FINAL REPORT - GROW "B" - (PRODUCTION)

By - Stewart Lane and Raymond Clout ie r

Before examining the production sec to r of the indus t ry t h e group considered the p o s s i b i l i t y of increas ing the t o t a l demand f o r milk through promotion and new product development. perspective of t he s i z e of indus t ry tha t might be required. on the promotion of da i ry products on a na t iona l b a s i s may expand the demand f o r milk s ign i f i can t ly and are considered necessary i f w e a r e t o r e t a i n the present share of consumer food expenditure on milk. With regard t o new pro- duct development i t appears t h a t a po ten t i a l does e x i s t f o r g r e a t e r use of skim milk powder through f o r t i f i e d f l u i d milk. In the U.S., t h i s has been developed a s a major o u t l e t f o r non-fat so l id s . Also cur ren t l e g i s l a t i o n may be too r e s t r i c t i v e in so fa r a s i t e i t h e r p roh ib i t s o r i n h i b i t s t he develop- ment of f l u i d products which may be more acceptable t o t h e consumer. i nves t iga t ion of these p o s s i b i l i t i e s i s urgently needed.

This was done t o e s t a b l i s h a b e t t e r Expenditures

Fur ther

The I n d u s t r i a l Milk Indus t ry

Canada needs and should take s t eps t o maintain an i n d u s t r i a l milk industry. The reasons t o support t h i s view a r e a s follows:

1. Al te rna t ive sources of supply of i n d u s t r i a l milk products on a long- term bas i s a r e no t s u f f i c i e n t l y r e l i a b l e t o j u s t i f y tak ing any a c t i o n which would have the e f f e c t of e l imina t ing the industry.

2. income. (Cash r ece ip t s of da i ry farmers amount t o about $1 b i l l i o n annually and represent about 25 percent of t o t a l farm cash r e c e i p t s i n Canada).

3. r e l a t i v e l y imobile and would have d i f f i c u l t y in f ind ing more remunerative emplopen t . 4. Simi lar ly much of the land cu r ren t ly being used f o r i n d u s t r i a l milk production does not appear t o have any be t t e r a l t e r n a t i v e use.

The ex is tence of t h e da i ry industry has a m u l t i p l i e r e f f e c t on na t iona l

The labour resource employed on many of these low income farms is

I t is therefore recommended t h a t Canadian pol icy should have the ob jec t ive of maintaining an i n d u s t r i a l milk indus t ry of s u f f i c i e n t s i z e t o meet the domestic b u t t e r f a t requirements of the na t ion . end i t w i l l be necessary t o provide i n d u s t r i a l milk producers wi th subs id i e s f o r a period of t i m e s u f f i c i e n t l y long to permit t h e indus t ry t o r a t i o n a l i z e i t s s t ruc tu re . A l s o cons idera t ion should be given t o removing t h e maximum quota l i m i t on e l i g i b i l i t y f o r subsidy s ince the re should be no impediment placed i n the way of l a r g e e f f i c i e n t producers becoming more e f f i c i e n t .

To achieve t h i s

In the long run i t i s an t i c ipa t ed t h a t there w i l l be l i t t l e d i f f e rence between the f l u i d and i n d u s t r i a l s ec to r s a t the farm l eve l . This i s considered t o be a des i r ab le trend s ince i t would r a i s e the o v e r a l l q u a l i t y of milk and could a l s o be t o the advantage of t he processing sec to r s i n c e i t would tend t o lessen seasonal f l uc tua t ions i n milk supply. r i g i d qua l i t y s tandards on milk production was endorsed. noted above should make it e a s i e r t o obta in higher milk p r i c e s f o r t h e pro- ducer.

The enforcement of more The developments

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A review of the adjustments which have taken place in the structure of dairy farms indicates that adjustment has been occuring at a rapid rate. However, relatively low returns on industrial milk farms are still typical.

Looking to the future, the goal should be farms of sufficient size to support a 2-3 man operation. could be both technically and economically efficient under Canadian conditions and could compete effectively with most dairy producing regions in the world. Because of the wide variation in resources and climatic conditions across Canada it is unrealistic to think in terms of one standard prescription for the most efficient dairy farm for all parts of the country. however, a trend toward larger. more specialized operations, conversion to bulk, and more concentration by areas is anticipated.

Fluid and industrial milk farms of this size

In general,

Supply Management

Supply management implies taking action to bring supply into closer balance with demand. It may involve programs to increase supply, reduce supply, o r to improve the continuity of supply. management programs are varied and may include increasing producer prices. reducing instability of prices and improving the distribution of income among producers.

The objectives of supply

The responsibility for operating a supply management program should rest primarily with producer organizations such as marketing boards. these boards should develop their programs in close consultation with pro- cessors and consumers. In jurisdictions where such programs are operated by government agencies the membership of these boards o r commissions should include representatives of producers and the trade who are nominated by their respective groups.

However

Certain conditions which may have a marked effect on the success of a supply management program include:

1. duction within the jurisdiction of the supply management agency and regula- ting the flow of product into the area 1.e. import control.

2 . Feasibility of storing the product.

3 . Ability to differentiate between markets and operate a two-price system.

Ability to control the supply in terms of both regulating the pro-

Supply management is desirable and necessary in the dairy industry and should be applied on a national basis. Furthermore, Canada along with other nations should enter into agreements and conventions t o regulate the distribution of dairy products on international markets. for the Canadian dairy industry should include a comitment by Canada to pro- vide continuing food aid to developing countries that are deficient in milk production.

Production targets

Quotas were seen as a means of sharing the market equitably among pro- ducers and as an Fnstrument for regulating production so as to achieve greater stability. ducing either above or below quota.

The latter could be achieved by incorporating penalties for pro-

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Freely negotiable quotas which are not tied to other assets such as land o r herd are recommended. Ultimately all dairy production or marketing quotas should be freely negotiable anywhere in Canada. However, since such a poliey could be disruptive to the industry if it were applied immediately, it is suggested that it be adopted as the long term goal and announced suf- ficiently far in advance so that all sectors of the industry will have an opportunity to plan and adjust accordingly. Such a policy, if applied to fluid milk production, would require step8 to be taken to make quality requirements more uniform across provinces. If freely negotiable quotas on a national basis are to be adopted, it is also essential that all regions within the country adopt and adhere to reasonably uniform terms and conditions. In other words, the "rules of the game" should be essentially identical in each jurisdiction so that the factors determining the location of milk pro- duction are primarily economic and not political.

Quotas do increase the capitalization of the farms with which they are associated and therefore do result in increased production costs. If they are freely negotiable, their value is readily apparent. If they cannot be exchanged, except in conjunction with the transfer of other assets such as land or herd, their value will be concealed in the price of these assets. This does reduce the capital required to acquire them. Making quotas freely negotiable is more likely to result in adjustments in dairy farms toward greater efficiency and a more competitive industry. Allocation of quotas by administrative fiat is not recommended.

While recognizing the disadvantages, it was concluded that the ad- vantages to be gained from negotiability outweighed the disadvantages. In order that the advantages can be realized to the fullest extent, every effort should be made to establish a market for quotas which will provide both buyers and sellers with reliable information and facilitate exchange on a competitive basis.

Multiple Component Pricing

Pricing and labelling milk on something other than butterfat content might help to project a better image for milk. Although some work has already been done in this field, the information is not sufficient to pro- vide a clear cut judgement on the implications of changing the present pricing system. More has to be learned about how breeding and feeding practices could influence either the protein, non-fat solids, or total solids content of milk.

Restoring Confidence in the Dairy Industry

Possible actions that could be taken to restore producers' and public confidence in the dairy industry include the following:

1. Provide more revealing statistics on dairy farms. Present statistics are not specific enough and do not permit making reliable comparisons of the dairy industry in Canada with that in other countries.

2 . Simplify regulations and programs (e.g. quota policies) so as to make them more easily understood by producers and processors.

3. More consultation between producers, processors and government bodies.

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4 . More up-to-date world market s i t u a t i o n i n f o r m a t i o n to f a c i l i t a t e more e f f e c t i v e p lanning f o r supply management.

5. More e x p l i c i t s t a t e m e n t s of long term p o l i c y o b j e c t i v e s by governments and marke t ing b o a r d s .

Adjustment Programs

I n o r d e r t o promote d e s i r a b l e ad jus tments i n t h e number and s i z e of d a i r y farms s p e c i a l programs i n a d d i t i o n t o e x i s t i n g ones s u c h as e x t e n s i o n s e r v i c e s , farm c r e d i t and ARDA may b e n e c e s s a r y . Any p o l i c i e s which would encourage t h e e n t r y of small producers should be avoided and t h o s e a l r e a d y i n t h e i n d u s t r y should be encouraged t o e n l a r g e . E s t a b l i s h i n g a minimum l e v e l of quota n e c e s s a r y t o e n t e r t h e i n d u s t r y (e .g . 200,000 l b s . ) would appear d e s i r a b l e . S p e c i a l a s s i s t a n c e might be o f f e r e d t o younger f a r m e r s wish ing t o e n t e r .

In a d d i t i o n t o s t r u c t u r a l improvements i n t h e farm s e c t o r , r a t i o n a l i - z a t i o n of t h e p r o c e s s i n g i n d u s t r y should be encouraged.