Posted by: AmeriCanadian Gal | February 18, 2013

Canadian Milk: Expensive, but more safe

dairy-cow
One would think that a basic commodity, such as milk, would be relatively the same from one country to the next; after all milk comes from cows, and cows don’t have national affiliations. However, it’s been interesting to learn the distinct and major differences among the Canadian and US dairy industries, as well the poultry and pork industry.

For those of you who remember me first posting “Breaking the Bank for Cheese”, you’ll remember me talking about how dairy prices are basically regulated within Canada by the government. This is because the Canadian Dairy industry uses a quota system for milk production. Each province manages the provincial fluid milk quotas and the Canadian Federal Government manages the industrial quota (for processed items) and determines trade policy. However, in hindsight I may have been a little too harsh on the Canadian Dairy industry. After learning more from others in Canada and researching more, I have grown a little fonder of Canadian Dairy, mostly due to the good product they produce…although I’m still not crazy about the prices.

Canadian Dairy Industry

Milk quotas are overseen by the Canadian Milk Supply Management Committee and they issue Market Sharing Quotas (MSQ) to each province for milk. Each individual dairy producer purchases shares from the committee then the amount of milk produced is dependent on the quota set, which is determined by the committee’s perceived demand. Therefore, producers have to increase or decrease their production based on the change in quotas.

The purchase of these shares is actually quite expensive, and shares can be bid on by in an auction type environment. But it’s quite pricey to bid on these shares. Currently, to be able to ship one kilogram (a cow’s daily average production) is worth about $25,000, which has been capped in the market. Therefore, a dairy farmer with 50 cows producing milk would have a quota asset value of $1.25 million. If the producer wanted to increase their quota, then they’d have to buy/bid on one additional kilogram at $25,000. Based on these high costs of quota shares it is very difficult for someone new to the market to start up a dairy operation; and that is a main reason small dairy farms have been shrinking. After World War II, there were 500,000 dairy farms in Canada; in 2011 there were fewer than 13,000 (a 97 percent decline). It is argued that if there was no quota system then the large American companies or multinationals could enter the Canadian market and undercut Canadian product prices as well as skew the Canadian market to lower prices. However, these production quotas are not just unique for the dairy industry, but affect other Canadian food markets including, eggs, chicken and turkey (these quotas are established by the government).

US Dairy Industry

In the US it’s the same results of shrinking dairy farms, but a different story. In 2001, there were 97,460 dairy operations and in 2009 there were 65,000 operations, a decline of 33 percent. In the US, dairy prices are controlled by the demands within the market. There are no quotas so milk produced has to find home somewhere; as a result, it is basically the law of economics. If the supply of milk is high and demand is low, then the price will fall, but if supply of milk is low and demand is high, the price will rise. This open market creates more fluctuation of prices for US dairy farmers and in a market where the price is low it is difficult for small family farms to stay in operation, which is why there has been a trend toward large operations (500+ milk cows) that have gained a greater share of total milk production in the US. In fact, there are reports that there are over 40 large farms that have 1,000-5,000 cows just in Michigan, Ohio and Indiana. These expansions are mostly due to expansions of family farm operations or new construction with financing from investors.

Yeah, but what’s in it for me? Is the milk actually different between the US and Canada?

Yes, the actual milk in Canada is different from the milk in the US, as Canada has stricter regulations on the use of hormones and additives.

For example, rBST, a growth hormone for dairy cows to stimulate milk production, is not allowed in milk in Canada, but it has been used in the US. Also any cows that are administered antibiotics have their milk discarded until there is no longer than trace of antibiotics in the milk. All milk is tested for antibiotic residues and if there is any milk that tests positive for antibiotics, the product is not sold to the public and the farmer responsible for the contaminated milk is fined and has to cover all expenses of the discarded shipment. (In poultry and pork within Canada, antibiotics can be used, but there are no growth hormones administered. However, both are administered to Canadian beef cattle just as they are with US beef cattle.) The US also does test for antibiotics, but the FDA allows for “safe levels”. Recently there has been controversy in that the tests for antibiotics are only testing for traditional antibiotics, like penicillin, but there are several new antibiotics that are not covered in the test that farmers are now administering to their cattle. Although Canada is ahead of the US in banning these hormones and antibiotics in milk, they are still behind Europe, where some EU countries like Denmark and Sweden ban all growth hormones and antibiotics from all human food.

So as you can see there are some unique differences between the Canadian and US Dairy and meat industries, especially when it comes to price and product quality. So it really depends where your priorities lie…less expensive product or better quality product. I think I’m starting to lean more towards better product, but I just don’t like shelling out lots of money either. But if healthier product will prevent chronic diseases and less health side effects, then it’s worth it.

Benefits of Canadian Dairy:

  • For the most part, supply is kept well in line with demand (Producer)
  • Producers are compensated fairly for their products and many dairy farms in Canada still are family farms (Producer)
  • Farmers’ margins and returns are predictable as dairy prices remain stable without fluctuation in the market (Producer)
  • Higher quality milk with less hormones and additives (Consumer)

Disadvantages:

  • Difficult for new entrants into the market (Producer)
  • Increased consumer prices due to supply quotas (Consumer)
dairy
Comparison of US & Canada Dairy Prices Source: http://www2.macleans.ca/2011/08/15/the-25000-cow/

Sources:

http://www.agmrc.org/media/cms/staffpaper349_42EAB16A91E4F.pdf

http://www.milk.org/Qex/QexResults.aspx

http://www.farmsincanada.ca/research/dairy.html

http://www2.macleans.ca/2011/08/15/the-25000-cow/

http://usda.mannlib.cornell.edu/usda/current/USDairyIndus/USDairyIndus-09-22-2010.pdf

http://www.ers.usda.gov/media/430528/err47b_1_.pdf

http://www.dairyfarmers.ca/our-commitments/to-food-safety

http://www.cielap.org/pdf/AHGPs.pdf

http://www.ces.ncsu.edu/depts/foodsci/ext/pubs/antibioticresidues.html

 

*Update 2018:  During the NAFTA Negotiations there has been a lot of talk about Canadian Milk.  This article talks about whether now growth hormones will be part of the Canadian milk supply post-USMCA.  https://trib.al/CbHe7mV


Responses

  1. Very interesting! I didn’t know any of this stuff. I’m pleased that there aren’t any antibiotics in our dairy products, that’s for sure. 🙂

    • Thanks Michelle! Yes, it’s very interesting to find out the differences – stuff I never really gave much thought to previously!

  2. I nominated you for a Shine On award. 🙂
    http://michellelindah.blogspot.ca/2013/02/shine-on-blogs.html

  3. Just found this article. Outrageous Canadian milk prices are maddening to me and I can’t believe how few people understand the monopolistic situation here. Thanks for a great article

  4. I think North Americans should take note that we pay much less for our food generally than most others in the world. In some countries it is because they are poor that they pay more, but also in countries like France they pay more because quality food is more important there. We have been seduced by cheap food grown by agribusiness that undercuts small farmers, and uses cheap labour that exploits people both in our countries and in Latin America, China or where-ever. It is important to acknowledge the work, time and skill that is needed to create food and bring it to our stores, all the steps in the value-chain who deserve the respect of decent wages and working conditions. When I buy milk, cheese or yoghurt, I’m glad that working people along the route have been compensated for their input, and it’s worth the higher price.

  5. From what I understand, the US government also has substantial subsidies for US dairy farmers, for example price guarantees under which the federal government supports producers if the market price for their product drops below a certain pre-determined price. Also, multiple state and federal agencies, from National Defence to Social Services are also engaged to purchase milk and milk and milk products to prop up demand .

    USDA Link: http://www.fsa.usda.gov/FSA/newsReleases?area=newsroom&subject=landing&topic=pfs&newstype=prfactsheet&type=detail&item=pf_20110804_dppsp_en_mpsp.html

    From school lunch programs to military stockpiles of powdered milk, there are apparently dozens of such government market supports in place south of the border. In fact, the term “government cheese” as a euphamism for welfare is apparently due to US social services program distributing cheese or cheese coupons to those on social assistance and there is a story about Richard Nixon throwing a fit when he learned about 4 million pounds of moldy cheese some government agency had stockpiled in a cave.

    So it would seem that if you are an American, although the retail price for milk and dairy may seem low, you pay the difference via your taxes, even if you don’t buy the stuff.

  6. In Washington state, several dairy farms have voluntarily banned antibiotics for their cows as well as growth hormones. Therefore I will continue to shop there. The fat content in their milk is also higher which is healthier.

  7. […] The TPP opens more markets to Canadians, which pushes down the prices of everything, leaving little motivation to have more expensive Canadian-made products and food. It could even threaten the few industries that are still protected here in Canada, like dairy and poultry. And any dairy farmer could tell you that the difference between our dairy standards and those in the Uni…. […]

  8. Question: What are the names of the Dairy Farms that have banned antibiotics in Washington State. For example: Is Edaleen a better product than Home Dairies. We the consumer should be able to choose the best as well.

    • Sorry, I’m not familiar with the dairy farms within Washington state, so I’m not able to provide any comments on that. 🙂

  9. one of the big reasons for slightly higher dairy prices is due to the processors (the company that turns the raw milk into finished products)
    In the US the trend is towards refining the milk on site into value added products (usually through a co-operative)
    The reality is these co-ops end up at into like a supply management system it’s just a different name for it.
    Plus the US govt provides massive subsidies to the farming community as well. Although they try hard to avoid using that term.
    And finally, Canada is a massive country geographically tough to navigate (relatively speaking) with a small population. Transporting any type of fluid is expensive and prices are going to be higher. In the end though taking into consideration the different factors supply management ends up keeping the price affordable, provides living wages, market stability, and a quality product.
    Hard to argue with that.

    • Thanks for your comments and input! You make some great points.

  10. I am a dairy farmer in Manitoba and I would like to respond to some of your statements. Regarding the reason for decline of small dairy farms, I believe it has more to do with quality of life issues; eg: commitment and workload.
    The quota is a Catch 22. With Supply Management, you have a stable market and stable price. Without it, you would not want to be a dairy producer.
    There is the same issue with all commodities in agriculture: start up costs are over the top for any farm. That being said, the dairy industry has a generous New Entrant program (financed by producers) which assists new entrants.
    A good comparison to the quota system would be, if you wish to start up a Tim Hortons. You have to pay the franchise fee, which provides a strong market for your product. Without the franchise, this business would be just another coffee shop, which probably wouldn’t survive.
    When you compare the number of Canadian dairy farms in 1945 to the number in 2011( 97% decline), it would be more relevant to compare the same time frame in the US.
    I think you would find the decline in dairy farms in Canada was far greater prior to the implementation of Supply Management (around1973-4), than after. This would be due to other factors, including farming opportunites, which allowed for a better lifestyle than the demands of milking cows.
    It is worth noting that since the onset of Supply Management, the inflation rate on the milk price at the farm level has been less than the national inflation rate.l It is also worth noting that the farm gate price has little bearing on the retail price.
    I think it is only fair that consumers pay the cost of production. If farmers are expected to produce products below cost, it is not a sustainable industry.

    • Thanks for your input – it is great to have a subject matter expert provide some input! I will be the first to admit, that I don’t know enough about it to consider myself an expert about this, but rather was just researching printed material that I was able to find about the subject when I wrote the blog a few years ago. Thanks again!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: