DFO ponders new assessment system for dairy quota

But farmers are concerned that it might erode their retirement fund or affect their ability to obtain bank financing

by DON STONEMAN

Dairy Farmers of Ontario (DFO) is going to try again to develop a policy that will keep a lid on dairy quota prices.

That likely means that the board will impose an assessment on quota sales, even though a specific proposal for assessments was turned down by the marketing board in late October after harsh criticism in the countryside. County milk committees were asked to meet with directors before a mid-November board meeting.

“There are not a lot of options,” says DFO chair Bruce Saunders. “The option tends to be a transfer assessment.” That assessment might be on new quota sales, on old quota sales “or one number for all,” Saunders told Better Farming.

The proposal that the DFO board rejected involved two different assessments on dairy quota sales; the first being a 50 per cent assessment on “new quota” purchased after Jan. 1, 2007, and imposed when that quota was sold later. The other assessment, 10 per cent on “old quota” sold after Aug. 1 of next year, would have escalated to 20 per cent in 2008 and 30 per cent in 2009.

When the board imposes an assessment on a sale of quota, the seller pays only for the unassessed quota. The buyer receives only the unassessed quota. The assessed portion of the sale goes into a bank and is doled out to the remaining producers as the board sees fit. Before the quota system was revised in the late 1990s, there was a 15 per cent assessment on all quota transfers.

The purpose of the assessment was not necessarily to reduce the price that farmers now pay for quota, but to keep it from climbing beyond the current mark of $33,000 a kilogram, says Saunders. The plan was developed jointly by staffs of DFO and its counterpart dairy board in Quebec. “If the price held the same or went down,” Saunders says, the program would have been successful.

Saunders says producers have told the board they were concerned about the quota assessment for two reasons. One group is concerned that their retirement fund is going to be eroded. Farmers have put money into their farms instead of into mutual funds. “That is how it has been. That’s the way it is,” Saunders says.

He says that “an equal number” of producers were also concerned and they are just starting their careers. Saunders describes them as “highly leveraged” with lenders. “They are concerned that the bank may not lend them any money in the next couple of years because of less equity in their quota.”

Are farmers getting too much for their milk and is that why quota prices keep going up? Saunders doesn’t think the price of quota is a reflection of the price of milk. The price of milk is based on a cost of production formula, which is geared to cover the cost of the “50th producer” of 100, Saunders says.

Some producers who are more efficient at producing milk have lower costs and can invest more in quota purchases. There is also another group of farmers whose families are willing to forego a level of return” in order to invest more in the farm.

Saunders says that, in the year ending in September 2006, 32 new producers took up dairy farming while 298 producers sold out. The numbers don’t reflect the number of new operators signing on to existing milk producer licenses, he says. BF