Supply management 2.0 is finally here: farmers will need to develop new skill sets.
It was not the G7 most expected. Not even close. But should we be surprised?
As US President Donald Trump lashes out on Twitter against Canadian dairies, Canada is beginning to realize that there may be no North American Free Trade Agreement (NAFTA) 2.0 after all. Washington is apparently aiming for two separate deals.
But over the last few months, those paying attention have recognized how our supply management scheme, which protects dairy farmers, can gradually adapt to the new global competitive reality.
It’s happening without a revised policy framework, and with no vision or any strategy for the sector. Our American friends are clearly not playing along.
Some reports suggest that milk prices at farm gate have started to drop in many provinces, including Québec. For years, the pricing formula to dairy farmers was centred on averages, with no incentives for farmers to become more market-driven. This seems to be changing.
If industrial milk prices drop, dairy farmers will need to reinvest or leave the industry. Forcing farmers to make a strategic decision on whether they should serve the economy is immensely desirable and long overdue. It will allow motivated dairy farmers to grow their operations and be properly recognized by the system.
But growth is not just about primary production; it’s also about processing. Recently, Coca-Cola announced it would invest $85 million in its Peterborough, Ont.-based Minute Maid plant to manufacture its Fairlife brand in Canada. Fairlife is an ultra-filtered, lactose-free milk that contains nine essential nutrients, with 50% more protein and 50% less sugar than traditional milk. This is a highly innovative product for the Canadian market.
In return, farmers will temporarily offer Coca-Cola a special price for milk. This investment was possible because Ontario dairy farmers wished to increase processing capacity in the province and to support what’s seen as an incredible opportunity to repurpose a floundering product.
Milk consumption per capita in Canada has been dropping for decades and Coca-Cola’s approach could entice many consumers to return to it. This amounts to just 35 jobs now but speaks to the potential of Canadian dairy processing.
Similar projects have previously been denied by dairy farmers, who believed it would disrupt our quota system, which is designed to supply only what Canada’s market needs.
In contrast, foreign investors like Coca-Cola seek reliable access to cheaper milk in order to maintain their competitiveness.
In 2013, Dairy in Trump’s crosshairs: industry finally showing signs of common sense-based Chobani, a Greek yogurt producer, abandoned plans to build a $76-million state-of-the-art plant in Kingston, Ont., that would have created almost 1,300 direct and indirect jobs. It could have been a significant game-changer for the local economy. Quota restrictions and milk procurement were significant issues in Chobani’s decision.
New classes of industrial milk are being created to accommodate processors. The pressure is on and the resulting changes are welcomed.
Under the Comprehensive Economic and Trade Agreement between Canada and Europe and the revised Trans-Pacific Partnership, the Canadian dairy market is becoming increasingly accessible. These deals have created opportunity toward maintaining equilibrium between supply and demand.
Yet nothing is done to support our dairy industry, to make it more competitive. Supply management is essentially an unattainable ideal. Rules are rapidly changing around the industry, but the systems under which farmers and family farms work aren’t being retooled to match these new challenges and to manage a very different business.
If dairy farms are to become more competitive, farmers need to develop new skill sets.
After decades and despite overwhelming political hypocrisy, many Canadian dairies are finally showing signs of common sense.
Québec remains painfully and stubbornly idle. But other provinces appear to see the writing on the wall and are taking specific, targeted measures to demonstrate how supply management can change.
It’s apparent that supply management has become a bargaining chip with the US in this round of trade negotiations. That has many people bracing for significant changes.
To show real leadership in foreign trade policy, Ottawa will need to give some thought to how to support our dairy farmers as their industry is disrupted.
Sylvain Charlebois is dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, senior fellow with the Atlantic Institute for Market Studies, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).
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