Dairy supply management system needs reform: Success hinges on growth

March 3, 2014

Global markets offer dairy producers enormous growth potential

OTTAWA, March 3, 2014 /CNW/ – Reform to Canada’s outdated dairy supply
management policy must be accompanied by a push to expand into global
markets with rapidly-growing demand, according to The Conference Board
of Canada’s second release of findings from its analysis of dairy
supply management.

“Dairy supply management is an old solution to an old problem. When the
current system came into effect, international trade in dairy products
was very limited. Today, countries such as China are growing markets
thirsting for quality dairy products. We’re not in a position to take
full advantage because our system is now outdated,” said Michael Bloom,
Vice-President, Industry and Business Strategy.

    |                                           HIGHLIGHTS               |
    |    --  Global demand for dairy products is forecast to grow by     |
    |        double-digit percentages over the next decade.              |
    |    --  Operators with herd sizes of around 200 head are            |
    |        internationally competitive but, because of supply          |
    |        management, most of Canada's  herds are too small to be     |
    |        competitive.                                                |
    |    --  A farm with 200 head is about the same size as a typical Tim|

The Conference Board report, Canada’s Reforming Dairy Supply Management: The Case for Growth, argues that a win-win reform package needs to be accompanied by a new
vision for industry growth. Since dairy consumption in Canada is
stagnant, export markets are key to industry growth.

Global trade in dairy products was valued at about US$33 billion in
2010, about five times greater than in 1961. Demand is expected to grow
by double-digit percentages annually over the next decade in
commodities such as butter (21 per cent annual growth), cheese (11 per
cent) and whole milk powder (13 per cent).

In addition, countries such as China are looking for foreign-supplied
milk powder out of concern that their domestic milk is unsafe. And
current global trade flows suggest that dairy products could be shipped
relatively cheaply from Canada to Asia.

Canada was a net importer of dairy products in 2012 and exported just
$27 million, making it a marginal player in dairy trade compared to
peer countries such as New Zealand (US$9.4 billion in net exports),
Australia (US$2.3 billion), and the United States (US$2 billion),
respectively. However, large exporting nations are struggling to keep
up with demand, opening opportunities for Canadian producers.

Canada’s current share of the world market in traded dairy products is
microscopic: 0.02 per cent in whole milk skim powder, 0.29 per cent in
cheese, and 0.01 per cent in butter. In contrast, Canada has about 10
per cent of global trade in oilseeds and almost 14 per cent of the
market in wheat.

The number of dairy farms in Canada has fallen from over 174,000 in 1967
to around 12,500 today, with an average herd size of 76 head of cattle.
The Conference Board’s analysis suggests that Canadian dairy farms
would have to more than double in herd size, to average 187 head
(similar to the U.S. average) to compete internationally.

Canada already has dairy farms that are among the most sophisticated in
the world. Although farms would grow larger, they would likely remain
mostly-family owned and equivalent to a small business — in terms of
revenue, about the same size as a typical Tim Horton’s franchise.

The analysis outlines three scenarios:

        --  status quo -- Canada remains a marginal dairy exporter
        --  moderate growth -- Canada's production would grow by 6 billion
            litres to 14 billion litres
        --  aggressive growth -- Canada would produce about 12 billion more
            litres annually to 20 billion litres by 2022.

Under the aggressive growth scenario, the number of dairy farms would
actually increase by 2.1 per cent over 10 years and industry employment
would grow by about 14 per cent. Yet, Canada’s export volumes would still be half that
of New Zealand.

The full report with recommended reforms will be published Thursday,
March 6.

This report is one of 20 being produced by the Centre for Food in Canada. Since 2010, the Centre has been engaging stakeholders from business,
government, academia, associations, and communities in creating a Canadian Food Strategy –one that will meet the country’s need for a coordinated, long-term
strategy on industry prosperity, healthy and safe food, household food
security, and environmental sustainability.

The strategy will be launched at the 3rd Canadian Food Summit 2014: From Strategy to Action, March 18-19 at the Metro Toronto Convention Centre.

SOURCE Conference Board of Canada

Source: PR Newswire

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