Friday, February 8, 2013

When will Tories put a stake through the heart of supply management?

Regular readers of this blog may remember that, back in 2011, I expressed my view that supply management must go. At that time I quoted a paragraph from the Conservative government’s then recent throne speech, as follows:

Our [Stephen Harper Conservative] Government will aim to complete negotiations on a free trade agreement with the European Union by 2012. It will also seek to complete negotiations on a free trade agreement with India in 2013. In all international forums and bilateral negotiations, our Government will continue to stand up for Canadian farmers and industries by defending supply management.”

At the same time we were promised freer trade with the EU and later with India, Prime Minister Stephen Harper told us that in those negotiations his Government “will continue to stand up for Canadian farmers and industries by defending supply management,” and, he implied, ordinary Canadians can go suck eggs—very expensive ones at that.

In the ensuing months, the prime minister has given no indication of having changed his mind. To the contrary, all indications from Ottawa are that Canadians will be expected to continue financing our wrong-headed supply management model of agricultural quotas and tariffs covering dairy, eggs and poultry, which was implemented in Canada in the early 1970s and that continue to cost average and low-income Canadian consumers so dearly.

We conservatives pride ourselves as being free-traders, and the World Trade Organization (WTO) members have asked Canada “to consider replacing its supply management system with less market‑distorting alternatives, and to reform the management of its MFN and preferential tariff quota schemes in the interests of greater transparency.”

So why not do it? That I cannot answer—I haven’t a clue.

The Organization for Economic Cooperation and Development (OECD) found that Canadian milk prices have been two to three times higher than world prices  since 1986. And the OECD estimates support to Canadian dairy producers at $2.7 billion in 2003, equal to more than 60% of the value of total dairy production that year.

Our supply management system is much the same as us creating a government-mandated cartel for the marketing of poultry, egg and dairy products. Through import tariffs, producer-pricing and quotas, it seeks to protect a relatively few farmers to the financial detriment of Canadian consumers, especially those who are seniors on fixed incomes and parents who struggle to make ends meet.

Three rationales for this terrible policy are usually trotted out in defence of the indefensible: firstly, that the self-serving Conservative party wants to protect some of its rural seats; secondly, that our farmers would not be able to compete in world markets; and thirdly, supply management provides security of supply and protection from low agricultural standards abroad.

As to the first concern, only about 15th of Canadian farmers participate in the system and, according to Martha Hall Findlay’s 2012 paper—published by University of Calgary’s School of Public Policy—“Since 1971, the number of Canadian dairy farms has dropped by a staggering 91 per cent. There are now few, if any, ridings where dairy votes could plausibly swing elections ….”

As to the second concern, other countries with similar social and economic structures have deregulated agricultural markets. In 1984, the New Zealand government, for instance, eliminated most agricultural subsidies, some of which were as high as 40 per cent of farmers’ incomes. This was followed by deregulation of its domestic market. Australia too overhauled its supply management system in 2000, and compensated farmers for losses due to the elimination of quotas and lower prices by installing a “deregulation adjustment package” financed in part by a temporary tax on Australian milk consumption—their resulting fresh milk tax of 11 cents a litre was lifted February 23, 2009.

It is instructive to note that by 2003, New Zealand and Australia were among the OECD countries with the lowest agricultural supports. New Zealand’s agriculture sector adapted quickly, resulting in a significant return to organic farming and to a more diversified product range, with stronger export capability at world prices. Agriculture’s share of New Zealand’s GDP rose from 14.2 per cent in 1986-87 to 16.6 per cent in 1999-2000—a period during which agriculture experienced the greatest productivity gains of any of New Zealand’s economic sectors.

The third concern is as spurious as one can be and is used as a smokescreen. Obviously, Canada’s grain and beef industry has not succumbed to foreign imports, nor has our importation of so much fresh produce produced any extraordinary or unmanageable health risks. But it’s a well-used argument from a few well-heeled dairy and poultry farmers.

It has taken a former Liberal politician, Ms. Martha Hall Findlay, and a columnist, Andrew Coyne, to get this serious policy mistake back on the political agenda in our country, and our Conservative government should be ashamed of itself for continuing to abandon Canadian consumers.

I noticed that in the recent Senate committee report into why U.S. prices are often lower than Canadian prices, supply management—a major cause—was side stepped.

And here’s some of what Federal Finance Minister Jim Flaherty said in response to the report:

We’ve been looking at our tariff situation carefully, particularly with respect to consumer goods in Canada, to see what we could do.”

Mr. Flaherty, as did the Senate committee, neatly ignored the unnecessary price-gaps caused directly by the supply management system the Conservative government is trying so hard to protect.

It is time to end these insane price-fixing practices—two and three times world prices—that are supported by customs tariffs that reach exorbitant levels—from 200 to nearly 300 per cent—and egregiously high quotas—$28,000 per cow—that lock would-be Canadian dairy farmers out of the Canadian market.


  1. The next time Canada gets a real Conservative government will be its first.

  2. I don't KNOW the answer either,but if I may speculate; the dairy and poultry industries probably contribute heavily to the CPC,and thus the CPC rewards them by NOT mentioning SSM.

    You should write to the Minister responsible,and ask why the situation hasn't been addressed,and post the reply on your site. At the same time,it would be a good idea to approach the federal NDP and Liberals for their views on this.

    I no longer live in the Fraser valley,and so can't cross the border to buy milk and cheese at one third the price we pay up here. I miss that CB shopping!

  3. It is useful to recast on why SM was set up by Liberals (Eugene Whelan), 40 years ago. The dairy industry was plagued by wildly fluctuating production and prices. In an attempt to stabilize farm incomes, various schemes were attempted. One was a direct subsidy on industrial milk, with a government purchasing plan for excess production of powdered milk. This resulted in mountains of milk powder, which was expensive to store and which nobody wanted, including foreign aid recipients. The quota system did allow production to be tailored to demand, the direct subsidies were phased out, and prices were stabilized, though at levels consumers found to be excessive.
    An unintended consequence was the capitalization of the quota into the farm value; over time the quota became vastly expensive and excluded many young farmers from starting up.
    If the system is to be disbanded, it would have to be very gradual and in a way not to bring back the problems of over production and prices below cost of production.
    Ending the quota system would not necessarily attract many new farmers into production, but rather favour existing ones with the equipment and herds already in place. They would be best placed to increase production.
    If the government wishes to disband SM, they should use it as a bargaining chip and ensure something is received in return. The EU under the CAP system had subsidies on agriculture products far in excess of Canadian levels.
    My main objection to the SM system is the unfairness to other farmers, beef, pork and grain producers. Any disbanding of the system must be done carefully, the thorny issue of compensation for investment into the current system would have to be addressed. That could prove to be very expensive.

  4. I would "write to the Minister responsible,and ask why the situation hasn't been addressed," dmorris, but would expect the same talking points repeated to journalist. Real reason, who knows, the Tories ain't saying.

  5. Thanks for your perspective, Martin. As to a transition, other countries like Australia and New Zealand have made a successful transition away from SM and can be a model to us.

    "The government wishes to disband SM, they should use it as a bargaining chip and ensure something is received in return." What about the things we've had to give up so that our trading partners will allow us to keep our SM system--cuts both ways.

  6. What we may be looking at is the "long game".

    A friend once suggested to me that the MO of the Prime Minister was to examine an issue until he identified a seam or crack in the position (or its supporters), then inserted a wedge to keep the crack from closing. As the crack widened, more wedges could be inserted until the position or its supporters collapsed.

    This slow movement may drive Conservatives, Classical Liberals and Libertarians to distraction, but it ensures a long term and long lasting changes, without arousing massive opposition or threatening the prospects of re election. These changes will be more effective because they are long lasting, and if/when the government is defeated (in 2019?) they will have been entrenched into Canadian society long enough to make displacing them difficult.

    1. Let's hope you're right, Thucydides. Pretty good strategy, eh?