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. 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 Economic Snapshot of the Canadian Dairy Industry

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

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: 1.Import controls 2.Producer pricing 3.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 Demand Canadian Milk Supply Management Committee Prov Non-voting Members CDC Chair Board

10. Balancing Supply with Demand Prevents Market Price Volatility

11. Balancing Supply with Demand Market Stability

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

13. 'CMSMC sets quota to meet demand 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 Producers

16. 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 Production Quota

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. Domestic Price Negotiations 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. Distribution of Producer Returns 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: 2001-022002-032003-042004-05 Can $ per hl 58.5261.0761.1963.65 US $/cwt16.4317.9920.1622.41

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 Benefits Comparison of Canada-U.S. Retail Prices

25. Ensuring Consumer Benefits No Cost to Government MilkUSCanada Producer Prices$15/cwt$22.4/cwt Government Payments 1 Federal programmes $6.75/cwt__ Government Payments 1 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

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

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

28. 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 Conclusion: Supply Management Benefits at Stake

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