Saturday, 16 January 2016

What You won't Read in the Globe: More

A couple of important issues, one I researched and wrote about, the other by Tom Philpott who does excellent work on agriculture stories for Mother Jones. The dairy piece was originally in the Island Farmer.

A Shortage of Butter: Sounds Like Good News for Dairy Farmers, It's Not 

This is a classic case of a loophole, big business capitalizing on any chance to improve the bottom line, and serious unintended consequences.  The impact of what appeared to be a minor bureaucratic decision  is being felt in Canadian kitchens, food processing plants,  and could do serious economic damage to Canada’s dairy farmers.

A few years ago Federal officials were trying to decide where so called “protein isolates” would fit into the stiff tariff schedule that limits imports of cheaper dairy products like yogurt and cheese. These high tariffs maintain the integrity of Canada’s supply management system that tailors milk supply to Canadian demand using quotas, while assuring farmers a fair price.  Protein isolates are essentially raw protein, like the whey protein used as a dietary supplement. Think of whole milk with the fat and minerals stripped out.  The bureaucrats decided the isolates are a protein “substitute”, not necessarily a dairy product, so they come into Canada tariff-free.  No one paid too much attention then,  but  slowly, over time, a trickle of cheaper protein isolates, almost all from the United States,  has become a tidal wave.  Now Canada’s largest dairy processors like  Parmalat, Saputo,  and Agropur, are helping their bottom line by using the cheaper protein in their cheeses and other dairy products. But it doesn’t end there. The processors still need the fat from whole milk to mix with the raw imported protein to produce their cheeses.   This is happening at the same time that dieticians and doctors are telling Canadians it’s OK to eat butter again.  So over the last year  butter, and butterfat, have been in big demand, and for some, short supply.  Farmers nationally have stepped up production by more than 7% on a butterfat basis to meet the shortfall, but because there’s no additional demand for the protein in the whole milk  (usually made into skim milk powder), farmers aren’t paid the full cost of production price for this additional milk, and a lot of the surplus skim milk is being dumped or fed to livestock.

That’s unfortunate, but the more serious impact I think is that it’s given the business media a fresh opportunity to attack supply management.  “Supply management falls butter-side down”  in the Globe and Mail,  and  “Supply management is expensive, irrational — and doomed” in i-Politics amongst others.   What especially irritates me about these articles is that they blame dairy farmers (and always the articles are  accompanied by shots of Holsteins) for lobbying to protect a “broken” system, when it’s large multi-national dairy processors that have created the problem. There’s no benefit flowing back to dairy farmers or consumers  from  the importation of this cheaper protein. The only exception:  Quebec farmer-owned Agropur, shame on it, is one of 3 dairy processors who’ve publically stated they use the imported protein.  Parmalat,  owned by a large Italian dairy, and Saputo by a Montreal family are the others. Most in the dairy industry say other big processors are probably using the imports as well. 

Here’s some better news. As Islanders, we can celebrate the fact that PEI’s dairies, ADL and Purity, do not use this imported protein.  And let’s also enjoy the world recognition ADL cheeses have received recently:  ADL, using a recipe from Cows, produces the Avonlea Clothbound Cheddar that won SuperGold at the World Cheese Awards in England  in late November. And ADL’s own labeled cheddars won several awards at the British Empire Cheese Show in Ontario in mid-November.  I’m not an expert, but maybe the fact that only PEI whole milk, rather than a tasteless imported protein isolate, is used to make these cheeses had something to do with these successes.  

One more thing for consumers to watch for: this symbol:

 that says 100% Canadian milk.  That’s your guarantee too that there’s no imported protein.

Unfortunately for farmers  the trade in protein isolates won’t end quickly or easily. The U.S. dairy industry would launch a trade investigation before the ink was dry on any new government regulation trying to control it.  The big multi-national dairies themselves are playing a game of economic chicken saying they’ll stop only if the others do.  As well they’re getting ready for more competition from cheaper European cheeses if the big EU trade agreement is ever ratified.   Consumers really are the only economic force that could convince the big dairies to do away with these cheaper imports and stick with all-Canadian milk.  On PEI at least that’s easily done, we just have to buy local.

The Oregon Militia Is Picking the Wrong Beef With the Feds

Arizona rancher LaVoy Finicum guards the Malheur National Wildlife Refuge on Tuesday, January 5, 2016, near Burns, Oregon. Photo by: Rick Bowmer/AP
On January 2, a band of armed militants—led by Cliven Bundy's son Ammon—stormed Malheur National Wildlife Refuge in Oregon, seizing the visitor center both to protest the tangled legal plight of two local ranchers convicted of arson on public land, and to defy the federal government's oversight of vast landholdings in the West. (You might remember that Cliven launched his own successful revolt against federal authorities in 2014 to avoid paying grazing fees on public land in Nevada.)
For all the slapstick comedy on display at the still-occupied government complex—rival militias arriving to "de-escalate" the situation, public pleas for donated supplies including "French Vanilla Creamer"—the armed and angry men behind the fiasco are pointing their rifles at a real problem. In short, the ranchers who supply the United States with beef operate under razor-thin, often negative profit margins.
It's not hard to see why grazing rights are an issue. Ranchers' struggle for profitability gives them strong incentive to expand their operations to increase overall volume and gain economies of scale. A 2011 paper by the US Department of Agriculture found that the average cost per cow for small (20-49 head) operations exceeded $1,600, while for large ranches (500 or more head), the average cost stood at less than $400. Large operations are more efficient at deploying investments in labor and infrastructure (think fencing), the USDA reported.
To scale up, ranchers need access to sufficient land. And in the West, land access often means obtaining grazing rights to public land through the Bureau of Land Management. Hence the bitter dispute playing out in Burns, Oregon: The ranchers accuse the federal government of ruining their businesses through overzealous environmental regulation of that public land.
Now, it's clear that what the Malheur militiamen appear to be demanding—essentially laissez-faire land management based on private ownership and overseen by local politicians—is a recipe for ecological ruin. In a recent New York Times op-ed, environmental historian Nancy Langston described what happened last time such a policy regime prevailed in the area: "By the 1930s, after four decades of overgrazing, irrigation withdrawals, grain agriculture, dredging and channelization, followed by several years of drought, Malheur had become a dust bowl."
But the real beef that struggling ranchers should take up with the federal government involves not zealous federal regulation, but rather its opposite: the way the feds have watched idly as giant meat-packing companies came to dominate the US beef production chain. Ranchers run what are known as cow-calf operations—they raise cows up to a certain weight on pasture, sell them to a feedlots to be fattened on corn and soybeans (and other stuff), and from there the cows are sold to companies known as beef packers that slaughter and prep the meat for consumers. As the University of Missouri rural sociologist Mary Hendrickson points out, after a decade of mergers and acquisitions, just four companies slaughtered and packed 69 percent of US-grown cows in 1990. By 2011—after another spasm of mergers—the four-company market share had risen to 82 percent, Hendrickson reports.
Such consolidation at the top of the value chain gives farmers less leverage to get a decent price for their cows. A market dominated by a few buyers is a buyer's market. The Colorado rancher and rural advocate Mike Callicrate has been making this point tirelessly for years. Callicrate thinks the Bureau of Land Management has been overly burdensome for ranchers in the West, he tells me, but there's a bigger problem that is "rarely mentioned" either by the gun-toting ranchers or the media covering them: "the historically low, below break-even market prices for livestock."
As the big beef packers scaled up and consolidated their market share in the 1980s and '90s, giant retailers led by Walmart did the same. The result has been steady downward pressure on the beef supply chain: The retail giants pressured the beef packers to deliver lower prices, and the beef packers in turn pressured ranchers. The result has been a big squeeze.
In the chart below that Callicrate created for a 2013 blog post, drawn from USDA data, the trend is clear: Compared with 40 years ago, nearly a third less of every dollar you spend on beef goes into the pocket of the rancher who raised the cow.
Chart by Mike Callicrate
Under pressure from this squeeze, ranchers have had little choice but to scale up or exit the business altogether—as tens of thousands have done:
Chart: USDA
Rather than demanding unfettered access to public land, the Malheur rebels could be agitating for federal antitrust authorities to take on the beef giants. As the New America Foundation's Barry C. Lynn has shown repeatedly, since the age of Reagan, US antitrust regulators have focused almost exclusively on whether large companies use their market power to harm consumers by unfairly raising retail prices. Those regulators have looked the other way when companies deploy their girth to harm their suppliers by squeezing them on price. So antitrust authorities okayed merger after merger, even when deals left just a few giant companies towering over particular markets. As a result, writes Lynn, "In sector after sector, control is now more tightly concentrated than at any time in a century." The meat industry is a classic example.
During the 2008 election, Barack Obama vowed to challenge the big meat packers and defend independent farmers and ranchers from their heft. As Lina Khan showed in a 2012 Washington Monthly piece, President Obama actually made a valiant effort to do just that—before surrendering to a harsh counterattack from the industry's friends in Congress.
The current presidential election would be an ideal time for beleaguered ranchers to bring corporate domination of meat markets back into the public conversation. Armed occupations of bird refuge visitor centers won't help with that struggle.

Monday, 26 October 2015

Where Will Your Milk Come From?

An election campaign isn't always the best time to be negotiating a huge international trade deal.  The just completed (but far from ratified) Trans Pacific Partnership became an important election issue in the just completed national campaign. Holstein cows walking in front of parliament hill became a potent symbol that dairy farmers were worried about the future of supply management, the regulated marketing system that limits production but assures farmers of fair prices. When the news of the deal broke the anxiety seemed misplaced. The Conservative government announced that Canada had given up just over 3% of the dairy market to imports, mostly from the United States and New Zealand. The strange part of the deal is that New Zealand had bet big on dairy exports to drive its economy (think Canada's oil sands without all the CO2). The Kiwi's were demanding access to the American market, and U.S. dairies in turn demanded access to Canada's.

There's a lot of confusion right now about the fine print in the deal, especially an escalator clause that kicks in after 5 years, and allows 1% per year increases in imports for 13 years. No one is sure if it's 1% of the total market, or 1% of the increase (the 3.25%), each year.  If it's the former then this deal is much worse than first expected.

The  other confusion is over the use of a hormone that allows cows to lactate (be milked) for longer than normal. rBST is allowed in the United States but not in Canada. Initially government sources said the U.S. milk that's imported would have to be free of rBST (meet the Canadian standards), but more recently Health Canada has backtracked and said it can't tell U.S. dairy farmers what they can do on their own farms.

A Quebec dairy farmers wrote an important commentary about Canada's milk quality versus he U.S.

Opinion: Consumers, beware the hidden costs of cheap dairy products

Dairy farmers take part in a protest in downtown Ottawa on Tuesday, Sept. 29, 2015. Dozens of dairy farmers from Ontario and Quebec gathered on Parliament Hill to raise concerns about protecting Canada's supply management system in the Trans Pacific Partnership negotiations. Sean Kilpatrick / THE CANADIAN PRESS
The recent Trans-Pacific Partnership trade agreement proposes to further open the Canadian marketplace to U.S. dairy products. It is still unclear exactly what products will be coming across the border, and how they will find their way to our grocery shelves. Will they be packaged and clearly identified as products of the U.S.A.? Or will they be blended into your favourite yogurt or ice cream along with Canadian milk without so much as a mention on the label?
Why should it even matter?
Almost a decade ago, Canadian dairy farmers decided to harmonize our farms nation wide. This was no small feat. Agriculture is a provincial jurisdiction, meaning each province has its own regulatory framework for standards and procedures. It was a tremendous undertaking.
What exists now is the mandatory Canadian Quality Milk program. There are approximately 12,000 dairy farms across this country, from Vancouver Island to Newfoundland. My farm on Quebec’s Gaspé Peninsula is one of 6,200 dairy farms in this province. We all must meet the same strict milk quality and production requirements. Canadian “on farm” milk quality surpasses regulations for public health and safety.
We haven’t stopped there. Our latest undertaking is the ProAction initiative. We are integrating the strict requirements of our quality program in an ambitious framework including animal traceability, animal welfare, biosecurity and the environment.
Nobody compelled us to do this. We did it for the integrity of our farms, and the confidence of our consumers.
Herein lies my problem with the TPP agreement: No other country in the world has the obligation to satisfy the food expectations of Canadian consumers.
There is no compulsion for U.S. farmers to meet Canadian Quality Milk standards. In fact, depending on which state you are buying your milk in, the quality standards are completely different. There is a national minimum standard that must be respected under the U.S. Food and Drug Administration, but their minimum standards are considerably less stringent than ours.
We have also rejected the use of rBST (growth hormone) in this country; not so in the United States. Will rBST dairy be shipped into Canada? We will have to take U.S. exporters at their word on this, since rBST cannot be reliably detected in milk. It seems rather ridiculous to bother with Canadian regulations, if we are just going to shrug our shoulders and take an exporter’s word for it.
Canadians should also be concerned about the other values you can’t measure in a glass of milk, like protecting fresh water resources. California has been the poster child for globalized agri-food production. Everything from dairy to lettuce can be mass-produced cheaply under the year round Californian sun. Californians are now coming to grips with the fact that 80 per cent of their fresh water is pouring into agriculture; agri-business has unfettered and unregulated licence to drain the aquifer. And that’s exactly what they are doing.
How about social-justice issues like fair wages for farm labourers? There is a movement in the United States to address the terrible conditions that migrant workers face in the U.S. dairy sector. If you are interested in knowing how bad these conditions could possibly be, go to YouTube and search “Milk with Dignity.” Prepare to be stunned.
I am not vilifying American dairy farmers; they have had no choice but to adapt to their economic environment. If Canadian dairy farmers were to forgo our initiatives in quality and social responsibility, I’m sure we could make our milk more cheaply too.
Before we start celebrating the TPP’s access to dairy imports as a triumph for shoppers, consumers had better reconcile the hidden costs of cheap dairy.
 Jennifer Hayes is a dairy farmer in Shigawake, Que.

Friday, 16 October 2015

Finding Fairness for Small Farmers

It's great to hear the words "fair trade" linked to Certified Island Beef.  This is an extension of a beef marketing strategy that's been around for more than a decade now. It starts with what consumers are looking for and works its way back to the farm.  The Certified brand assures Triple A quality, no growth hormones, and humane handling.  This means it takes a little longer for steers to get to market weight, but farmers are paid extra to compensate.  The Certified product has been a big success in upscale Ontario markets, and it's now available through Sobeys here in the Maritimes. It's so important that Island farmers produce outside commodity markets where they can, and get rewarded for doing this. The "Certified" program is an excellent example of this.

There's another group of farmers who need some attention to the bottom line too: the market gardeners and small farmers who supply PEI's farmers' markets. I wrote this column with a suggestion about they might gain a little more income security:

Keeping Small Farmers in Business

They are the farmers everyone loves, the ones you see at farmers markets across the province. Chefs and foodies speak about them with reverence. For many consumers they’re the only “real” farmers they meet and talk to. We like them because they provide fresh produce and meat, often organic. They farm on a scale that many appreciate, harkening back to a simpler time of small mixed farms on the Island.  Here’s the but: if we like them that much we need to do more to make sure they stay in business.

Full disclosure: I have relatives who are market gardeners, and I did it myself for four years in the 1970’s before I realized I could make a much more stable living talking and writing about growing food .  (I still grow a large kitchen garden at home).

I wanted to write about this because I was privy to a conversation by four small farmers that ended in tears. They felt under enormous pressure to not only grow good food, but to also be that cheerful person who remembers everyone’s name, and has a story to tell about what they’re selling that week.  I don’t want to imply that these farmers resent the one-on-one with their customers,  they don’t, but it’s an extra job other farmers don’t have, and can chew up a lot of time and energy.

The other constant is that almost all small farmers are driven more by ideals and lifestyle than the bottom line. Most (not all) are one truck breakdown from bankruptcy.  Their costs aren’t huge, but they don’t have the scale of farming to build up surpluses when prices are good. It’s precarious at best. Does the fishing industry have an answer to this?

I had started my reporting career when Employment Insurance (Unemployment back then) benefits were extended to licensed fishermen (fishers if you wish). What I remember is then fisheries minister Romeo Leblanc was concerned that small boat cod fishermen in Newfoundland were starving during the winter, and obviously couldn’t do any jigging  in the frozen bays.

Now I appreciate that many people resent the fact that fishermen get EI.  I would argue that it’s the seasonal nature of their business that justifies the benefits, and that’s tied to one more important fact that often gets forgotten. The seasons are linked to the ecological health of the lobster stock, something you don’t see in Maine for example.  Maine lobstermen can fish year-round. In fact Maine fishermen are now making a virtue of harvesting molting lobsters (“new shell” is the marketing ploy), even though the lobsters have little meat,  are in the reproductive stage of their lives, and are vulnerable to predation  in holding facilities.

Perhaps a better example are oyster fishermen working public beds. They’re only allowed to use tongs, long double-handled rake-like tools, rather than mechanical dredging. It’s slow, hard work, but much more beneficial to the environment and the oysters themselves.  They have seasons as well. EI benefits are an important part of oyster fishermens’ yearly income.

So what about allowing smaller market farmers to get EI benefits?  Their work is definitely seasonal too. If we set certain production and  environmental standards, why shouldn’t they, like oyster fishermen, gain some income security too.

I realize this goes against  much of the political and economic  trends that slam seasonal work as something inferior, and anything that would promote it as simply wrong.  (I won’t be sending this column to Stephen Harper).   I tell my Toronto pals (2 of them) that  without EI, if the Bay Street boys had to pay enough so that oyster fishermen here could feed a family, only Toronto bankers could afford to go to the oyster bars they now enjoy.  This way oysters are reasonably priced, the stock is harvested responsibly, and fishermen have a chance to make a reasonable living.  What’s wrong with that?

I remember Paul Offer, a farmer’s market stalwart, giving a speech to a large, sympathetic group about four years ago.  His talk ended in tears too, as he tried to get people to understand the risk, hard work, aching back and legs, and total lack of financial security that had been his life for decades.  If we want small market farmers/gardeners who grow good food, maintain the quality of the soil, to be around for the long haul, not just until the bank won’t extend any further credit, we have to give them a chance at some financial stability.  I know it would be complex and difficult to create the regulations for something like this, but we need to talk about it. We’ll lose too many of the farmers we love without it.

Tuesday, 29 September 2015

Remembering Raymond Loo

Raymond Loo will continue to remind Holland College students where their food comes from. Just over two years ago Loo died from cancer. He had welcomed many Holland College students to his farm in Springfield as part of the Transitions Program. Current students in the program led by co-coordinator Joan Diamond have created a new memorial garden at the Prince of Wales Campus to remember Raymond. It includes big planters with organic vegetables and flowers. The garden was officially opened on September the 23rd.

Wednesday, 29 July 2015

Getting to the Short Strokes on Trade

I've written a lot on these pages about the importance of supply management to Maritime farmers.  Costs including transportation to get to the big consumer markets make farmers here uncompetitive, while the regulated marketing system called supply management has helped keep many farmers here profitable.  Over the next few days we'll learn the price Canada's dairy, egg and poultry farmers have to pay in order for Canada to join the twelve country Trans Pacific Partnership. Here's a story on the latest news on the negotiations in Hawaii, and a column I recently wrote.

Canada ramps up TPP talks with U.S. on allowing more dairy imports

Canada has begun discussions with the United States on allowing more foreign dairy products into the Canadian market – among the thorniest issues for Ottawa at the Pacific Rim trade talks, which have entered their final stretch this week in Hawaii.
Sources familiar with the Trans-Pacific Partnership talks say Canada has yet to specify exactly what volume of dairy shipments it would allow into its heavily protected market, but the talks are ongoing.
The Japanese government, one of the key players in the negotiations, was the only TPP member to publicly remark on the apparent change in Canada’s conduct at the table.
“They are putting their cards on the table,” said Akira Amari, Japan’s Minister for Economic and Fiscal Policy, according to a translation provided by the Nippon Television Network.
Trade ministers from 12 countries, including the United States, Canada, Chile and Malaysia, have gathered on the island of Maui to try to conclude an ambitious accord that would set a new standard for commercial dealings in the Asia-Pacific region and eclipse the North American Free Trade Agreement in importance.
Canadian International Trade Minister Ed Fast refused to comment on the substance of the negotiations but said he has brought several dozen negotiators to cut a deal – if one exists that satisfies Canada’s national interest.
“We’re going to have four days of tough negotiations where difficult issues have to be resolved,” Mr. Fast said in an interview. “Progress is being made, and Canada is a constructive partner at the negotiating table.”
Mr. Fast is scheduled to hold a one-on-one meeting with his U.S. counterpart, United States Trade Representative Michael Froman, on Wednesday.
Although the TPP talks take place between a dozen countries, it is the one-on-one, or bilateral, discussions between the United States and other countries that have played a key role in advancing overall negotiations.
The scope of the talks is broad. It includes expanded protection for intellectual property such as copyright and drug patents as well as rules to constrain the conduct of state-owned enterprises.
Mr. Fast said Canada wants to see constraints on government-owned companies and sovereign wealth funds so they can’t use their power to tread on private firms or pursue other ends. “We want to make sure that state-owned companies that could act in a manner that is contrary to free-market principles are subject to disciplines that ensure they don’t compete unfairly with companies that are operating within a free market.”
The Canadian government has come under repeated fire from Washington in recent weeks for neglecting to spell out how Canada would open up its sheltered dairy and poultry sectors to foreign competition. U.S. and New Zealand farmers are eager to find a way around the massive tariff walls that shield Canadian milk and chicken farmers.
Other sectors of Canada’s farm industry are growing impatient with the focus on milk and chicken producers, saying there’s far more at stake and that the cost to Canada if it is shut out of a deal would be great.
“Much of the public and political dialogue on the Trans-Pacific Partnership has been focused inward. This is a mistake,” said Brian Innes, president of the free-trade-oriented Canadian Agri-Food Trade Alliance.
“We’re ignoring how improved access to international markets will grow our economy, create jobs and support communities,” said Mr. Innes, whose coalition includes beef producers as well as wheat and barley growers.
“Over the last 10 years in Canada, agriculture and agri-food exports have grown by 77 per cent, from $31-billion to over $56-billion. … An ambitious Trans-Pacific Partnership deal could enable even more growth, along with the jobs that come with it,” Mr. Innes said.
Japan, the third-largest economy in the world, is the big prize in the TPP talks because it has signed relatively few trade agreements and the market is still relatively untapped by foreign firms.
The Obama administration is trying to wrap up a deal this week, but the timing is poor for the Conservative government in Canada, which faces an election in October and will have to weather a backlash if it grants significant access to foreign imports.
Asked whether he’s prepared to close a deal this week, Mr. Fast said: “If there’s an agreement on the table that represents a strong outcome for Canadian interests, that is very clearly in Canada’s national interests, we are prepared to complete a deal.”
John Manley, president of the Canadian Council of Chief Executives, said Ottawa’s need to defend supply-managed goods such as dairy and poultry hinders its ability to be a leader in international trade talks. He calls these sectors, where prices and production are regulated, “the last vestige of Soviet-style central planning on the planet” and says a TPP deal is crucial to help boost weak Canadian economic growth.

He Said What?

A group of Islanders went to Ukraine about fifteen years ago to look for opportunities in the potato industry.  One came back with a story about why large collective farms had performed so poorly during the Soviet era. A farm manager was paid based on the number of times he filled up his tractor with fuel, an indication the planners must of thought, of the amount of work he was doing.  Of course this farm manager beat the system by doing almost no work, and leaving the tractor running all the time, even driving it to the nearest bar during the day and leaving it running outside.

I thought of that story when I read a comment recently by someone who should know better. John Manley, president of the Council of  Chief Executives was talking about supply management in the dairy industry and said this:  “I describe it as the last Soviet-style economic regime on the planet.”  The comment came in a series of stories in the political and business sections of the Globe and Mail and the National Post on negotiations for a big new trade deal called the Trans Pacific Partnership. The U.S., New Zealand and Australia are big dairy exporters and want Canada to give up the high duties it uses to protect the dairy industry from cheaper foreign competition.   The two papers are outdoing themselves trashing supply management, and John Manley,  a former Liberal finance and trade minister, now the spokesperson for the who’s who in Canadian business,  is a reliable source for a good quote to support this campaign.

I think John Manley’s statement is plain and simply ignorant. Drunk farm managers with no real incentive to be productive is Soviet-style agriculture.  Supply management is not.  It’s a regulated marketing system that attempts to match the supply of milk  and dairy products with demand in Canada. Quotas are used to limit production, and prices are established based on the cost of production.  Yes it does mean that efficient dairy farmers can make a middle-class living, but only if they do the work, and make good decisions managing their herd, not sit in a bar all day.

And yes  the quota to start a dairy farm is expensive, but there are substantial costs to becoming a lobster fisherman, to buy an existing medical or law practice, or a bar or taxi license.  Various industries are managed or regulated to limit new entrants, and protect the  incomes of the existing players. Canada is well-known for shielding its airlines, banks, media companies, music industry and so on from direct foreign competition,  just as other countries do.  

I often think the dairy industry has become the whipping boy for the free market crowd for a number of reasons.  One is that all of its financial information is very transparent through the Canadian Dairy Commission, and various provincial marketing boards, so critics have real numbers to work with.  Secondly few outside of agriculture appreciate that oversupply in most commodities quickly drives down the price, often below the cost of production (see potato crop harvested 2014). So yes it takes a lot of rules and regulation to tailor production to demand and really in Canada it’s only those industries (dairy, eggs, poultry)  where weather is not a big factor in production levels where this can be done successfully.  And I’m sure there’s some of that urban arrogance that was captured when CBC reporter Maggie Brown asked Galen Weston,  the executive chairman of Loblaws,  why is it that farmers feel that they are being underpaid.  Weston’s reply was that it wasn’t a question worth answering: “Because they are farmers and farmers feel that way.” 

Unfortunately it’s not just the pin-striped suit crowd and media elite that want to undermine the dairy industry. Canada’s big dairies (PEI’s ADL and Purity Dairy are exceptions) are using a trade loophole and importing increasing amounts of protein isolates and concentrates used to thicken dairy products like yogurt and ice cream.  The cheaper imports help the dairies bottom line, but cuts into the incomes of dairy farmers. Some milk in Ontario is now being used as animal feed because there’s simply no market for it.  Dairies have benefitted too from the stability and price guarantees in the dairy industry, but they’re now eroding  the system, giving critics much more ammunition to kill it off.

Subsidies and the environment are two other issues that don’t get much attention. Yes U.S. dairy farmers are paid less which is the underpinning for cheaper dairy products, but they’re also subsidized through government cheques in the mail. In Canada farmers are just paid once. Is there an appetite to add income support to put farmers here on the same footing if supply management disappears?  I doubt it. And the size of farms needed to compete in ruthlessly competitive export markets has become an environmental problem in New Zealand, Australia and the United States.  More than 50% of U.S. milk is produced on 3% of the farms, all with more than a thousand cows, and opposition is growing in states like Wisconsin  after manure spills.  Dairy Industry Posing Pollution Threat To New Zealand's Rivers, Says Expert” is a recent headline in the International Business Times.  Bigger not always better.

It may be that other countries like Japan will want to protect it’s rice farmers, and the U.S. its sugarcane growers, and so on that countries will be allowed some exceptions to strict free trade. That’s how Canada has maintained supply management in other trade negotiations.  For now expect the relentless attacks to continue. And watch out for the Soviet central planners at the dairy farm down the road. 

Wednesday, 8 July 2015

More Bigger Not Better

The on-going campaign on the business and political pages of our major newspapers to snuff out supply management continues.  President Obama now has congressional approval to negotiate the final terms of what's called the Trans-Pacific Partnership, setting the stage for final bargaining over the next couple of monthes on an 11 country trade deal that includes important emerging economies in Asia and South America.  The U.S., New Zealand, and Australia in particular want Canada to give up the high tariffs  used to shield the regulated dairy, poultry and egg industries from cheap imports.  I've written extensively about this over the last six years, and the search function at the bottom of the page will show you where those are if you wish.  

While cheaper milk and cheese is held up as justification for getting rid of supply management, there are other factors that don't get as much attention, like subsidies and the environment.  Yes U.S. dairy farmers are paid less than Canadian which is the underpinning for cheaper dairy products, but they’re also subsidized through government cheques in the mail. In Canada farmers are just paid once. Is there an appetite to add income support to put farmers here on the same footing if supply management disappears?  I doubt it. And the size of farms needed to compete in ruthlessly competitive export markets has become an environmental problem in New Zealand, Australia and the United States.  More than 50% of U.S. milk is produced on 3% of the farms, all with more than a thousand cows, and opposition is growing in states like Wisconsin  after manure spills.  “Dairy Industry Posing Pollution Threat To New Zealand's Rivers, Says Expert” is a recent headline in the International Business Times.  Bigger not always better. 

And this week more indication that the free market doesn't always bring the best results. And don't forget this is the export market the media elite think is just full of opportunity for Canadian dairy farmers.

Milk Spilled Into Manure Pits as Supplies Overwhelm U.S. Dairies

Domestic output is set to be the highest ever for a fifth straight year. Farmers are still making money as prices tumble because of cheaper and more abundant feed for their herds. Supplies of raw milk are topping capacity at processing plants in parts of the U.S. and compounding a global surplus even with demand improving.
Agri-Mark, a 1,200-dairy cooperative in New England that had $1.1 billion of sales last year, started pouring skim milk last month into holes used for livestock manure. It was the first time in five decades, and farmers so far have unloaded 12 truckloads, or 600,000 pounds (272 metric tons). While having small amounts of milk spoil or go unsold isn’t unusual, Northeast dairies dumped 31 percent more this year through May than the same period of 2014, government data show.
“Usually we’d find someone to buy it at a reduced price, or ship it to the Midwest,” said Bob Wellington, a senior vice president at Andover, Massachusetts-based Agri-Mark, which was founded in 1913. “But those plants are full. There’s no way to process it in the time needed for a perishable product.”

Global Glut

Domestic output in May reached 18.4 billion pounds, the most in any month, and is on pace to reach a record 208.7 billion pounds this year, the U.S. Department of Agriculture said June 18. Globally, production will rise 2.1 percent to a record 582.52 million tons as top exporter New Zealand sells the most ever and the European Union ends limits on dairies that had been in place since 1984, the USDA said.
U.S. farmers expanded after futures on the Chicago Mercantile Exchange surged to a record in September, fueled partly by rising cheese demand and a jump in purchases by China. Since then, warmer weather has brought a seasonal increase in supply, demand slowed from importers, and a stronger dollar eroded exports.
“The world needs less milk,” said Eric Meyer, president of HighGround Dairy, a Chicago-based broker.

Price Slump

Global dairy prices have dropped 39 percent from an all-time high in February 2014 and are the lowest in five years, United Nations data show. In Chicago, benchmark Class III milk futures, used in cheese making, are down 36 percent to $16.11 per 100 pounds from a record $25.30 in September. Prices may fall to $14.41 by the end of the year before recovering in 2016, said Tom Bailey, a New York-based analyst at Rabobank International.
New Zealand’s dollar has tumbled to a five-year low as falling milk prices amplified speculation the nation’s central bank will cut interest rates this month. The kiwi slid against almost all of its 16 major peers this year.
The milk slump has been a boon to buyers including processor Dean Foods Co. and retailer Supervalu Inc., contributing to a slowdown in the pace of food inflation.
At the same time, the dollar’s rally against most of the world’s currencies helped to spur a 10 percent drop in U.S. milk exports in the first four months of 2015, while imports rose 12 percent, compounding the domestic surplus, government data show.
The bear market has been no barrier to more supply. At Mitch Breunig’s farm in Sauk City, Wisconsin, he’s still profitable even as the value of his milk fell 26 percent. Costs have dropped for things like fuel, and wet spring weather left an abundant alfalfa harvest, providing higher-quality hay for his 420 cows to eat. The animals are producing 3 percent more milk than last year.

Feed Profitability

“I just have way more feed than a year ago,” Breunig said, adding that his eight grain silos are full. “In terms of profitability, boy, that has a huge effect.”
Demand remains strong, with Americans eating more dairy products than ever, especially cheese and butter, said Bill Brooks, a Dearborn, Missouri-based dairy economist at INTL FCStone. Futures may reach $17.57 in the fourth quarter, he said June 18. The USDA estimates global milk demand will rise for a sixth straight year to a record 582.7 million tons.
There’s also concern output is dropping in California, the largest U.S. producer. A four-year drought may be eroding feed quality and cutting into profit, said Bill Schiek, an economist at the Dairy Institute of California in Sacramento.

Shrinking Profit

Dairy profits may not last much longer. Income over feed costs will fall 38 percent to average $8.90 per 100 pounds of milk in 2015, from a record last year, FCStone’s Brooks said. Profit margins below $7.50 usually signal output will drop, according to Matt Gould at the Dairy & Food Market Analyst newsletter.
For now, there’s more than enough incentive to produce more milk. Breunig, the Wisconsin farmer, estimates his alfalfa costs will drop 26 percent to $70 a ton this year, while corn will be down 10 percent. He’s also getting top dollar from the slaughterhouse for calves and old cows at the end of their productive life, because wholesale-beef prices are near the highest ever.
Dairies in the Northeast dumped 31 million pounds of milk in the first five months of 2015, including 7.9 million in May, which was 67 percent more than the same month last year, USDA data show. Farmers are saying it is the most ever, according to the dairy newsletter’s Gould.
The 1,950 cows at Majestic Crossing Dairy in Sheboygan Falls, Wisconsin, are still making money for co-owner Dean Strauss even after revenue sank 40 percent from last year.
“There’s ebbs and flows,” Strauss said. “We have to be prepared and put money away when the times are good, for when poor markets come.”