Many years ago, I overheard two hay marketers discussing their business over a beer in a local bar. They had been buying hay for two dollars a bale in another province and trucking it here to sell to local farmers for two dollars a bale. One partner announced to the other that they were not making any money. The other partner announced that he had a solution. They would buy a bigger truck to move more hay.
Our Canadian dairy farmers just received a notice in April that predicted a slight surplus of butter next fall. Dairy farmers of Canada monitor all dairy production and forecasted sales of dairy products. Dairy farmers try to keep in cold storage enough stocks of dairy products to supply the Canadian consumer with butter, cheeses, yogurt and all other dairy products even when milk production is lower in the fall and even when housewives use more butter, cheeses, etc., at holidays like Christmas, Thanksgiving, Easter, etc. Dairy farmers like to get these predictions as early as possible so they can plan increasing or reducing milk production to match demand.
Canadian milk is marketed using the supply management system. This system is based on three important legs. The first leg is the COP or cost of production. Everything that contributes to the cost of producing milk is monitored; labour, taxes, fuel, repairs, electricity, feed, fertilizer, etc.
All these costs are closely inspected by consumer associations, retail food associations, dairy product manufacturers, government regulatory agencies, etc., to ensure that all the costs are legitimate. The price received for milk by the dairy farmer may go up or down based on these approved COPs.
The second leg is a milk quota which is based on consumer demand. This ensures that there are always adequate dairy products to supply the wants of the consumer, but no surplus to dump onto the world market at prices often lower than what it costs farmers to produce them.
The third leg is a control on imported dairy products to prevent other countries dumping their dairy products into the Canadian market at prices less than what it costs to produce them.
This is where Canadian dairy farmers have to rely on our trade negotiators to not give other countries free access to the Canadian market. If a lot of dairy products from other countries are allowed into the Canadian market at prices below the COP, then dairy farmers in Canada will reduce production or even quit farming and then if other countries change policy and give less subsidies to their dairy farmers and hence reduce their exports to Canada.
It would take Canadian farmers years to build back their dairy herds or maybe never. From a dairy calf’s birth until it grows to a milk producing cow takes a minimum of two years. To replace a dairy farm that quits completely might cost millions of dollars in investment in a new dairy facility. No young person will chance this kind of investment without any firm long term projection of the price of milk!
The US milk marketing system is based on the free market with no guarantee of milk price or even a milk plant to buy the milk. For the past several years, the price received by the US dairy farmer has been less than what it costs to produce it. Because it takes so long to build a dairy farm, often generations, dairy farmers are reluctant to quit. The US dairy farmer has survived on supplements or subsidies to replace some of their lost income.
The recent US farm bill is predicted at almost one trillion dollars US, or $1.3 trillion Canadian. Even with these huge infusions of support dollars for the US dairy farmer the incidences of mental stress and suicides in the farming community has skyrocketed. Many states have introduced hot lines to help cope with these devastating problems.
Historically when milk prices drop, the US dairy farmer would expand to increase cash flow if his financial institution would back him. In times of higher milk prices he would expand again to build a nest egg to carry the dairy farm through those tough years.
To add to the US dilemma of too much milk a new process has been developed in the US to add potato starch to their mozzarella cheese which allows them to make more mozzarella with less milk. The largest market for mozzarella in the US is for pizza cheese. Some of this potato starch cheese may even find its way into Canada as topping on frozen pizzas.
While Canadian dairy farmers are being advised to keep a close eye on production and be ready to reduce it, our American free traders are trying to get our supply management system killed and get ready to “buy a bigger truck!”
Chris Judd is a farmer in Clarendon on land that has been in his family for generations. gladcrest@gmail.com
