With supply management under a shadow, putting up a
$1-million dairy or poultry barn would seem low on the 'to-do'
list of most producers. But not for two eastern Ontario
farmers, who view expansion as one more way to improve
competitiveness.In November, 1994, Adrian and Arnold Schouten, who milk 250 cows in Richmond, Ottawa-Carleton, completed a $3,500-a-cow-place, 440-cow naturally-ventilated barn. Why make a $1.5-million investment with the United States seeking to abolish tariff shelters on dairy products? Arnold Schouten says it was now or never. "With the uncertainty over free trade, maybe in 10 years from now we wouldn't be able to make as much money per cow," he says.
It was fire, not free trade, that got Sarsfield,
Ottawa-Carleton producers Robert Laplante and family out of
dairy in October, 1993. But the 25-year-old farmer jumped
right back into supply management with two 25,000-square-foot,
environment-controlled poultry barns worth $1 million, plus
another $1 million in broiler quota for 61,000 units.
Like the Schoutens, Laplante is keeping his sights set on competitiveness. "I don't regret my decision. I feel there's a future in this business....The first thing you've got to look at is your own business...and make it as competitive as it can be."
While the Schoutens and Laplantes talk of 10-year plans, the clock is ticking faster for dairy and poultry industry leaders who are trying to head off a U.S. North American Free Trade Agreement (NAFTA) challenge.
The Americans want an end to tariffs on dairy, poultry and egg products, erected after the General Agreement on Tariffs and Trade was hammered out, converting import controls to tariffs Jan. 1, 1995. They claim Canadian farmers have no right under NAFTA to tariffs of up to 350 per cent under GATT. A NAFTA dispute panel will decide the question in June, but farm leaders aren't content to sit on the sidelines and hope the federal government can stand the American heat.
Federal Agriculture Minister Ralph Goodale has promised to keep the Americans at bay, but farm politicians are hoping to play a role in getting farmers such as Schouten and Laplante the time they need before going toe to toe with U.S. producers.
Earlier this month, supply management leaders warned of the dire consequences, not only for farmers, but the processing industry and the Canadian economy, of a successful American bid to tear away tariffication.
A report, prepared by Ottawa-based economic forecaster Informetrica Ltd., says an unprotected border would allow surplus U.S. dairy and poultry products to flood the Canadian market, deliver a knock-out blow to farmers and processors, and stagger equipment manufacturers and feed and fertilizer companies. Output and income losses would reach almost $3 billion in the first year, Informetrica says. Twenty-seven thousand jobs would be lost in the first year; reduced farm and wage income would weigh heavily on government supports, and the social fabric of rural Canada would be torn away.
According to Informetrica, the average consumer stands to gain only a 0.5-per-cent drop in the Consumer Price Index, or about a 50-cent reduction on a $100 food purchase, if tariffs are eliminated.
In the study and survey war of words, producers are also touting public opinion. Ed Benjamins, vice-chairman of the Canadian Chicken Marketing Agency, says an opinion survey, conducted by Toronto-based pollster COMPAS, indicates the Canadian public isn't about to buy the American bluster.
"COMPAS found that close to 70 per cent of Canadians wouldoppose opening up our market to U.S. dairy, poultry and egg products and that 75 per cent of Canadians believe that the retail price they currently pay for these products is reasonable," Benjamins says.
If the U.S. wins the challenge, many Canadian food processors would have to shape up quickly, or ship out their employees to the unemployment line. In Ontario, Informetrica estimates that 16,000 workers in dairy and poultry processing would lose their jobs by 2000.
Producers and processors often butt heads over price, but are united in U.S. trade challenge combat. Tom Kane, president of the Ontario Dairy Council, which represents Ontario dairy processors, says Ontario processors can compete with their American counterparts if they get a break on raw product costs. But if the U.S. wins the trade battle, he predicts the majority of U.S. product entering the country would be in finished form.
Kane says the Informetrica 50-cent consumer savings figure "seems a little low", but "U.S. product would disrupt Ontario processors and take away sales.
"Either the price of raw milk has to be reduced, or plants would go out of business....That puts a lot of pressure on producers."
Poultry and egg processors employ about 25,000 people across Canada, says Gib Shouldice, vice president of the Canadian Poultry and Egg Processors Council.
Shouldice says his organization has looked at various scenarios, given a U.S. trade triumph, but no study has been done. He admits, however, that there "would be substantial job losses."
What are the chances the U.S. will win the dispute? Canadian legal council has maintained that the Canadian case is on solid ground, "but you can never tell," Benjamins says. "There's no appeal from this process, so we're going to have to live with the results....But the reality is, we've got a deal and they [the Americans] don't want to live up to it." Not everyone is predicting Armageddon for supply management however. An economic study released last month by Cornell University in New York State, on the eve of the NAFTA decision, is likely to provoke widespread debate on Canada's trading strategy with the U.S.
The study says Quebec and Ontario dairy producers would gain markets from free trade in dairy products with the U.S. The author of the study is Maurice Doyon, a Quebec dairy farmer's son and a Cornell agricultural economics student. He warns that if Canada is forced to accept yogurt and ice cream products, as ordered by an international trade panel in 1989, it might just as well open the gates wide and let dairy products move back and forth according to market forces.
A NAFTA trade panel defeat would force Canada to let in yogurt and ice cream from the U.S. but Canada won't gain any greater access to U.S. markets. Under a free trade scenario, however, Doyon asserts that Ontario and Quebec dairy industries, which produce 75 per cent of Canadian milk, have an economic advantage when it comes to exporting butter and cheese. Quebec cheese processors would have a competitive advantage and could ship butter, cheddar and specialty cheese to New England. Ontario could ship cheese economically to New York state.
The Western Canadian markets for cheese that Quebec now serves would be lost to Midwestern U.S. states. But Ontario and Quebec would more than compensate with sales to the Northeastern U.S., Doyon asserts.
But Doyon also points out that Canadian raw milk prices would tumble in the event of freer trade, with the U.S. Quebec dairy farmers getting an average of $51 per hectolitre in May, 1995, would get only $42 if yogurt and ice cream markets were lost to the Americans. Prices would be further reduced to $39 with the implementation of free trade.
On the other hand, New York farmers getting C$40.50 per hectolitre for their milk in May of last year would get 50 cents more, if Canada were forced to accept yogurt and ice cream. Prices would rise to the equivalent of C$46 per hectolitre for raw milk on New York State farms in the short term.
As for producers in western Ontario, Robert Bell, St. Marys
veterinarian and dairy business consultant, thinks they could
compete with dairies in the Northeastern U.S. They have the
advantage of good farmland to grow feed, and have access to
technology to assist them in producing milk. The difference
between the price that farmers in the U.S. and Ontario get, he
says, is tied up in quota. "When you throw quota into the
system, that is exactly where you are," he told the DFO annual
meeting in Toronto last month.
With files from J. Muggeridge and D. Stoneman
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