🇨🇦 Lecture 3: Introduction to the Dairy Industry

Large Evolution in the 60’s – Quota Established

Supply Management

• Officially Adopted in 1972

• Optimizes milk production

  • vs. maximizing milk production (USA)

• Milk supply = milk demand

• Avoids surpluses and wasted milk

• Stability in milk prices and producer profits

• Part of Canada’s legislation

Supply Management: 3 pillars

PPI

1. Producer pricing

2. Production discipline

3. Imports management

Producer Pricing

• Producers receive fair price for milk

• Prices set by Canadian Dairy Commission and Provincial Boards

  • Producers paid based off milk components (mainly butterfat and protein)

  • Price set to cover on-farm production costs + profit margin

  • Consumer cost of living is also considered

• Dairy producers are not subsidized in Canada

• Other countries subsidize dairy due to large fluctuations in market

Production Discipline

• Stable supply of Canadian dairy products to meet Canadian consumer demands

• Producers must purchase quota, entitling them to produce certain amount of milk

Quota in Alberta vs Ontario

• Quota in Alberta = $52,987/kg of butterfat/day (Dec 2024)

  • Free trade

• Quota in Ontario = $24,000/kg of butterfat/day (Dec 2024)

  • Price is capped

How much would quota cost for the average farm in Ontario?

• Average herd: 98 cows

• Average milk production: 35 kg/day

• Average fat production: 4%

• 98 cows × 35 kg milk/day × 0.04 percent butterfat production × $24,000/kg butterfat/day = Over $3.3 million

Quota Flexibility

• Some flexibility allowed with quota

  • Small margins (~1-2%) acceptable for overproduction or underproduction

• Financial penalties for under or overproducing

How do dairy producers predict and control milk production?

• Cow nutrition

• Number of cows

• Underproduction credits

  • Producers can “save credits” when underproducing to allow overproduction later

  • Producers can sell underproduction credits to other producers

Imports Management

• Limited foreign dairy imports to ensure Canadian demands are primarily supplied by Canadian dairy

• Changes to dairy import rules:

  • Previously there were few imports of dairy products

  • 2020: Changes to North American Free Trade Agreement (NAFTA)

    • Canada-United States-Mexico Agreement (CUSMA) created

    • Allows additional dairy imports into Canada

    • Compromises Canadian Dairy Industry

Canada vs US Dairy

• Canadian dairy farms:

  • ~ 1.3 million dairy cows + heifers

  • Supply management

  • No federal subsidies

  • ProAction

  • No bST (bovine somatotropin)

  • Local supply to meet local demand

• US dairy farms:

  • ~ 9.3 million dairy cows + heifers

  • Free market

  • Dairy is heavily subsidized

  • bST

  • Milk produced for domestic use and exports

Bovine Somatotropin (bST)

• a.k.a. recombinant bST (rbST) or bovine growth hormone

• Produced naturally by cows

• Genetically-engineered hormone supplemented to cows to increase milk

• Legal in USA

  • No risk to human health

• Illegal in Canada and all EU countries

  • May increase mastitis, infertility, and lameness