CHARLEBOIS: Why are we paying Canadian dairy farmers who are producing more?

Every once in a while, someone inside a tightly protected system decides to say the quiet part out loud. That is what Joel Fox, a dairy farmer from the Trenton area, did recently in the Ontario Farmer newspaper.

In a candid open letter, Fox questioned why established dairy farmers like himself continue to receive increasingly large government payouts — even though the sector is not shrinking, but expanding. His piece, titled “We continue to privatize gains, socialize losses,” did not come from an economist or a critic of supply management. It came from someone who benefits from it. And yet his message was unmistakable: The numbers no longer add up.

Fox’s letter marks something we have not seen in years — a rare moment of internal dissent from a system that usually speaks with one voice. It is the first meaningful crack since the viral milk-dumping video by Ontario dairy farmer Jerry Huigen, who filmed himself being forced to dump thousands of litres of perfectly good milk because of quota rules. Huigen’s video exposed contradictions inside supply management, but the system quickly closed ranks. Until now. Fox has reopened a conversation that has been dormant for far too long.

$14,000 cheque

In his letter, Fox admitted he would cash his latest $14,000 Dairy Direct Payment Program (DDPP) cheque, despite believing the program wastes taxpayer money. The DDPP was created to offset supposed losses from trade agreements like CETA, CPTPP, and CUSMA. These deals were expected to reduce Canada’s dairy market. But those “losses” are theoretical — based on models and assumptions about future erosion in market share. Meanwhile, domestic dairy demand has strengthened.

Which raises the obvious question: Why are we compensating dairy farmers for producing less when they are, in fact, producing more?

This month, dairy farmers received another 1% quota increase, on top of several increases totalling 4% to 5% in recent years. Quota — the right to produce milk — only increases when more supply is needed. If trade deals had truly devastated the sector, quota would be falling, not rising. Instead, Canada’s population has grown by nearly six million since 2015, processors have expanded, and consumption remains stable. The market is expanding.

What is quota?

Understanding what quota is makes the contradiction clearer. Quota is a government-created financial asset worth $24,000 to $27,000 per kilogram of butterfat. A mid-sized dairy farm may hold $2.5 million in quota.

Over the past few years, cumulative quota increases of 5% or more have automatically added $120,000 to $135,000 to the value of a typical farm’s quota — entirely free. Larger farms see even greater windfalls.

Across the entire dairy system, these increases represent hundreds of millions of dollars in newly created quota value, likely exceeding $500 million in added wealth — generated not through innovation or productivity, but by regulatory decision.

That wealth is not just theoretical. Farm Credit Canada (FCC), a federal Crown corporation, accepts quota as collateral. When quota increases, so does a farmer’s borrowing power. Taxpayers indirectly backstop the loans tied to this government-manufactured asset. The upside flows privately; the risk sits with the public.

Billions in compensation

Yet despite rising production, rising quota values, rising equity, and rising borrowing capacity, the federal government continues issuing billions in compensation. Between 2019 and 2028, nearly $3 billion will flow to dairy farmers through the DDPP. Payments are based on quota holdings, meaning the largest farms receive the largest cheques. New farmers, young farmers, and those without quota receive nothing. Established farms collect compensation while their asset values grow.

The rationale for these payments has collapsed. The domestic market did not shrink. Quota did not contract. Production did not fall. The compensation continues only because political promises are easier to maintain than to revisit.

What makes Fox’s letter important is that it comes from someone who gains from the system. When insiders publicly admit the compensation makes no economic sense, policymakers can no longer hide behind familiar scripts. Fox ends his letter with blunt honesty: “These privatized gains and socialized losses may not be good for Canadian taxpayers… but they sure are good for me.”

Canada is not being asked to abandon its dairy sector. It is being asked to face reality. If farmers are producing more, taxpayers should not be compensating them for imaginary declines. If quota values keep rising, Ottawa should not be writing billion-dollar cheques for hypothetical losses.

Fox’s letter is not a complaint — it is an opportunity. If insiders are calling for honesty, policymakers should finally be willing to do the same.

— Sylvain Charlebois is director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast and visiting scholar at McGill University.