President's Address by John
Core
Dairy Farmers of Canada
2001 Annual Dairy Policy Conference
Ottawa, Ontario
January 16, 2001
It's a pleasure to present the President's message to you this
morning.
There is no question that the implementation of the WTO panel
decision on classes 5(d) and 5(e) has taken a great deal of time and energy this
year. Of course since many of the resulting changes involved negotiation
at the national level this was the opportunity for provinces and regions to
bring other issues to the table at the same time. As a result, a new
agreement on quota allocation at the national level was achieved as was a new
agreement on sharing the costs of the P9 agreement.
Meanwhile, the agricultural negotiations for the next WTO
round got off to a slow start during the year. Canada has an excellent
position for this round of negotiations in agriculture but it will be extremely
important for all of us in agriculture to keep a close eye on how this position
will evolve during the negotiation. The Canadian government is committed
to a domestic supply management program for dairy and poultry and this will
necessitate the maintenance of the over-quota tariffs at the end of this round
of negotiations. Our dairy industry also supports the elements of the
Canadian position that opens up the trade in ag and food products through leveling
the playing field. These other elements of the Canadian trade
position include minimum, clean market access with zero within-quota tariffs,
elimination of export subsidies, capping of domestic support, and science-based
sanitary and phyto-sanitary standards.
I might just comment that these elements seem reasonable to
those of us in Canada, but when you visit others on the world stage you find
that these elements, which would level the playing field, present some very real
problems for other countries as far as what they want to see happen in the next
round of negotiations. I was quite shocked when we were in Geneva this
fall and we met with various agricultural trade negotiators from other countries
that when we talked about minimum clean market access of 5%, one of those trade
negotiators asked us why have we that in our policy position because that was
accomplished in the last Uruguay Round. He sincerely believed that all
countries were in fact meeting a 5% minimum access -- and this was a trade
negotiator for another country. When we pointed out to him that was not
the case he was quite surprised and to me that indicated that the message we
have as Canadians as to what needs to be done in this round of negotiations
needs to be aggressively pursued.
As far as the elimination of export subsidies, we were told by
some representatives of European nations that was simply dreaming. The
next round of negotiations might reduce export subsidies but there was no way
they were going to be eliminated.
When we talk about capping domestic support, the United States
talks about how they have to have their green box programs; the Europeans talk
about having their blue box programs. The true desire to cap domestic
support is also an uphill battle.
Even when we get to science-based SPS standards, we've all
seen the rhetoric coming out of countries talking about multifuctionality;
talking about taking specific positions on health and science-based issues, so
again that's going to be difficult.
As I said, Canada has an excellent position that will only
find its way at the end of the day if the negotiations are skilled and
aggressive.
Our government needs to ensure that the negotiation team fully
understands the Canadian position and has been given a clear mandate under which
to operate. Miscues or misunderstandings of terminology are not
acceptable. Our governments need to be careful not to be caught up in the
global marketplace, free trade rhetoric that the U.S. and the European Union pay
lip service to but have no intention of actually implementing. As I have
said, ad nauseum, the WTO is about rules of trade, not free trade. It is
also about negotiating a good deal for your country and a lesser deal for other
countries.
I personally believe that dairy farmers in Canada must
continue to be given the authority to be price setters rather than price takers
in the domestic market. We have no other choice given the consolidation in
the processing and retail sectors in our country and also our country's
inability to match the subsidy levels for agriculture of the U.S. and EU.
For 35 years we have used our marketing powers to the benefit of our industry
and it is up to our government to ensure that nothing at WTO limits our ability
to do so in the future.
It will not be acceptable at the end of the negotiations for
our negotiators to say, "we tried". The government must deliver
on their promise to support supply management and they must be clear in
understanding what that means. It means that we must have the ability to
have border protection (over-quota tariffs), we must have producer price setting
authority coupled with CDC price supports, and we must have producer control of
production to meet demand. My message to you in the future is do not let
the Government of Canada or your provincial governments waiver, watch them at
every announcement, every discussion, every decision-making point along the way,
and spend the money needed to keep fully informed at all times throughout the
process.
I want to now discuss the implementation of the WTO Panel
during the past year. First of all, we reduced our level of exports under
5(d) and 5(e) down to the negotiated implementation levels prior to August
1. Since August 1, the actual WTO levels now apply to these exports.
OEP was also first limited and then eliminated on Aug. 1.
We eliminated class 5(e) on August 1 and our subsidized
exports will now only take place in class 5(d). The domestic system has
also been drastically changed. Class 4(m) was introduced for domestic
surplus disposal such as powder for animal feed. Overquota milk will
ultimately find its way into class 4(m), class 5(d) subsidized export, or into
domestic stocks. We will have more frequent quota adjustments as we
attempt to match more closely supply and demand. We increased the growth
allowance (sleeve) on a temporary basis this past year to help us ease into the
new system. It may well be necessary to decrease this growth allowance in
the coming months.
Producers and processors decided to introduce export contract
mechanisms into each province for those producers and processors who wish to
pursue export marketing opportunities. These commercial export contracts
are outside of the regulated domestic system and therefore cannot be considered
to be subsidized since they are not impacted by "government
action". And remember that was one of the key issues involved in the
decision that classes 5(d) and (e) were in fact export subsidized classes.
These are commercial export contracts with all the risks associated with them
borne solely by the producers and processors who enter into the contract.
Milk for export contracts will be the first milk out of the tank.
Each province put in place its own mechanism for bringing
together the offers from processors and producers. This ranges from direct
mailings and contracts from processors to third party bulletin boards. In
all instances the role of government at the provincial and federal level have
been removed.
Needless to say, the USA and NZ have indicated that they
intend to challenge the export contract concept under the WTO compliance
panel. We believe export contracts are acceptable since they are outside
of the domestic marketing system. My message to the US and NZ is simple
"people in glass houses shouldn't throw stones". Suffice to say
we are examining their glass houses and will take action if necessary.
Peter Clark will be expanding this morning on the analysis that's been done on
what's happening in those countries.
I want you to remember where all this process started.
The US first indicated to their producers that Canada's market would be opened
up to US dairy exports following the Uruguay Round, following the NAFTA
agreement. They've done this many times, saying clearly the solution to
the United States dairy industry's income problems was to export into the Canadian
market and they were talking about a $1 billion market. Remember this also
however! We, as the Canadian dairy industry, have no intention of allowing
the United States to have free and open access to our Canadian market.
Final words of personal caution to producers who have chosen
to sign export contracts. The risks are yours and yours alone. The
only guarantees are those contained in the contract. World prices
fluctuate dramatically. Also, a compliance panel appears inevitable and
until settled export contracts must be viewed with caution. The domestic
system is not a risk in this compliance panel. Your predictable, stable
market is the domestic market. Complete dependence on the export market
will be a high-risk venture.
Let me shift gears here for a moment and talk about some other
current issues.
We seem to be moving towards a higher level of promotion
spending for both fluid and industrial products. Decisions will be made
across the pools in the coming year and I hope the decision will be
positive. It is clearly time to increase our investment in
promotion. We have been falling behind the cost of media inflation.
I believe that much of the recent growth in our market requirements stems from
our on-going investment in promotion activities. I am pleased that many
provinces have already had very positive discussions about increasing the
investment in promotion.
As you know, the DCD announced an industrial price increase of
$1.28 per hectolitre for industrial milk effective February 1, 2001. In
addition the $0.85 pass through of subsidy reduction was added. P5
members were extremely disappointed that our fluid processors did not co-operate
with us in seeking a greater price increase than $1.28 for fluid classes.
The price gap between class 1 and the industrial classes has narrowed.
This is unacceptable as our cost within P5 to deliver milk on demand for fluid
processing continues to increase as fluid plants consolidate, particularly in
Ontario.
Therefore P6 has put fluid processors on notice that we will
seek a further fluid price increase in six months. Such an increase will
mean more producers will recover their cost of production. It's
unacceptable that we are currently only covering the costs of between 32-36% of
producers.
I was recently incensed by the attack campaign launched once
again by the Canadian Food and Restaurant Association (aided and abetted by
three other national groups) at the time of the pricing decision by the CDC.
It was utter foolishness to claim that the cost of dairy products was driving
them out of business. Think about this - the tip of the servers in most
restaurants exceeds the amount that farmers receive for the food that is
actually making up that restaurants meal. In fact the government taxes, in
my province at least, when you combine provincial and federal taxes on a
restaurant meal are also greater than the value farmers receive for the food
being produced and consumed in restaurants. Remember there is only $0.60
worth of cheese on a medium pizza.
Remember that glass of milk that sells for a $1.50 or more in
a restaurant - the producer income out of that glass of milk is approximately
$0.17, processors receive an additional $0.08, and the rest goes to the
restaurant income side. Our revenue increases for the last number of years
have been below the inflation rate. We can't help it that the feds chose
to reduce the subsidy at the same time. What I'm concerned about, given
this rhetoric campaign that was launched, was that once again it appears that
all those in the food system would prefer to give the farmer less for his or her
products. I'm convinced, and this re-inforces it, that collective,
producer marketing is the only offset to the balance of power which is being
consolidated into few hands in the food industry.
Now to the future. It is the prerogative of a retiring
president to look to the future and offer some comments. I can say what I
want because I will have absolutely no influence on the discussions that will
ultimately lead out of these types of issues.
I believe that more and more of the decision making in the
dairy industry will take place at the national and pool level. The
provincial boards will then implement these decisions. Individual
producers and in fact, board members could well feel isolated by this process
unless a clear sense of direction has been established through the planning and
visioning process within each province. Given recent developments in the
processor sector, I firmly believe that all provinces need to move quickly to
put in place producer-elected marketing boards with the necessary powers given
them by the provincial governments to deal with a much consolidated industry.
The need to keep government informed and onside with supply
management will be paramount, in the coming years, especially through the next
WTO round. It will be necessary for Dairy Farmers of Canada to travel the
world spreading our messages to other governments and dairy producer
groups. We have the best marketing system in the world for milk and the
world needs to hear about it.
The greatest challenge in the future, however, will come from
within. Our industry provides the producer with stable markets and
prices. It is based on co-operation and pooling. The risk is that
some producers will become greedy and think that they can make more money if
they could only market domestically themselves. If allowed to fester, such
ambitions would lead to eventual self-destruction of our system. The
industry must always be on its guard. It must address challenges as they
arise. It must be adaptable and flexible to meet producer needs. It
must be upfront in explaining the rationale for its decisions. It must be
prepared to admit mistakes if they are made.
Our strength is our people. You, the Board members you
elect, the executive they choose, and the people they employ.
I want to sincerely thank my fellow board members. The
recent times have been turbulent and I feel that our board has risen to the
challenges that face them. We have excellent people on the staff of DFC.
To each and every one of them I also say thank you. It is not always easy
to work for a producer organization but we could not have asked for more
dedicated and capable people in both the lobby and promotion side of DFC.
Thank you to those who buy and consume our products across
Canada -- without a market we would have no reason to milk those cows every
morning at 6 am.
And finally a thank-you to you and all of your fellow milk
producers for giving me the opportunity to be part of DFC for 15 years. It
has been a great experience working for and with all of you. Good luck in
the future.
|
