Supply Management System Under Question Again

[bizaro86]

Originally Posted by krynski

You can't make money as a small business in agriculture. It's all economies of scale. Tiny farms are not a thing because if your margin is really low and diminishing, you need to be bigger to make the same amount of $.

The "entrance fee deterrent" is to prevent an over-supply in the market, resulting in negative returns, resulting in no one wanting to produce.

Do you think you can just start crop farming if you are 18 and have no assets? It's pretty much the same thing here. The quota system isn't perfect, but it ensures local agriculture economy and consistent adequate supply. Supply management ensures we have milk, eggs, chicken, and turkey available on store shelves until unplanned pandemics happen.

This post isn't internally consistent. If there was oversupply and no one wanted to produce, some would exit and the price would go up.

And just like crop farming the hard costs of starting a dairy farm (cows, equipment, feed, land) would be plenty of entrance fee deterant for most people. Adding an extra million or two in quota is just piling on.

[Mickey76]

Originally Posted by Azure

Everything except Canola is going to start falling soon and is already trending downwards.

US farm futures report is coming out soon and will probably indicate good levels of inventory in the US which should also drive down the price.

Beans & corn are already dropping.

Canada had a down year in terms of crops, but will probably improve next year which should help the futures.

There is no way prices stay that high.

You are probably right but the end users (Quaker Oats etc.) has justification to dramatically raise their prices even if they begin to fall. I think they’ll do that and I think we’ll be seeing grocery bills 25-30 percent higher in the new year.

[krynski]

Originally Posted by bizaro86

This post isn't internally consistent. If there was oversupply and no one wanted to produce, some would exit and the price would go up.

And just like crop farming the hard costs of starting a dairy farm (cows, equipment, feed, land) would be plenty of entrance fee deterant for most people. Adding an extra million or two in quota is just piling on.

So you acknowledge that if producers leave the industry, prices would go up? Is it because there would be an oligopoly on supply as integrators step in and decide to contract grow? Would there even be domestic production as it is cheaper to produce elsewhere? Supply management ensures a consistent supply and price, what benefit is there to volatile prices?

At least in the quota system, the majority of the quota is owned by family farms, and it ensures that they are able to produce. I know how cost of production models are built, and there is no extra cost for quota, that is not built into the model. If people want to spend their hard earned money on quota, then they are able to, but they are not paid extra so that they can buy quota- that is rediculous.

You point out that my post is inconsistent, so I must ask, if cows, equipment, feed, and land are detterents enough for most people not to get into dairy farming, then why are there so many people trying to do it, driving up the cost of quota?

[bizaro86]

Originally Posted by krynski

So you acknowledge that if producers leave the industry, prices would go up?

Of course, that is how supply and demand works. I think its exceedingly more likely that if you removed the quota system from preventing new entrants new entrants would increase though. Lowering prices.

I know how cost of production models are built, and there is no extra cost for quota, that is not built into the model. If people want to spend their hard earned money on quota, then they are able to, but they are not paid extra so that they can buy quota- that is rediculous.

You point out that my post is inconsistent, so I must ask, if cows, equipment, feed, and land are detterents enough for most people not to get into dairy farming, then why are there so many people trying to do it, driving up the cost of quota?

The answer to your last question refutes the statement in the first quoted sentence. The reason people are bidding so much for quota is that the quota enables them to earn above normal profits on their investment.

Or is your thesis that dairy farmers as a collective group are morons? Because that is the only other explanation for why quota prices would be high if the extra profits don't justify paying up for quota.

[Azure]

Originally Posted by krynski

So you acknowledge that if producers leave the industry, prices would go up? Is it because there would be an oligopoly on supply as integrators step in and decide to contract grow? Would there even be domestic production as it is cheaper to produce elsewhere? Supply management ensures a consistent supply and price, what benefit is there to volatile prices?

At least in the quota system, the majority of the quota is owned by family farms, and it ensures that they are able to produce. I know how cost of production models are built, and there is no extra cost for quota, that is not built into the model. If people want to spend their hard earned money on quota, then they are able to, but they are not paid extra so that they can buy quota- that is rediculous.

You point out that my post is inconsistent, so I must ask, if cows, equipment, feed, and land are detterents enough for most people not to get into dairy farming, then why are there so many people trying to do it, driving up the cost of quota?

The majority of the quota is owned by a 'few' farms that basically have a monopoly on the industry including a massive lobbying presence in Ottawa that is big enough to sway leadership votes.

The fact that the quota has any value is ridiculous to begin with. Many other forms of food production exist without a value being placed on production quota, and does just fine.

Pork & beef being the most obvious examples.

Removing the artificial value that quota has would absolutely allow more people to get into the industry and should absolutely lower the cost for consumers.

[opendoor]

Originally Posted by bizaro86

Why does what other countries do have anything to do with us?

We could easily choose to have neither subsidies nor quotas/proce fixing. You'd probably keep tariffs in that situation.

When I was 7 my mom told me if one of my friends does something stupid I shouldn't do it just to follow along. That applies here. Bad policy in other countries doesn't require bad policy here.

And this is bad policy that disproportionately hurts poor children, which I'd suggest is one of the worst kinds of bad policy there is.

Well, it stands to reason that if other industrialized nations can't have lower dairy prices than Canada without government subsidies, then Canada likely can't achieve that either.

New Zealand and Australia are good examples of countries that don't have quota systems and have very limited subsidies. But they also pay more for milk than we do, so it doesn't seem like that really accomplishes anything if the goal is cheaper retail prices. 4L of 2% milk retails for about $4.75 in Canada (1.19/L). Looking at a few grocery chains, and in New Zealand it's about $1.60 CAD /L for the cheapest store-brand milk I could find and in Australia it's about $1.48 CAD /L (that's whole milk, but it's cheaper than 2% there).

[bizaro86]

Originally Posted by opendoor

Well, it stands to reason that if other industrialized nations can't have lower dairy prices than Canada without government subsidies, then Canada likely can't achieve that either.

New Zealand and Australia are good examples of countries that don't have quota systems and have very limited subsidies. But they also pay more for milk than we do, so it doesn't seem like that really accomplishes anything if the goal is cheaper retail prices. 4L of 2% milk retails for about $4.75 in Canada (1.19/L). Looking at a few grocery chains, and in New Zealand it's about $1.60 CAD /L for the cheapest store-brand milk I could find and in Australia it's about $1.48 CAD /L (that's whole milk, but it's cheaper than 2% there).

It seems to me that logically speaking if you hold everything else constant but remove the huge cost of quota prices would come down. What's the flaw in that logic?

On a more data driven basis, I'd comment that retail prices aren't a very good comparison. The dairy lobby is always using processor and retailer costs/profits as cover every time they raise farm gate prices, and those presumably differ by country. Taxes are also a significant factor - New Zealand imposes a double digit GST on milk sales and that tax is included in the price of goods sold. Which obviously has nothing to do with the cost of any specific good.

Farm gate prices are a better metric for determining how agricultural products are priced. And Canada is much higher than other countries.

Take this graph of prices by country over time.
https://www.denishaine.ca/blog/milkprice/

You'll notice that Canadian prices are much less volatile, but are consistently higher than even the peak prices in New Zealand/other countries.

That data (while covering years) is also a bit out of date, so lets go with current numbers.

The current mandated price of milk in Quebec (Alberta's site wouldn't load for me) is $80.72 per hL, minus a few deductions for a farm gate price of $77.71/hL. This is BEFORE the big price hike comes into effect in a couple of months. The current farm gate milk price in New Zealand is $64.70 NZD (~$57.33 CAD), which is after a big jump this month - probably due to the same cost increases that are affecting prices here. Once Canada's big jump kicks in the price difference will be even more significant than the current 36% more.

*QC pricing: http://lait.org/fichiers/stats/2021/202109PF.pdf
*NZ pricing: https://www.clal.it/en/index.php?sec...te_new_zealand

Aside from the fairness argument of consumers subsidizing millionaire business owners (aka family farmers) we're probably missing out on a significant industry. New Zealand exports significant dairy products to China - if we had large scale dairy operations in Western Canada we'd probably be cost competitive in that market as well. But small scale producers in Quebec would get competed out of the market, and their political power keeps the current system in place.