The U.S. Farm Bill—which is effectively a subsidy to U.S. Dairy Farmers—was not renewed by the U.S. Senate prior to the December 31, 2013 deadline. This subsidy has allowed U.S. milk to be sold for years at a price far below that which covers an American dairy farmer’s cost of production.
Canada’s dairy industry on the other hand, is not government-subsidized, which is why there is a cross-border price difference. Furthermore, the price of U.S. milk is typically cheapest along regions in border-states, which is intentionally set to attract Canadian consumers.
“The Canadian dairy system is a stand-alone and doesn’t cost the average taxpayer anything,” explains Dave Eto, CEO of the British Columbia Dairy Association. “In the U.S., milk is marginally cheaper, but this is achieved by a system of subsidy that draws from their tax base. That just isn’t a sustainable business model, and it’s one the U.S. government is struggling with amidst a challenging economic climate.”
If the subsidy isn’t renewed in the near future, the end result could be a price jump of more than double current U.S. milk prices. This situation would also significantly impact other dairy products such as butter and cheese.
The good news for the Canadian consumer is the domestic dairy industry is far more stable. This is largely due to the utilization of the system of supply management. The end result is that Canadian milk prices aren’t nearly as prone to price fluctuations. In fact, producer revenues have risen slower than the price of inflation.
“We produce some of the highest quality milk in the world,” says Chilliwack, B.C.-based dairy farmer Jeremy Wiebe. “It’s interesting having a farm so closely located to the U.S. border. There are American dairy farms located just a few kilometers from here, yet our industries are operated so differently,” he says.
And when asked which system is the preferable one?
“A dairy farmer could be tempted to look enviously at the U.S. system of subsidy, but once you know a little better, you quickly realize that in Canada we have the vastly preferable system,” says Wiebe. “The cost of Canadian dairy products reflects the actual cost of production. This is just simple business sense.”
With a clear glimmer of pride he continues: “Our end-product is some of the best in the world and despite being a non-subsidized market, it’s available at very reasonable costs. I think we have a dairy industry that all Canadians should be proud of.”
Even if the U.S. Senate does come through with an extension to the U.S. Farm Bill in the next few weeks, market experts speculate their milk prices will go up 20-30 cents per gallon due to an increase in the world demand for U.S. milk. This is largely driven by increased Chinese demand.
“A series of climactic events caused a shortfall in milk production by New Zealand producers, which is China’s regular source,” explains B.C. Dairy’s Dave Eto. “There is also current speculation that demand for U.S. butter exports will go up 60% for the same reason”.
With a slight pause, Eto posits a reversal of fortune that may be in the near future: “If the U.S. dairy industry does lose their subsidy, and Canadian currency drops a little in value, you might actually start seeing Bellingham residents raiding our stores for milk.”
The BC Dairy Association (BCDA) is a not-for-profit organization that represents the B.C. dairy industry, by advancing the legitimate business interests of B.C.’s dairy farmers and by raising awareness of the dynamic, economically sustainable nature of the industry, which consistently supplies high-quality products to consumers. The BCDA implements innovative advertising, promotion and nutrition education programs and advocates for producers’ concerns such as the environment, animal welfare, product safety, employee training, trade and regulatory matters.
Source: The BC Dairy Association (BCDA)
