Supply management in a changing world: Canada’s challenges explored

Like the U.S. dairy industry, Canada’s dairy industry faces many challenges. A new paper, authored by Al Mussell, Bob Seguin and Janalee Sweetland, considers the challenges facing the Canadian dairy market and supply management policies that influence it.

“Canada’s Supply-Managed Dairy Policy: Challenges and Need for Evolution” is the third in a series of papers on milk supply management by the George Morris Centre. The paper provides an overview and understanding of some of the challenges facing supply management as dairy markets in Canada have evolved. While federal and provincial dairy policies under supply management have adapted to adjust and reconcile market forces, consumer preferences, new technologies and products, financial returns and production scale, these have not always been smooth, nor always completely successful. The basic mechanics of supply management were not developed to address some of these issues, and new product demands, improvements in technology, innovation among substitute products, and changing preferences create friction in the system.

The Canadian dairy market is really two segments – a fluid beverage milk segment and an industrial milk segment. Overall, both markets are mature and relatively slow growing, according to the authors. Fluid milk volumes have experienced exceptionally slow growth. While the overall trend in other dairy products, such as cheeses, butter, milk powders, ice cream, yogurt and cream cheese is stable and slow growing, there are significant counter-trends, with some products in steep decline, and others growing very rapidly. Production of major cheese varieties, butter, and skim milk powder is flat. However, production of certain specialty cheeses has experienced significant growth. Yogurt production has seen solid growth, but most other product categories are flat to declining, with ice cream in sharp decline.

While efforts to promote new product development, innovation and market growth can be constrained by existing federal and provincial rules on quota allocation and milk allocation to processors, the paper explains. However, while potent, these challenges do not mean that milk supply management must be abandoned or discontinued.

The authors intend to identify to address reforms that could allow Canada’s milk supply management to operate more effectively and allow it to be less of a hot button issue in trade negotiations, leading to greater growth, innovation and vitality in dairy industry, in a fourth and final paper in this series.

The other two papers in the series include:

How Did Canada’s Supply Management Policy Come to be? | Part 1 details the evolution of supply management in response to chronic dairy surpluses, low farm milk prices, processor market power and high government support costs. It observed that supply management had evolved to implement its objectives in a changing market context, and that it had been successful in advancing its apparent objectives.

Comparative Analysis on Canada’s Dairy Supply Management System | Part 2 cast Canadian dairy policy in the context of its peers internationally, and noted that dairy policies across developed countries have engaged many of the same issues – initially with protectionist policies which were eventually liberalized due to government cost.