Milking the market

Many comments have been made about the future of our supply management regime in recent months.

Simply put, our supply management approach is allowing Canada to produce what it consumes in dairy, poultry and eggs while protecting our market with highly restrictive tariffs on imports.

Our quota scheme, particularly in dairy, has been under fire as a result of recent trade talks with both Europe and the Asian-Pacific region. But regrettably, the public discourse on our dairy farmers’ future overshadowed a troubling statistic. Statistics Canada recently released information on retail sales which reported that per-capita consumption of milk in Canada has fallen by 18 per cent to 74 litres a year between 1995 and 2014.

Taking into account population growth, Canadians consumed approximately 20 million litres less milk in just one year, between 2013 and 2014. As our domestic milk market is contracting, few are suggesting ways of stimulating a very wearying domestic demand for what is arguably the most natural wholesome food product there is.

Milk consumption is facing many headwinds our dairy sector admittedly cannot do much about. For one, demographics are generally working against the dairy sector. Like many other industrialized countries, Canada is getting older. In fact, Canada has more than 5 million consumers who are 65 years old or older.

With many boomers coming of age and converting to empty nesting, that group will either reduce its consumption of milk or outright eliminate milk from its diet altogether. The other chief factor is ethnicity. Canada welcomes many immigrants from several parts of the world where milk is not perceived as a food staple as it is here.

Milk is essentially a luxury product for many emerging markets. When migrants come to Canada, they bring along their culinary traditions which often do not include milk. As new Canadians settle in and support future generations, these traditions can only negatively influence domestic dairy consumption.

Lastly, one other phenomenon hitting the dairy sector particularly hard is the rise of veganism. The Dairy Farmers of Canada conducted a very comprehensive survey recently and noticed that a significant portion of the drop is due to consumers believing that industrial farming practices are unethical.

Even if this movement remains marginal at best, it would be a mistake for the dairy sector to not consider animal welfare as a very important issue moving forward.

This may be surprising to some, but the reality is that the recent rise in food prices has eroded the food industry’s impenetrability. More consumers are feeling that they are part of the value chain and can vote with their food purchases.

Our collective awakening has been spectacular and has caught many by surprise, including the dairy sector. Both distributors and processors have been exposed to market pressures for years. Now, these systemic pressures are catching up to primary production. And yes, that would include dairy farmers.

We can always drink more milk and consume more dairy products to meet our daily recommended servings, suggested by our government-sanctioned food guide. But looking at the ensemble of systemic pressures, a strategy purely based on “selling” milk like the Dairy Farmers of Canada’s “Get Enough” campaign is simply silly.

Year after year, dairy farmers spend almost $100m in advertising just to reinforce the fact that we need to drink our milk, and consumption per capita has continued to decline expressively. Very few agricultural groups can afford such a lavish campaign.

Many Canadians are slowly figuring out ways to get protein, calcium and other nutrients from other sources. Many consumers have opted for alternatives such as almond, soy and rice milk. Unless the dairy sector gets more creative, this trend will likely continue.

A supply to demand chain management shift is needed in Canada to better understand consumers. We have seen some innovation in Canada, but not nearly enough. Most new products were developed to respond to supply-focused needs and relied on a push-driven strategy. Better analytics, better research and more market-based innovation can only lead to more prosperity for the sector.

Nobody knows though if this can be achieved with our current supply management regime. The Dairy Farmers of Canada seem to believe that the current approach is appropriate, which is unfortunate. It will only lead to further market contraction and fewer farms. Since we have lost more than 108,000 dairy farms in Canada since 1970, perhaps it is high time for a different method.