Production and Marketing Controls in Supply Managed Commodities

Table of Contents

1. Introduction
2. Background
3. Provincial Supply Controls
4. Production and Marketing Quotas
5. Contractual Arrangements
6. Ability to Prohibit Marketing of a Class, Grade, Variety or Size of Regulated Product
7. Licensing
8. Disciplines for Over-Quota Marketings
9. Exemptions

1. Introduction

In Canada, the broiler hatching egg, chicken, dairy (industrial milk and cream), egg, and turkey industries operate under national supply management schemes. Ontario's flue-cured tobacco industry operates under a provincial supply management system. A key component of supply management is effective control of the domestic production and marketing of the commodity. This factsheet describes these control mechanisms.

2. Background
   

Domestic supply requirements are set by the national agencies for eggs, turkey, and broiler hatching eggs, and by the Canadian Milk Supply Management Committee for dairy. Each province's share of the national supply is also determined at the national level. For chicken, the determination of national supply is based on a 'bottom up' approach whereby provinces submit their desired production levels to the national agency. These national bodies include producers from every member province and various industry stakeholders such as processors, further processors, government, etc.

Ontario's supply of flue-cured tobacco is determined annually by the Ontario Flue-Cured Tobacco Growers' Marketing Board (OFCTGMB) in negotiation with domestic manufacturers and exporters.

Under provincial and federal legislation, the provincial marketing boards for the supply-managed commodities have been delegated extensive powers to control production and marketing of the regulated products. In Ontario, these boards are the Ontario Broiler Hatching Egg and Chick Commission (OBHECC), Chicken Farmers of Ontario (CFO), Dairy Farmers of Ontario (DFO), Ontario Egg Producers (OEP), Ontario Turkey Producers' Marketing Board (OTPMB), and Ontario Flue Cured Tobacco Growers' Marketing Board (OFCTGMB).

Producers must hold quota to be eligible to produce and/or market a supply-managed commodity. The marketing boards allocate Ontario's share of the national supply to quota holders. Allocation is done on the basis of the share of Ontario quota held by each producer. Generally, a producer purchase additional quota from another Ontario producer.

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3. Provincial Supply Controls

The production and marketing of supply-managed commodities in Ontario are controlled through a number of mechanisms including production quotas, marketing quotas, prohibitions on marketing certain products, and producer licensing.

4. Production And Marketing Quotas

The main tools for controlling the amount of a regulated product that is produced and marketed are 'production quotas' and 'marketing quotas', respectively.

All Ontario supply management boards, except for DFO, have the authority to use both production and marketing quotas. DFO only has the authority to use marketing quotas.

Production quota authority allows a board to prevent production of the regulated product without a quota. It also allows boards to prevent producers from producing in excess of their production quota and from producing on land and/or premises without attached production quota.

Marketing quota authority allows boards to prevent producers from marketing a regulated product without a quota, prohibit over-quota marketing, and prevent producers from marketing product produced on land and/or premises without attached quota.

Each production period, the provincial boards inform quota holders the exact amount that each can produce and/or market.

Marketing quotas can also be used to ensure sufficient product is brought to market. Marketing boards can temporarily or permanently cancel a producer's quota if it is under-utilized.

For eggs, turkey, chicken, and broiler hatching eggs, production and marketing quotas are allotted to producers as one entity. In other words, producers are allocated to produce and market a specified amount of the regulated product.

In the turkey industry, each Ontario producer's basic quota is specific to one of the categories of turkey

(broilers, hens, toms, and multiplier breeders). OTPMB allocates sufficient marketing quota in each category to meet market demand. In practice, OTPMB allows producers to ship out-of-category birds but the producers are normally penalized.

As DFO has only marketing quota authority, it cannot limit the volume of milk and cream produced, only the volume marketed. In theory, DFO could force producers to use excess production on the farm or to dispose of it. However, at present, DFO is purchasing all over-quota production but at significantly reduced or zero prices.

For tobacco, the production and marketing quotas are separate. Each producer holds basic production quota for a certain weight of tobacco. The amount producers are allowed to market in a given year is expressed as a percentage of their basic production quotas. The marketing quota may be increased or decreased during the year in order to respond to market needs. Tobacco can be put into or brought out of storage to adjust to these changes in demand.

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4. Contractual Arrangements
   

In addition to quotas, broiler hatching egg producers require a contract with a hatchery before they can ship any hatching eggs. This requirement is due to the small number of customers and the tight time frame for marketing hatching eggs. There is a minimum lead-time required for altering contracts.

5. Ability To Prohibit Marketing Of A Class, Grade, Variety Or Size Of Regulated Product
   

The supply management boards all have the ability to stop producers from shipping a particular type of regulated product. This allows them to ensure that the market is not flooded with an undesirable product. For example, DFO may prevent milk that does not meet specific quality standards from being marketed.

7. Licensing

In order to produce and market a regulated product, a producer must be licensed by the relevant marketing board. The licence is an 'all or nothing' control - a producer either is or is not licensed. The licence can be revoked if a producer does not comply with all regulations and board orders, including limits on the amount or type of regulated product produced or marketed. Licences are often used to ensure that minimum quality standards are met. For example, DFO will not license a milk producer unless the producer has the ability to cool milk to below 4 C within two hours of milking and is able to maintain stored milk at reasonable temperatures.

8. Disciplines For Over-Quota Marketings

Disciplines are in place to strongly encourage provinces and individual producers not to produce and market more than their allotted shares. These disciplines vary by commodity. For example, in the dairy industry, revenues received by producers for over-quota marketings are much lower (or zero) than for in-quota marketings. For eggs, individuals are fined if too many hens are placed.

A marketing board may revoke a producer's licence if the producer does not comply with limits on the production and marketing of a regulated product.

9. Exemptions

There are a few limited exceptions from the requirement that producers have quota and licences to produce and market supply managed products. Unregulated egg producers can have up to 99 hens, unlicenced turkey producers can raise up to 50 birds/year/farm, chicken production for personal consumption is capped at 300 birds per year, and there is no limit on the volume of milk produced for on-farm consumption.

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