October 13, 2010

Study shows milk supply controls strangle dairy growth

A new study of government-mandated supply controls and their impact on the dairy industry in other countries shows that added controls on milk supply do not prevent price volatility and can have an adverse effect on an industry poised for growth.

The report by Informa Economics examines what happened in Canada, the EU and other countries when government-mandated supply controls were implemented and enforced. It outlines the negative impact a government-run supply-control policy has on the industry, especially at the farm-management level.

The study concludes that supply control programmes limit exports, create an economic incentive for imports, increase consumer milk and milk-product prices, and add layers of bureaucracy to government oversight systems.

"We support policies and plans that give farmers a safety net, such as margin insurance, and the tools they need to make choices leading to more efficient and profitable operations," said Connie Tipton, president and CEO of the International Dairy Foods Association (IDFA), which commissioned the study.

"We don't think a government-run programme that takes away a farmer's ability to decide their own operation's production level and growth patterns is in the best interest of the US dairy industry," she added.

Since 1975, overall milk production in the US has increased by 64.1%, while fluid dairy product sales grew by only 2.4%," Tipton said. "That additional supply has gone mostly to cheese production. Limiting milk production growth also limits overall market growth and opportunity for new products."

The US dairy industry has a huge opportunity to expand production of cheese, yogurt and other products in global markets. A supply-control policy will create a barrier to taking full advantage of the opportunity, because growth and expansion will stop without an ample milk supply, the study concluded.