Ontario and Quebec milk marketing boards could scrap their
cap on quota prices and achieve the same $25,000-per-unit price by reducing the
price of milk by 11.83 per cent.
That’s what doctoral student Alex W. Chernoff of Queen’s
University, Kingston found when he prepared an economic model to find out how
much the price of milk would need to be reduced to get quota prices down to the
current cap of $25,000 per unit, which is about the amount needed for one cow’s
annual production.
Chernoff notes that previous research indicates that
imposing a cap on quota prices stymies quota trades which, in turn, retards
progress towards greater efficiencies.
Quebec imposed the price cap of $25,000 in 2007 and Ontario
followed in 2009. The policy has reduced quota trading to virtually nil
because few farmers are willing to sell quota that would, Chernoff says, fetch
about $32,000 if there were an open market.
That leaves a large number of dairy-farming families
stranded with no realistic hope of ever filling their barns to capacity, let
alone building larger ones to support maturing children who want to become
dairy farmers.
Another study indicates that it’s not simply the more efficient
dairy farmers who buy quota, but more specifically those who achieve greater
efficiencies through running a larger herd.
They also found that the keenest quota buyers are the
younger farmers, those with more barn space and those with a recent history of
buying quota.
That study was done by Rebecca Elskamp and Getu Hailu of the
University of Guelph.
The option of reducing milk prices to lower quota prices has
been proposed many times before, but always rejected by the marketing boards
who prefer pricing milk according to formulas that track changes in production
costs and the Consumer Price Index.
The milk boards have, however, been gradually reducing
prices by selectively pricing milk at much lower prices for some customers who
face competitive pressures from imports or might otherwise import dairy
ingredients.
The Ontario milk board recently reduced the price of milk
used to make mozzarella cheese for pizza restaurants and is under pressure to
reduce the price of milk to produce cheeses because processors have been
cutting their costs by importing much cheaper ingredients from the United
States and others.
