by Tamara Scully
It’s no secret that the dairy farming sector has been under extreme pressures for decades. The system is broken, and dairy farmers aren’t getting anything near a fair share of milk profits.
Representatives from the WFU traveled to Albany to meet with dairy farmers and industry representatives at a Northeastern U.S. regional meeting for the dairy farm sector on Monday Aug. 13, 2018 at the Empire State Plaza Convention Center in Albany, NY, hosted by Agri-Mark. The purpose of the meeting was to discuss the current and past supply programs, brainstorm new ideas and hopefully begin to transform the structure of our dairy industry to promote a more equitable and sustainable dairy sector.
Canadian Dairy Farming
Last spring, WFU hosted several programs as a part of their farmer-led response to the dairy crisis. As a part of the quest to find solutions, the dairy supply chain in Canada was the topic of WFU discussion meetings held around the state of Wisconsin in March 2018. Dairy Farmers of Ontario (DFO) Chair Ralph Deitrich and Vice Chair Murray Sherk shared their perspective on the Canadian dairy supply management program with farmers in attendance.
“We’re all dairy farmers. It doesn’t matter where you are at in the world, we all produce the same product, and our main objective is to feed people as a whole,” WFU President Darin Von Ruden said.
Sherk provided an overview of the Canadian system, which operates with geographically-based pools. Each pool controls the milk supply in its region, with the goal of keeping producer pricing stable while meeting consumer demand for quality milk products.
“We need to work together as producers in order to have some control over our destiny,” Sherk said. “Collective marketing helps to balance the power between producers and processors.”
In Canada, retailers are very consolidated, and set their own milk pricing, often using milk as a loss leader. Normal milk pricing is about $3.26/gallon. Eighty percent of the milk supply goes to four major processors. The country is a net importer of milk, and has about 11,000 dairy farmers, with most in Ontario and Quebec, but some in all provinces.
The Dairy Farmers of Ontario is a milk marketing board, operated by a 12-member dairy farmer board, Shrek said. The organization controls all the milk produced in the province.
“We purchase all the milk produced in the province and look after logistics and sell it to processors,” he said.
Historically, the Canadian system, which is based on supply management was put into place due to large discrepancy in pricing being received by different dairy farmers, particularly with a divide between rural farmers and those located closer to urban centers. As a result of this supply management system, farm gate pricing has been extremely stable compared to that of the United States and most of the other dairy-producing countries. A study undertaken by Cornell University, in conjunction with the DFO, has shown the wide fluctuations in New York’s dairy farm pricing from 1996-2017, while Canada’s dairy farm pricing shows little volatility.
The DFO is self-sustaining, and requires no government funding. Delegates to the DFO board are elected by county in a “grass-roots” system, Sherk said. “There is oversight by our government but as long as we are fulfilling our purpose, they are pleased with what we do.”
The DFO sets milk pricing and works via a quota system to control supply; negotiates milk pricing with the processor; adjusts the milk supply to meet consumer demand; licenses dairy haulers and allocates their routes to be as efficient as possible. They take orders weekly from processors. The three pillars of the system are producer pricing, producer discipline, and import control measures.
While the DFO does not concern itself with exports, it also can’t prevent processors from importing to meet their needs, but can control their own pricing of various milk classes to minimize concerns. For example, with an ongoing glut on skim milk powder, they recently introduce Class 7 milk pricing to entice processors to buy domestically, he said. There is a Federal tariff on imports of milk products.
“It’s quite a balancing act. It seems to work fairly well,” he said.
The quota system insures that all producers are treated fairly. Quotas are determined by the demand from processors on a yearly basis. Quotas are allocated to dairy farmers, who can then buy and sell them on an exchange overseen by the DFO.
The different classes of milk all have different pricing, so there is some volatility in overall milk price due to the percentage of milk being allocated to meet the demands of each class. The farm gate price for Class 1-4 milk is determined by weighing the change in the average cost of production and the change in the Consumer Price Index annually. Each factor is given equal weight, and the price is set for a one-year period. Pricing for other milk classes also factor in world pricing. The overall fluid milk current price in U.S. dollars is about $27/cwt.
The high price of a quota — about $25,000 — “has evolved over time,” Shrek said. In order to allow new farmers to enter the industry, two systems have been set in place. One allows one new producer per month priority access to quotas. The other is a lottery-based system, making loans available to new producers to purchase quotas.
Typically there is a one or two percent increase in quotas per year, but over the past three years, due to a substantial increase in the demand for butterfat, larger increases have occurred. Lenders do value the quota, and a system is in place where if a farmer sells his quota, the money goes to the DFO, who then pays back the lender any monies owed.
“Lenders tend to like supply management,” Deitrich said, as it provides “steady cash flow and steady profitability.”
Overall, the Canadian system has provided dairy farmers with stable markets and the ability to earn a living. But the system has done more than simple keep family dairy farms in business. It has allowed rural communities to thrive.
“When you have a sustainable ag sector, rural communities stay vibrant,” Sherk said, as farmers tend to buy local, hire local service providers, and keep money in the local economy.
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