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Dairy industry - canada's supply management system - Essay Example

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“As a key contributor to the Canadian economy in the 2006 calendar year, the dairy industry ranked fourth behind grains, red meats and horticulture, generating $4.8 billion in total farm cash receipts”(Canadian Diary Commission Annual report, p.8). Dairy industry in Canada…
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Dairy industry - canada's supply management system

Download file to see previous pages... Petkantchin (2008) has mentioned that the “Canadian milk prices have been two to three times higher than world prices since 1986. This has no doubt contributed to a drop of nearly 15% in per capita milk consumption in Canada between 1986 and 2003” (Petkantchin). Canada is one of the biggest producers of dairy products. At the same time the prices of the dairy products are very high in Canada because of the quota system enforced by the government in the supply management of dairy products in Canada. The productivity gains are actually wasted because of the quota system. The creation of Canadian Dairy Commission in 1966 was greeted with immense pleasure by the dairy farmers; however their expectations went wrong since the government introduced the quota system to control the production of dairy products in Canada. The quota system controls the dairy products production in Canada even though Canada has huge potentials in developing the dairy sector.
“One would argue that with the high capital that Canadian dairy farmers have to invest in quota, it makes it difficult for the next generation to farm. This is entirely correct” (Brander, p.12). The dairy farmers need to invest big amounts in order to keep the quota system in tact which is not a good sign for the future generation. Big expenditure or capital needed for dairy farming will force the next generation to look for other options.
At the same time, the tight control over the supply management of dairy products resulted as a barrier to the entry of new players in the Canadian dairy market from external sources. It is quite possible that entrepreneurs from other countries may invest in Canada in the dairy sector because of globalization and liberalization policies adopted by Canada. But the tight control over the supply of dairy products in Canada prevents foreign investors from investing in the Canadian dairy sector.
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