Wednesday, July 25, 2018

I know you don't care, but. . .

When my son was young, he was always reading encyclopedia or baseball facts or Guinness Book of World Records. He would come to us with something that caught his eye that he had to tell someone.  He always started with "I know you don't care but. . .  the shortest baseball player ever was . . . " or some other wondrous thing. That is how most of you will likely view todays blog. Interesting to me but of limited interest to anyone not milking cows.

Farm Babe writes a blog which shows up on my FB feed. Today she was discussing the farm crisis because of Trump's tariff war with China coming back to bite them.  Farmers are in Crisis the hurt they feel is real. She said that 90% of the dairy farms in America had disappeared in the last several decades. So I wondered how our dairy farms were doing since apparently our supply management system which keeps them from going broke is responsible for the death of the American dairy industry.

The Canadian Dairy Information Centre has more information than I ever wanted to know but does have a very good database which I proceeded to plunder. Since 1959, our dairy cow numbers have dropped from 2.9 million to 900 thousand in 2017. Since 1967 our dairy farm numbers have dropped from 174,000 to  19,400 in 2000, roughly 89%. Between 2000 and 2017 another 8,400 left the industry, for a total of 94% in the past 50 years.

Supply management was introduced in 1972 to end the boom and bust cycles that were destroying our dairy industry. Farmers were at the mercy of the processors, prices dropped in spring when cows went to pasture and supply mushroomed, while in winter there was sometimes not enough milk to meet demand. The new system was intended to supply the Canadian market only. No imports or exports. Quota was assigned to farmers based on historical production and estimated Canadian consumption, farm gate prices were determined at cost of production plus a margin. Both quota and prices were adjusted annually. Farmers met their quota or lost it. Overproduction was punished.

One can argue whether or not supply management has outlived its usefulness. (My theory is if the Americans are against it, it must be good for Canada. Why did the Americans hate the Canadian Wheat Board so bad if it was such a terrible cost to Western Canadian grain farmers?).

Trends in Canadian Dairy Farm and Dairy Cow Numbers
The large numbers exiting the business in the first 15 years were likely unable or unwilling to finance the improvements to their barns and milk houses to meet the stringent regulations to produce Class 1 milk. Their herds were small and facilities old. They took advantage of the fact that the new production quota had a sale value. It wasn't supposed to at first, it was transferred with the cows if the herd was sold but cows with quota were worth more than cows without.  Eventually, the government gave up and allowed the direct sale of quota. Today it costs about $35,000 for quota to milk one cow for one year.

Canadian Milk Production and Production per Cow
Canadian milk production fluctuated closely around 8 million tonnes per year. Technically it should have increased with the increase in population but consumption of dairy products declined at roughly the same rate, hence the flat line. Milk production per cow continued to increase steadily. The biggest problem was to prevent surplus production on a national basis.

As farm numbers dwindled, dairy cows per farm increased. Canadian average increased from 14 cows to 86 cows between 1967 and 2017, almost coincident with Ontario. Quebec herd numbers are small, averaging 64 cows in 2017. BC has the largest average herd size of 196 cows in 2017 with Alberta at 150. These are the four largest dairy provinces but BC and Alberta have 900 farms while Ontario and Quebec have 9,000 farms, with 60% of them in Quebec. The Canadian dairy lobby is Ontario and Quebec.  What the rest of the provinces want is kind of irrelevant.

Herd Size in Canada,  British Columbia, Alberta, Ontario, and Quebec
In 2017 Canada produced 9.25 million tonnes of milk.  What did we import and what did we export?
Imports are tricky as of course, we would rather import nothing. We do not have that luxury even if we truly wanted it as we do not produce many products here, such as decent European cheeses. Also, our trading partners would like to swamp us so we have to give them something. We keep dairy products out of Canada with high tariffs. I don't know if they are 300% or not and am too lazy to look it up but they are high. Certain imports have been negotiated and are allowed in, up to a certain amount. Imports under Tariff Rated Quota in 2017 amounted to 141.6 thousand tonnes valued at $636 million. Imports outside TRQ were 45 thousand tonnes valued at $236 thousand dollars.

Canadian Imports of Dairy Products in 2017
In 2017 Canada exported 171.8 thousand tonnes of dairy products valued at about $400 million dollars.

Canadian Exports of Dairy Products in 2017
Supply Management is far more complex than my simple explanation, as are the Import Quotas.  How things will shake out in the short run I have no idea.  That is up to our negotiators. In the long run, Supply Management has to go but to be replaced with what? And how to shut it down? Buying out existing quota at today's price is impossibly expensive and provides those dairy farmers who have been in business a long time a huge windfall.

I need a bowl of ice cream.

Note, an American gallon of milk weighs 3.9 kg, if anyone wants to convert.




10 comments:

  1. I had cousins in Manitoba who were dairy farmers for decades. When the son retired without a child to take over the operation, I assume he sold his quota. I hope he got a good price for it. He died a couple of years ago, so that's that.

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    1. If you know the year he sold his quota, you can look up how much he likely got paid for it. The website I linked to has historical quota prices, or did, the last time i looked.

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  2. "My theory is if the Americans are against it, it must be good for Canada."
    You are definitely on to us there. Actually if it's good for American businesses it is likely bad for American citizens in general. With a bit of time I could probably make a good case for this.

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    1. The businesses run the government (well, now with the Russians, too). How's it working out for you as a citizen?

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  3. Mmmm, ice cream! Looks like dairy farming and grain farming are in the same situation - fewer, larger producers, with the big guys getting bigger and the little guys fading away. It's not a good thing to lose that diversity; but I don't see any other future when the production costs are so high that economy of scale is the only thing that allows farmers to stay (marginally) profitable.

    Interesting that the milk production has remained constant all this time. It never occurred to me that people were eating less dairy. Huh. Must... go... eat... ice cream... now...

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    1. Dairy consumption seems to be picking up lately. Butter is back in style. For years, farmers were paid on milk fat (MF) content of their milk but no one ate butter (it was bad for you). So we tried to produce more milk protein and less MF. Now that we have finally realized butter is good for you and margarine bad or at least not so good, dairy farmers are back producing as much MF as possible.

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  4. Trump's tariffs have cost the farmers big time. His answer is to propose a one billion dollar relief package for farmers. All of this unnecessary.
    the Ol'Buzzard

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    1. Isn't it fun. He claims he is going to reorder world trade with zero tariffs, zero non-tariff barriers, etc. Yeah, right.

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    ReplyDelete