Serve Canadians, not lobbyists

August 12, 2015   ·   1 Comments

I read with great interest Prof. Bruce Muirhead’s guest editorial on Supply Management on July 31, 2015 (see  Only in the fine print at the very bottom of his guest editorial is it disclosed that Prof. Muirhead is an ongoing beneficiary of a Supply Management member, Egg Farmers of Canada.  Perhaps having a significant part of his pay cheque tied to the survival of Supply Management has clouded or biased Prof. Muirhead’s outlook.

On the basis of fairness and balance, I ask for equal opportunity to respond to Prof. Muirhead’s unsubstantiated allegations, half-truths, and misleading statements.  Here is my Letter to the Editor in response.

Prof. Bruce Muirhead postulates that the US government’s desire to eliminate Canada’s Supply Management (“SM”) System is proof that SM works to protect Canada and Canadians.  I agree that SM is excellent for the 17,000 SM farmers who are the highest paid farmers in Canada; SM farms are just 8% of all Canadian farms.  While the SM system excludes most foreign products that compete with SM commodities, this is no proof that SM is good for Canadians.  Unfortunately, Canadians are price gouged about 38% more for milk, and from 50% to 300% more for other SM commodities (eg. cheese, eggs, chicken, & turkey) than what the vast majority of the world pays.

Canada’s import tariffs for SM goods, as high as 285%, are imposed on Canadians, supposedly to protect SM producers.  If these tariffs were reduced, likely the profitability of SM farmers would be reduced, bringing them in-line with non-SM farmers.  Only the most inefficient, negligent, or incompetent SM farmers would be threatened by that tariff reduction, yet all Canadians would benefit from the billions of dollars per year saved by reduced retail prices for these food staples.

From 1990, NZ dairy exports have grown from NZ$2.1 Billion to NZ$15.5 Billion in 2014.  That’s up 738%, or an average growth rate of 8.8% per year, doubling and re-doubling in size every 8 years.

In the same time period, Canadian dairy exports went from CDN$196.5 Million to CDN$281 Million.  That’s up 43%, or an average growth rate of 1.5% per year, doubling and re-doubling in size every 47 years.

Note that NZ’s non-SM dairy system enjoyed 17 times greater growth than Canada’s SM dairy system.  Here is the greatest cost to Canada and Canadians; the SM imposed loss of opportunity, prosperity, and jobs; punishing all Canadians so that SM farmers, just 0.05% of all Canadians, can enjoy higher profits and no competition.  The potentially available growth that Canada could have had was pissed into the wind by SM’s dysfunctional thinking and actions.

SM says they protect family farms in Canada.  In reality, the number of Canadian dairy farms has dropped from 25,825 in 1993, to  just 11,962 dairy farms left in 2014, a 54% loss, or an average drop of 3.7%/yr, halfing and re-halfing every 19 years.  The mergers and acquisitions (M&A’s) of dairy farms are good for SM farmers, and for the Big Ag. corporations who buy them out, concentrating ownership more and more.  However, M&A’s reduce competition, increase systemic risk, and hurt rural Canada’s prosperity.

When NZ finally ended their dysfunctional SM dairy system in 2001, the concentration of NZ dairy ownership was at the extreme; Fonterra had 96% market share, and only two weak competitors (Westland Milk Products on the West Coast and Tatua Cooperative Dairy Company in Morrinsville, Waikato), who shared the other 4%.

I suggest this extreme concentration of market share (which in turn was directly caused from the delayed killing of NZ’s SM system until 2001), is the cause of NZ citizens paying high dairy prices since 2001.

All of NZ dairies grew tremendously since the NZ de-regulation in 2001, but Fonterra’s competitors have grown faster than Fonterra. Small and nimble beats huge lumbering monsters every time.  Let this be a lesson for all SM members for when Canada’s SM system is finally killed, as the new entrants will serve Canadians better, faster, and cheaper than the fossilized remnants of Canada’s current SM system.

Since 2001, Fonterra has steadily lost market share. That is why Fonterra only has 87% market share today, a 10.3% loss since 2001.  Today, Fonterra has 6 competitors; Westland, Tatua, Synlait, Open Country, Awarua, and Miraka.  Oceania Dairy Ltd, and Yashili, are two new Chinese owned startups that will soon be operational in NZ, raising Fonterra’s competitors to a total of 8.  This will help normalize NZ’s dairy industry more and more each year; giving NZ consumers better choices and more competitive prices.

Canada can learn from NZ’s mistakes, by ending the corrupt and dysfunctional SM system before the bitter end that NZ waited for.  The sooner the inefficient and ineffective SM system is dismantled, the better for Canada and Canadians.

Nobody is proposing Prof. Muirhead’s fallacious argument that Canada’s dairy sector is abandoned and destroyed, and all of Canada’s dairy supply be sourced from the lowest bidder anywhere in the world.  It is sad that SM caused or contributed to a slow rot and loss of productivity as compared to non-SM systems in other countries.  SM’s tyrannical, negligent, and inefficient reign for the last 44 years has terribly hurt Canada’s SM industries.  To save SM farms and processors from the natural consequence of the misguided SM system, they will have to receive significant remedial training and government assistance for many years after they are unplugged from the SM heart & lung machine.

Prof. Muirhead says farmers in dairy superpower New Zealand are staring bankruptcy in the face due to downturns in the dairy export markets, especially China.  The greed of NZ’s Fonterra has enticed them to export about 95% of NZ’s total national production of dairy products; 5% kept home for domestic consumption.  Prudence says you should never have more than 33% of your business with one customer, and never more than 55% market share.  Fonterra violated these rules, and is now paying the natural consequences for their greed and imprudence.

In Canada, SM dairy quality is questionable.  For somatic cell counts  (ie. puss) in the milk from Jan. to June 2015, Manitoba had the worse milk in Canada, 17% worse than the Canadian average.  BC had the best milk, which is 14% better than the Canadian average somatic cell count.  The worst month for a Province was 45% more contaminated than the best month.

For bacterial contamination in Canadian milk from Jan. to June 2015, the monthly variability across all Provinces is 48%, which shows an out of control situation, indicating poor dairy management.  Nova Scotia had the worse milk, 208% higher bacterial count than the Canadian average.  New Brunswick had the best milk, which is 57% lower than the Canadian average bacterial contamination. The worst month for a Province was 13 times worse than the best month.  Again, totally out of control.  This poor quality milk wasn’t dumped, it was sold to unsuspecting consumers.  Thank God for pasteurization.

The earliest available Canadian milk quality data is 1998.  For somatic cell count from Jan-June 1998, the minimum contamination has gotten 5% worse between 1998 and 2015, but all of the other statistics are somewhat better in 2015.  For bacterial contamination, everything is significantly worse in 2015 as compared to 1998.  If SM dairies cared about consumers, they’d be doing continuous improvement; not resting on their 1998 mediocrity.

How can Canadian dairy producers argue they need to retain their dairy monopoly under Supply Management when they charge 38% to 300% more, but produce poor quality products that are significantly worse now than 17 years ago.  Unfortunately, SM dairy farms and/or processors seem to feel there is no need to improve when your customers are forced to buy SM dairy products.

It isn’t just dairy.  Other SM products such as eggs and chicken show similar mediocrity and disrespect for the Canadian consumer.  I haven’t studied turkey, so I am unable to comment.

In spite of SM failing Canadian consumers, SM has the unanimous support of all major political parties.  Apparently, most politicians feel that serving SM lobbyists is more important than serving Canadians.

It is time that SM and its dysfunction, corruption, negligence, and incompetence becomes an election issue.

Glenn Black


Small Flock Poultry Farmers of Canada

Providence Bay, ON

Readers Comments (1)

  1. Stu8fromNZ says:

    I Have just read your article, and while you make some good points there are some mistakes with respect to the New Zealand dairy industry.
    Firstly any form of Supply Management in New Zealand in the form of tariffs were removed in the 1980’s.
    Secondly, Fonterra is a farmer owned co-op that was formed in 2001 with the joining of the New Zealand Dairy Board, Kiwi Dairy co-op and New Zealand Dairy Group Co-op. While this formed a single large Dairy company, no new tariffs or SM were taken.
    Thirdly, the domestic markets in New Zealand have always been very small compared with the amount that has been produced. For this reason 95% of produced Dairy products are exported to over 140 countries. Only 5% is sold within New Zealand.
    Finally, your point about the New Zealand consumers pay the price for dairy is that there is little compertition on the retail space. The price is driven not by Fonterra but by the 2 large super market chains.
    A small note to end on the issue you are now facing with SM, if these are removed, the dairy industry will manage and develop into one that delivers profit and growth, while offering the consumer more choice and better prices.


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