Supply Management in the Ontario Dairy Industry

The dairy industry is an integral part of Canadian agriculture. It is the third largest farm commodity after cereal grains and beef cattle. In 1979, it constituted 1/5 of total farm cash receipts. Its total worth was $2.8 billion. Of this, 60% came from farm sales of milk and cream, 30% from sales of calves and cows and 10% from federal government subsidy programs (Forbes et al., 1982). In 1988, it grew to $3.8 billion and a further $3.87 billion from value-added products (Morin, 1990). In 1979, 6.9 million kilolitres of milk were sold in Canada. Thirty- seven percent was sold for fresh milk purposes (fluid milk) and 63% for was making dairy products
(industrial milk) (Forbes et al., 1982). Dairy production is important in every province, although 75% of the milk production in Canada is concentrated in Ontario and Quebec (Forbes et al., 1982). In the early 1960's, the dairy industry was chaotic. Farmers were tied to specific processors and their returns were decided by location and the financial health of the processors.
To counteract this instability and to increase milk prices, Canadian milk producers, along with the federal government, established a supply management system to prevent surpluses and provide support prices based on a production cost formula. The formula is updated throughout the year from data collected from producers by the field staff of the marketing boards (Sauber, 1988).
This supply management program empowered the federal government to use production restrictions, rather than price, to fit the supply of milk with its demand (Jacobson, 1988). At present, there are five commodities in Canada under supply management (milk, eggs, chickens, turkey and tobacco) which account for about 1/4 of all farm receipts (Lermer and Stanbury, 1985, Schmitz, 1983). At the beginning of supply management, the program seemed like a cure for the problems of the dairy industry. Now however, the supply management system,