Supply Management Systems

Agdex#: Publication Date: 06/2000 Order#: Last Reviewed: 04/2014 History: Original Factsheet Written by: Laurinda Lang

Table of Contents

Introduction

In Canada, the broiler hatching egg, chicken, dairy, egg, and turkey industries operate under national supply management systems. National marketing plans establish the framework for the operation of the systems. These systems are controlled by national bodies and by provincial commodity marketing boards that have been delegated powers by federal and provincial governments. In Ontario, marketing boards are delegated their authorities by the Ontario Farm Products Marketing Commission.

The national systems are similar in many ways.

The aim is to provide efficient producers with fair returns and to provide Canadian consumers with an adequate supply of the product at reasonable prices.

The amount of each commodity that is produced and marketed by producers is controlled through a quota system.

The total supply (domestic and imports) of the product available in Canada is matched with the market demand.

There are disciplines in place to ensure that producers do not produce excess of their quotas.

The volume of the commodities imported into Canada is limited by tariff rate quotas, under which very high tariffs are applied on imports above a specific level.

Producers receive a regulated price for their product.

Broiler Hatching Eggs

Canadian Hatching Egg Producers (CHEP) is the national body that administers the national system for broiler hatching eggs. CHEP sets the annual national production of hatching eggs after advice from an industry/government advisory committee. The final numbers are allocated to provinces, and adjusted throughout the year to keep pace with demand.

Ontario Broiler Hatching Egg and Chick Commission (OBHECC) has a unique governance structure in all of Canada. Its members are representatives of the Ontario Broiler Chicken Hatching Egg Producers Association and the Ontario Hatcheries Association. It regulates the production and marketing of hatching eggs and chicks in Ontario. Its major roles include allocating the provincial share of the national supply to Ontario producers (quota holders), and setting Ontario prices paid by hatcheries for hatching eggs and prices paid by chicken farmers for day old chicks from hatcheries. These costs are based on a cost-of-production (COP) formula. In addition to holding quota, producers must have contracts with hatcheries before they are entitled to produce hatching eggs.

OBHECC has price-setting authority. Its pricing decisions can be appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal).

Ontario hatcheries sell chicks directly to chicken producers. Chicken producers are individually responsible for obtaining the chicks they require.

Chicken

Chicken Farmers of Canada (CFC) administers the national system for chicken. CFC uses a 'bottom-up' approach to determine the national supply of chicken, taking into account the reasonable needs of downstream players. Provinces each submit requests to CFC for a specific volume of provincial production. CFC then determines whether the aggregate represents the Canadian market requirements for the quota period.

Chicken Farmers of Ontario (CFO), after consultation with industry stakeholders, determines the allocation request that is submitted to the national agency. CFO allocates Ontario's share of national production to quota holders.

CFO has price-negotiating authority. Every eight weeks, it negotiates the base price paid by primary processors for live chicken with primary processors. If the two sides cannot reach an agreement, the dispute goes to final offer arbitration.

Seventeen weeks in advance of a quota period, CFO provides Ontario processors with an estimate of their periodic supply for that quota period. Contracting by Ontario processors takes place in two phases. In the first phase, Ontario producers contract with Ontario processors. Fourteen weeks prior to the commencement of the quota period, CFO advises each processor of their total contracted kilos in Ontario and the amount of each processor's residual volume which can be contracted in Phase Two with Quebec producers. Ontario processors who contract at or above their periodic supply in Phase I are not eligible to seek further supply from Quebec producers during Phase II contracting.

Processors sign up producers of their choice to supply their chicken and pay them the regulated price.

Eggs

Egg Farmers of Canada (EFC) administers the national system for eggs. EFC determines the annual domestic egg supply and divides it among the provinces. Egg Farmers of Ontario (EFO) regulates the production and marketing of eggs in Ontario. EFO allocates Ontario's share of the domestic egg supply to producers.

EFO has price-setting authority. It sets the prices paid to producers for the various grades and sizes of table eggs. EFO's pricing decisions can be appealed to the Tribunal.

All eggs are bought by graders at the price set by EFO. Retailers buy table eggs from graders at a price negotiated between the two parties. Eggs not required for the table market are re-purchased by either EFO or EFC at a price that is derived through a formula and based on EFC's provincial COP calculation. Processors, also known as breakers, buy eggs from EFO or EFC.

Turkey

Turkey Farmers of Canada (TFC) is the agency that administers the national system for turkey. TFC's roles include determining the amount of turkey to be produced in Canada each year for domestic consumption and then dividing it among the provinces.

Turkey Farmers of Ontario (TFO) regulates the production and marketing of turkey in Ontario. Based on market needs, it determines the volume of each size of turkey (broilers, hens, and toms) that should be produced to fill Ontario's allocated share of the national supply. TFO informs individual quota holders of the amount of turkey they are entitled to market.

TFO has price-setting authority. It sets prices for broilers, hens and toms (the three size categories of turkey). In practice, input comes from processors, especially the Ontario Poultry Processors' Association's Turkey Committee (OPPA). Pricing decisions can be appealed to the Tribunal.

Primary turkey processors contract directly with producers of their choice. Processors must pay producers at least the minimum price established by the board.

TFC administers an export policy whereby a given province that has exported turkey meat is eligible to replace that production, through a conditional allocation, so that the domestic market is adequately supplied. In the case of Ontario, the conditional allocation once allocated to the province, is redistributed by the Commodity Board to individual processors who have exported turkey meat products. Processors work with individual producers to grow the replacement.

Dairy

The Canadian Milk Supply Management Committee (CMSMC) is the key policy decision making body under the National Milk Marketing Plan and oversees the national system for industrial milk (used to make dairy products such as cheese, butter, etc.). Somewhat different from the poultry and egg national systems, CMSMC is chaired by the Canadian Dairy Commission (CDC), which is a federal crown corporation. CMSMC determines the national domestic supply of industrial milk and allocates this volume among provinces.

Since the inception of supply management, oversight and control of the fluid milk market (milk and cream consumers drink) has been a provincial jurisdiction. This includes production controls at the farm level. Since the mid 1990's, regional pooling agreements govern many aspects of production and, to a lesser extent, policies related to the allocation of milk to processors. The P5 Pool has a decision making body called the P5 Supervisory Body that includes representation from Ontario, Quebec and Maritime provinces. The P5 Pool is commonly referred to as a pool of producers. Producers in the pool share revenues, expenses and market adjustments (increases and decreases to quota). A similar regional pool exists in western Canada, called the Western Milk Pool, with membership of British Columbia, Alberta, Saskatchewan and Manitoba.

The Canadian Dairy Commission (CDC) reviews industrial milk prices once per year, for implementation on February 1st. In making its pricing decisions, CDC reviews the advice of industry stakeholders, COP calculations, market conditions, the changing dairy environment, and the general economy. Since 2011, changes to fluid milk prices have been based on a national pricing formula. Annual changes are based on an equal weighting of the changes to the national Cost of Production and the change in the Consumer Price Index (CPI).

Dairy Farmers of Ontario (DFO) has price setting authority. Prices vary with the end use of the milk. DFO sets most prices based on those established by the national processes. The prices for milk used for further processing are established at the national level by CMSMC.

DFO allocates Ontario's share of the fluid and industrial milk production among quota holders. Producers' quotas are expressed in terms of kilograms of daily butterfat.

DFO purchases all raw milk produced in the province, sells this milk to processors, and pays producers. The regulated prices vary with the end use of the milk. Under national and regional agreements, Ontario milk revenues are pooled with the revenues in other provinces before being paid to Ontario producers. Each producer receives a blended price that reflects fluid and industrial sales.

Class 5 prices are not set by DFO. The prices for milk ultimately used in further processing track U.S. prices. The price for milk that is used in the confectionery industry is agreed to between the Canadian Milk Supply Management Committee and confectionery manufacturers.

Raw milk used to make fluid milk and cream (milk and cream that consumers drink) is supplied on-demand to primary processors. Processors of some industrial products (e.g. yogurt, cottage cheese, etc.) are also supplied on demand, while processors of other industrial products require Plant Supply Quota (PSQ).

In 2012/13 representatives from producer boards, processors and government agreed on a number of changes to increase the flexibility of the milk supply to dairy processors. The changes included creating a national growth allowance to ensure extra milk is available, the creation of a growth reserve that is administered at the pool level, and making milk available from the growth reserve in priority for certain classes of dairy products (yogurt and fine cheese). During this same time period, a new Dairy Innovation Program (DIP) was launched and is administered by the CDC.