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Wisconsin farmers look to Canada for industry stabilization option

Progressive Dairyman Editor Karen Lee Published on 03 April 2018

With the lagging depressed prices in the U.S. dairy industry, the Wisconsin Farmers Union decided to host five meetings across the state in March to bring farmers together to speak about potential opportunities to stabilize dairy prices.

At the March 14 meeting in Fond du Lac, Wisconsin Farmers Union President Darin Von Ruden said he had been working with the Dairy Farmers of Ontario for almost a year. After learning about Canada’s supply management system, Von Ruden invited two dairy producers from Ontario to explain how it works and begin conversations about how it might apply to the situation in the U.S.

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Ralph Dietrich farms with his wife, Jayne; one of their sons, Greg; and son-in-law Andrew near Mildmay, Ontario. They have two locations – the home farm with 55 to 60 cows and one robot, and the other with 120 cows and a double-12 parlor. At Character Dairy Genetics, they focus on high-genomic cows and calves. Dietrich was elected to the board of Dairy Farmers of Ontario in 2011 and chairman in 2015.

Murray Sherk, vice chairman, Dairy Farmers of Ontario, was a relationship manager with Farm Credit Canada for 25 years. He also owns and operates a 130-cow dairy near Plattsville, Ontario.

The goal for the two representatives was to provide a firsthand view of the Canadian dairy system. “We certainly don’t have all the answers, and we have challenges within our system as well,” Sherk said.

By comparison, Wisconsin has 9,000 licensed dairy farms, and Ontario has 3,600. The entire country of Canada has 11,000 dairy farms. Farms in Wisconsin produce more milk than all of Canada, 30.1 billion pounds versus 20.9 billion pounds, respectively. The average number of cows per farm is 134 cows in Wisconsin and in the upper 80s in Canada.

There are dairy farms in all 10 provinces in Canada, which is important politically to maintain support of the system, Sherk said. However, the bulk of producers (more than 80 percent) are located in the eastern provinces of Ontario and Quebec.

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The market is divided into two pools, one in the east and one in the west, with all producers in the pool receiving the same price for their milk.

“Part of the reason we pool milk is: If a processor goes out of business, that loss of production is shared by everybody. We all share the market … we’d all take a [slight] quota cut rather than an individual farm having to bear the brunt of that,” Sherk said.

To be successful, Canada’s supply management system relies on three main pillars – producer involvement in the pricing of milk to processors, production discipline of producers and processors, and some form of import control.

The Canadian Dairy Commission, a branch of the federal government, meets quarterly and coordinates the federal and provincial dairy policies to balance needs of all industry stakeholders – consumers, producers and processors.

All milk in the country, including organic, is sold to the provincial milk boards, which are responsible for taking orders from processors and distributing the milk to meet their needs. Dairy Farmers of Ontario is one of Canada’s provincial milk boards, which are funded by checkoff dollars. It has 12 dairy producer board members elected from various regions within the province and 85 staff members.

Processors can request fluid milk and milk for a few products as demand requires. For other products, such as cheese and butter, they must stay within their own allocated production quota.

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There are approximately 450 processors in Canada, but 80 to 85 percent of the milk is sold to a few large processors. “There would be a tremendous balance of power between 11,000 producers and four processors but, because all milk is sold to provincial marketing boards, we are able to have some negotiating ability with them,” Sherk said.

The inequity between producers and processors was one of the driving forces to implement the supply management system back in the 1960s. Sherk said the Ontario dairy industry was very fragmented, with producers close to cities receiving high fluid prices and rural producers having to sell to a lower-priced industrial market.

“[Supply management] provides a balance in the dairy sector, enabling farmers to collectively negotiate price and adjust milk production to meet consumer demand,” Sherk said.

Milk production requirements are determined at a national level and allocated in the form of production quota on a percentage basis to each province. The province issues this quota to producers, who have the ability to buy and sell quota through a centralized exchange. Quota is assigned and valued on a kilogram-per-butterfat basis, but Sherk said if you think of a decently producing cow, you can figure today’s quota value at $25,000 to $30,000 per cow.

When the system was first established, quota was assigned based on each farm’s historical production and had no value. “The value evolved over time because of the stability and profitability in the industry,” Sherk said.

In Ontario, there are no limits on the amount of quota one can obtain, but the province’s exchange price is capped so if there are more buyers than sellers, the amount of available quota is divided among buyers on a percentage basis.

Quota can be transferred within a family – from one generation to the next, for example – without going through the exchange. They also have a few new entrant programs to either ease the financial investment or the availability of quota for those who want to get started in the industry.

The milk board tracks who owns the quota and licensed holders must be involved in the daily production of the farm.

Milk in classes 1 through 4 is priced on formulas that account for the average cost of production based on an annual study of farms by the Canadian Dairy Commission and the consumer price index. These two factors determine the base price that increases or decreases as the formula dictates.

The average blend price in Canada today is about $27 per hundredweight when converted to U.S. units and dollars. At retail, Canadians are paying $4.30 per gallon and about $3 for butter.

Organic milk producers receive approximately 30 percent more for their milk, but they also pay more in transportation since it requires separate hauling.

“While farmers around the world are facing a lot of unexpected fluctuations, we’ve had relatively constant, stable prices,” Sherk said.

Canadian dairy producers have been issued larger amounts of quota over the last few years due to resurgence in the demand for butter. Prior to that, growth was running at a 1 to 2 percent increase per year.

“If you’re the type of individual who wants to grow very quickly, maybe the dairy industry is not for you in Canada,” Sherk said.

The system limits the amount of product that can be exported, so if milk requirements decrease, every producer must produce less. If they ship milk over their quota, they don’t get paid for it and still have to pay for hauling.

“Our system is based on supplying our domestic market, and that’s what we need to stick to. We encourage our processors to increase and look for new domestic markets,” Dietrich said.

Challenges

Import control, the third key pillar of supply management, is where the Canadian dairy industry has struggled over the last few years. Trade negotiations and the development of non-tariff products have allowed more dairy products to enter the country than in the past. The country is importing 15 percent of its domestic product, Dietrich said.

Processors in Canada are allowed to import products as much as they want if they are willing to pay the tariff or purchase products that do not have a tariff, such as non-protein concentrates.

Dairy Farmers of Ontario recently created a new class of milk, not only to price certain dairy ingredients at a competitive rate but also stimulate investment by processors.

“[Processors] have a choice. We hope they use Canadian raw materials because it is now a financial possibility to do so,” Dietrich said.

He added some processors were at a competitive disadvantage because they were choosing to use all Canadian products, while those that were importing ingredients could sell the products cheaper.

“This [new class] created a fair field with the pricing of ingredients. Processors using 100 percent Canadian milk were treated the same as everybody else. It allowed our processors an opportunity to be competitive and stay in existence.”

It has also increased the investment in processing facilities in Canada to bring new technology to the industry.

“There is a skim milk powder and protein surplus. That is the byproduct of butterfat, and that’s what’s in oversupply around the world,” Dietrich said. “What we need to emphasize and work toward is the development of new opportunities for the utilization of that byproduct. We’re trying to encourage that with our processors and with research.”

Another challenge in Canada is a higher cost of production. “Things generally cost more in Canada,” Sherk said. For example, equipment costs are 30 percent higher because of the Canadian dollar exchange rate. Taxes are also higher for roads and healthcare. Their minimum wage is at $14 per hour and scheduled to increase again next year.

Canada’s domestic dairy market is under attack with recent proposals to revamp the nation’s food guide and front-of-package labeling. While milk was significantly mentioned in previous versions of the food guide, it is nearly nonexistent in the current proposal with a push toward plant-based proteins.

There is also an effort underway to create a mandated warning system for the front of food packages to alert consumers when foods are high in sodium, sugar and saturated fats. Certain dairy products would be labeled based on their values in these areas – but not a bag of chips or can of diet soda.

A challenge for any national system is the collective agreement of all stakeholders. “To get 10 provinces to agree on any change that comes along, that’s a lot of people trying to make a decision, and it takes time and effort,” Sherk said.

Dietrich added, “We have to sit around the national table not thinking of our own personal farm and not even thinking of our own province. You have to somehow think of the entire country and the industry in general.”

To enact supply management in Canada, it took farmers to agree to the betterment of all rather than as individuals. It also required a couple of local champions to lead the charge.

“Those one or two people can’t do that without the support of everybody else in the room being prepared to back them up. As farmers in the industry, we have to be willing to band together,” Dietrich said.

Producers also have to work with the government and get politicians to understand the purpose and the value a strong dairy industry delivers to communities and taxpayers.

“The decisions we make are no longer for us but for the next generations that follow,” Dietrich said.

By working collectively with the government, processors and producers, the Canadian dairy industry has sustained more than 50 years of price stability in what had been a fragmented market.  end mark

Karen Lee
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Wisconsin Farmers Union to conduct additional meetings

As a follow-up to the series of meetings on dairy supply management held around the state in March, the Wisconsin Farmers Union will hold three additional meetings in April.

The presentation by the Canadian dairy farmers was filmed and will be shown at the Marshfield and Platteville gatherings. All three meetings will offer opportunities for farmer-led discussion on the current dairy crisis. Farmers planning to speak at that event will be limited to three to five minutes and are encouraged to bring a written copy of their statements. Government officials, dairy processors and other decision makers are also invited.

Meeting dates and locations include:

  • April 10, 7:30-9:30 p.m., Richfield Town Hall Municipal Building, Marchfield

  • April 12, 7:30 p.m., UW-Platteville Pioneer Farm, Platteville

  • April 16, 12:30-3 p.m., Barron Electric Co-op Meeting Room, Barron

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