Supply Management Systems

Agdex#:
Publication Date:	06/2000
Order#:
Last Reviewed:	05/2007
History:	Original Factsheet
Written by:	Laurinda Lang

Table of Contents

• Introduction
• Broiler Hatching
• Eggs
• Chicken
• Dairy
• Eggs
• Flue-Cured Tobacco
• Turkey

Introduction

In Canada, the broiler hatching egg, chicken, dairy, egg, and turkey industries operate under national supply management systems. These systems are controlled by national bodies and by provincial commodity marketing boards that have been delegated powers by federal and provincial governments.

The national systems are similar in many ways. The amount of each commodity that is marketed by producers is controlled through a quota system. The volume of the commodities imported into Canada is limited by tariff rate quotas, under which very high tariffs are applied on imports above a specific level. By matching the total supply of the product available in Canada with the market demand, supply management systems aim to provide efficient producers with fair returns and to provide Canadian consumers with an adequate supply of the product at reasonable prices.

The Ontario flue-cured tobacco industry operates under a provincial supply management system because most of Canada's tobacco is grown in the province. The fundamental concept of matching supply with demand is the same as for the other supply-managed commodities, but imports are not restricted.

This factsheet provides a brief overview of each commodity's system. Further details can be found in other factsheets prepared by the Ontario Farm Prod-ucts Marketing Commission (OFPMC).

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Broiler Hatching Eggs

The Canadian Broiler Hatching Egg Marketing Agency (CBHEMA) is the national body that admin-isters the national system for broiler hatching eggs. CBHEMA sets the annual national production level, taking the Chicken Farmers of Canada's projected level of domestic chicken production into considera-tion, and then allocates it among member provinces.

The Ontario Broiler Hatching Egg and Chick Com-mission (OBHECC) regulates the production and marketing of hatching eggs and chicks in Ontario. Its major roles include allocating the provincial share of the national supply to Ontario producers (quota hold-ers) and setting Ontario prices paid by hatcheries for hatching eggs and chicks based on the cost-of-production (COP). In addition to holding quota, pro-ducers must have contracts with hatcheries before they are entitled to produce hatching eggs.

Hatcheries sell chicks directly to chicken producers. Chicken producers are individually responsible for obtaining the chicks they require.

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Chicken

The Chicken Farmers of Canada (CFC) administers the national system for chicken. CFC uses a 'bottom-up' approach to determine the national supply of chicken, taking into account the reasonable needs of downstream players. Provinces each submit re-quests to CFC for a specific volume of provincial production. CFC then determines whether the ag-gregate represents the Canadian market require-ments for the quota period.

Ontario's demand is determined by the aggregate of individual confidential requests submitted to the Chicken Farmers of Ontario (CFO) by processors. As long as the requests fall within the provincial cap, the numbers are submitted to CFC as Ontario's pro-vincial allocation request. CFO allocates Ontario's share of national production to quota holders.

Each Ontario processor receives the amount re-quested as long as CFC provides Ontario with the full allocation request. If Ontario does not receive its full request, each processor's request is cutback by the same percentage. Processors sign up producers of their choice to supply their chicken and pay them the regulated price.

The Market Development Program provides a framework under which additional chicken can be produced for export. In Ontario, individual processors desiring this extra chicken submit a request specifying the desired volume and price. Individual producers volunteer to produce a specific volume of chicken at the average discounted price.

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Dairy

The Canadian Milk Supply Management Committee (CMSMC) oversees the national system for industrial milk (used to make dairy products such as cheese, butter, etc.) It is chaired by the Canadian Dairy Commission (CDC), a federal Crown Agency that provides a framework for federal/provincial participa-tion in order to facilitate the design and implementa-tion of dairy policies and programs. CMSMC deter-mines the national domestic supply of industrial milk and allocates this volume among provinces.

The volume of fluid milk (milk and cream consumers drink) to be produced in Ontario is determined at the eastern regional level by the P5 Supervisory Body. This group is structured similar to CMSMC. The P5 includes Ontario, Quebec, and the Maritime prov-inces.

The Dairy Farmers of Ontario (DFO) allocates On-tario's share of the fluid and industrial milk production among quota holders. Producers' quotas are expressed in terms of kilograms of daily butterfat.

DFO purchases all raw milk produced in the province, sells this milk to processors, and pays producers. The regulated prices vary with the end use of the milk. Under national and regional agreements, Ontario milk revenues are pooled with the revenues in other provinces before being paid to Ontario pro-ducers. Each producer receives a blended price that reflects fluid and industrial sales.

Raw milk used to make fluid milk and cream (milk and cream that consumers drink) is supplied on-demand to primary processors. In Ontario, milk for some industrial products (eg. yogurt, cottage cheese) is also supplied on demand. Ice cream manufacturers must have milk entitlement quota (MEQ). MEQ is a permit issued by DFO that allows milk to be sourced on-demand. MEQ limits this to 50% of the butterfat requirements. The remainder of the butterfat must be sourced from skim-off on the open market. Skim-off is the butterfat that is re-moved when whole raw milk is processed into ho-mogenized, 2%, 1%, and skim milk.

Primary processors of other industrial products (pri-marily cheeses, butter, and evaporated and pow-dered milks) require Plant Supply Quota (PSQ). New or additional PSQ must be obtained from another On-tario processor.

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Eggs

The Canadian Egg Marketing Agency (CEMA) admin-isters the national system for eggs. CEMA deter-mines the annual domestic egg supply and divides it among the provinces. The Ontario Egg Producers (OEP) regulates the production and marketing of eggs in Ontario. OEP allocates Ontario's share of the domestic egg supply to producers.

All eggs are bought by graders at the price set by OEP. Retailers buy table eggs from graders at a price negotiated between the two parties. Eggs not required for the table market are re-purchased by either OEP or CEMA at a price that is derived through a formula and based on CEMA's provincial COP calculation. Processors, also known as breakers, buy eggs from OEP or CEMA.

Producers receive table egg prices for all eggs mar-keted but levies are deducted to pay for eggs sold in the lower-priced industrial market.

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Flue-Cured Tobacco

The Ontario Flue-Cured Tobacco Growers' Marketing Board (OFCTGMB) regulates the production and marketing of flue-cured tobacco in Ontario. The Tobacco Advisory Committee, comprised of representatives from OFCTGMB, tobacco manufacturers, processors, the Leaf Tobacco Exporters' Association, and provincial and federal governments, determines the size of the annual crop to be marketed. OFCTGMB divides up the annual crop size among quota holders.

An additional amount of marketing quota can be triggered if the market demand is larger than originally expected.

All flue-cured tobacco is sold on a Dutch Clock Auc-tion system run by OFCTGMB. The auction usually operates between October and March/April each year. A buyer uses a 'button', either purchased from OFCTGMB or leased from another button holder, to stop the clock at the desired price for a specific lot. There are floor prices for most sales.

Producers receive the clock price for their tobacco. In addition, they receive an interim deficiency pay-ment. The rates are determined before the auction opens each year and are designed to encourage pro-duction of the higher grades of tobacco. At the end of the year, producers may also receive a final defi-ciency payment if, over the year, the average pur-chase price is less than TAC's overall target price.

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Turkey

The Canadian Turkey Marketing Agency (CTMA) administers the national system for turkey. CTMA's roles include determining the amount of turkey to be produced in Canada each year for domestic con-sumption and then dividing it among the provinces.

The Ontario Turkey Producers' Marketing Board (OTPMB) regulates the production and marketing of turkey in Ontario. Based on market needs, it deter-mines the volume of each size of turkey (broilers, hens, and toms) that should be produced to fill On-tario's share of the national supply. OTPMB informs individual quota holders of the amount of turkey they are entitled to market.

Primary turkey processors contract directly with pro-ducers of their choice. Processors must pay produc-ers at least the regulated price.

In addition to the annual domestic supply determined by CTMA, extra turkey can be produced for the ex-port market. Turkey processors can obtain re-grow credits if they export domestic turkey or turkey parts. The processors then contract with producers to have the re-grow birds produced for the domestic market at the domestic price.

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