Elements of Supply Management

Supply management is a sustainable food marketing system that matches production of milk on the farm to consumer demand. It ensures stability of supply from the farm to the processor to the consumer and guarantees that enough milk will be available to meet Canadians' needs, while minimizing surplus milk production.

Supply management is founded on three pillars. Each of them is critical to supporting the system, ensuring it operates smoothly:

• Matching supply to demand or production planning
• Predictable imports
• Pricing mechanisms

Each pillar of supply management is equally important.

 Production planning

Producers plan production to ensure a steady supply of quality milk is there to meet consumer demand for milk and dairy products. This balance between supply and demand stabilizes prices from farm to fork.

 Predictable imports

Producers need to know the level of imported dairy products so they can plan their production to meet Canadians' needs, without creating a surplus. A predetermined quantity of dairy products is imported tariff-free every year. To keep imports predictable, a negotiated higher tariff applies to any import above that level.

 Pricing mechanism

Once a year, farm gate prices for milk are reviewed in light of costs to produce milk, labour and investments and market indicators. Prices are then regulated to enable producers to cover costs without need for government subsidies. This process allows 16,000 dairy producers to deal as one with the smaller number of processors who buy their milk.

The administration of supply management is a joint responsibility of federal and provincial authorities.

Provincial Responsibilities

Generally speaking, each province is responsible for the production of its own fluid milk and sets its own pricing formulas, quota policies and other regulations. Provincial marketing boards and agencies govern the production and marketing of milk within their own borders.

However, to reduce business risk, provinces have come together in two regional milk pools. In the Eastern pool, revenues from all milk, markets, transportation costs and promotion costs are shared among all producers. In the Western pool, only revenues and markets are shared. Over the years, these pools have increased the level of harmonization of dairy policies among provinces.

Provincial marketing boards
In order to manage the marketing of milk, provincial governments delegate statutory powers to either provincial agencies or marketing boards. Although responsibilities vary from province to province, boards and agencies generally license producers, establish prices paid to dairy producers and, in the case of fluid milk, determine provincial demand and allocate quotas to producers. Dairy producers sell their milk to their respective marketing board.

Federal Responsibilities

The federal government has jurisdiction over the market of milk for processing, which is administered through a federal-provincial agreement.

A number of federal government organizations have responsibilities in dairy. Agriculture and Agri-Food Canada's (AAFC) mandate includes dairy research, livestock development, animal health, policy development, as well as market and rural sector promotion. AAFC also administers a number of programs, such as a HACCP-based on-farm food safety program, which have a direct impact on milk producers.

The Canadian Dairy Commission (CDC), a Crown corporation created in 1966, has played a key role in the evolution and implementation of the national dairy policy. Working closely with provincial marketing boards, producers, processors, and exporters, the CDC advises the minister of Agriculture and Agri-Food for Canada on matters pertaining to dairy and develops policies and programs to meet the needs of the industry while providing Canadians with adequate supplies of quality dairy products.

The Canadian Food Inspection Agency (CFIA) is responsible for the establishment of dairy product standards, product grading, plant inspection, regulating packaging, nutritional labelling, animal health and the monitoring of the safety of dairy products.

Imports of most dairy products are subject to tariff-rate quotas (TRQs) administered by International Trade Canada. Tariffs within the TRQs and the over quota tariffs are administered by the Canada Border Services Agency.

Health Canada continues to develop standards and policies for the safety of dairy products, which are applied by the CFIA.