Supply Management in the Ontario Dairy Industry Essay

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The dairy industry is an integral part of Canadian agriculture. It is the third largest farm commodity after cereal grains and beef cattle. In 1979, it constituted 1/5 of total farm cash receipts. Its total worth was $2.8 billion. Of this, 60% came from farm sales of milk and cream, 30% from sales of calves and cows and 10% from federal government subsidy programs (Forbes et al., 1982). In 1988, it grew to $3.8 billion and a further $3.87 billion from value-added products (Morin, 1990). In 1979, 6.9 million kilolitres of milk were sold in Canada. Thirty- seven percent was sold for fresh milk purposes (fluid milk) and 63% for was making dairy products (industrial milk) (Forbes et al., 1982). Dairy production is important…show more content…
Therefore, elevated quota prices are an indication that dairy farmers are being overpaid (Forbes et al., 1982). The supply management pricing formula gives small and inefficient producers enough income, which would not be adequate for producers under competition. For example, the flock size of Ontario egg producers is less than the minimum efficient size while the average flock size in the United States is greater than this minimum efficient size (Schmitz, 1983). Supply management causes inefficiencies in the dairy industry. Overlaps in the raw milk assembly routes lead to higher transportation costs and small milk processing plants are inefficient because they do not achieve the economies of scale of larger plants (Forbes et al., 1982). The system also lacks competition. Supply management raises prices to unrealistic levels, which reduces growth and development within the industry (Oppedal, 1988). In a free market, there is price competition. This can lead to price wars and, therefore, lower prices for consumers. Some provinces, like Ontario, do not have minimum prices for fluid milk. Grocery stores, especially in border towns, lower the price of milk to that of American stores. By using milk as a loss leader, grocery stores can bring in more customers because milk is a necessity (Sauber, 1988). Supply management
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