 1- US Agricultural Support, Grey, Clark Shih, January 2005 All price in US per cwt
26
A System Under Threat
  • Three Pillars
  • Import controls
  • Price setting
  • Production planning

27
A System Under Threat WTO Impending Threat
Each Pillar Can Be Affected
  • Market Import
  • Access ? Controls

1-
Domestic Producer Support ? Pricing
2-
Export Production Competition ? Discipline
3-
28
ConclusionSupply 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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