There are not too many topics more polarizing in Canadian agriculture than a discussion on dairy quota. If you are interested in a different approach to the issue, consider checking out a document posted on the web by the Montreal Economic Institute called, "Reforming dairy supply management in Canada: the Australian example." You can download it by going to: www.iedm.org.

The future of supply management isn’t really clear and the institute’s article is interesting in outlining the process of how the Australian system was dismantled only a few years ago. According to this article, the system was dismantled for several reasons, including the approval of milk producers in Victoria, the state with the largest total milk production. Following the elimination of support prices, the Australian federal government offered an assistance program to ease the transition. The fund had a variety of components including tax relief. It was funded through a federal tax of $0.11 per litre of fluid milk sold at retail. This special tax is set to sunset in 2010.

Many in Australia had feared that large numbers of dairy farms would exit the business following the changes to milk price. For sure, between 1999 and 2004, the number of dairy farms decreased by 25 per cent. Over that same period in Ontario, the number of dairy farms decreased by 18 per cent. Even though the number of Australian dairy farms declined by 25 per cent, milk production declined by only seven per cent. After 2000, about 45 per cent of dairy farmers expanded their herds while 27 per cent increased their income from other non-dairy sources.

Many were concerned that the farm-gate milk price would fall but the retail price wouldn’t necessarily go down. In fact, lower milk prices were passed on to the consumers. For ‘brand-name’ milk, the retail price fell from $1.50 per litre to $1.30 per litre (adding the 11-cent tax in would bring the actual retail price to $1.41).

‘No-name’ milk fell from around $1.45 per litre to $1 per litre (adding the 11-cent tax brings the actual retail price to $1.11. Excluding the special tax, of which processors have no control over, the price of ‘brand- name’ milk fell 18 per cent while ‘no-name’ milk fell 29 per cent. The article didn’t mention how much the farm-gate milk price went down.

Who knows what the future will hold for the milk quota system. It is also difficult to know how Australia’s experience would relate to Canada. One big difference between Canada and Australia is the presence of the massive dairy industry in the United States. Australia did, however, have to consider the ‘risk’ to their domestic markets from neighouring New Zealand.