For years, supply management has hampered Canada’s trade negotiations with other countries. A recent Angus Reid poll found most Canadians would abandon the system in exchange for better trade deals. The same poll found that most Canadians don’t know what supply management is. So what is it?
Supply management is a system that controls the dairy, poultry and egg markets in Canada. It aims to ensure consistent revenues for farmers through stabilizing prices for consumers. Supporters of supply management claim this is beneficial for both parties.
In reality, price stabilization has caused prices to soar. As a result, Canadians spend more on these goods than consumers in other countries. A 2012 study found that supply management adds more than $200 to the average Canadian family’s grocery bill each year.
As the name suggests, supply management gives control to producers (supply) rather than consumers (demand). Producers decide the quality, quantity and price of goods. Three main tools are used to maintain this system.
First, marketing boards set target prices for their products. These prices are determined through various factors, including production costs, market costs and what is considered a “fair return” for producers. The marketing boards themselves are mostly made up of farmers. Basically, small groups of farmers set industry-wide prices.
Second, quotas limit the number of producers within an industry. There are additional quotas that decide how much farmers can produce each year. If someone wishes to enter any industry under the supply management system, they must buy quotas. An average-sized dairy farm requires $2 million in quotas to operate. In other words, it costs $2 million to enter the dairy industry in Canada.
Third, quotas limit the amount of foreign products that can enter Canada. This protects Canadian farmers from foreign competition. Any imports that exceed this quota are subject to huge tariffs. For example, tariffs on imported butter are over 300%.
These three tools combine to prevent competition. Because of this, producers can provide a mediocre product without losing sales. This hurts consumers in many ways. The quality and variety of products drop, while prices rise.
Our trade partners dislike the quotas imposed on imports of foreign products, as well as the massive over-quota tariffs. Supply management was a major stumbling block in the negotiations of CETA, NAFTA, and the TPP.
All countries want to get the best deal for themselves in trade negotiations, and a concession from one country usually means a concession from the other. If Canada surrenders supply management, it will gain something else. This will benefit Canadian businesses and consumers.
For example, let’s say Canada offers to ditch supply management in trade negotiations with the U.S. The Americans would then need to give Canada something in return. They might offer to reduce or remove softwood lumber tariffs. This would be a double win for Canadians.
The way Canada protects supply management is foolish. We are giving up terms in our trade agreements that would help Canadians in order to preserve a system that hurts Canadians.
Supply management protects a small privileged group of producers from competition. This hurts farmers themselves and raises prices for Canadian consumers. Canada cannot afford the price of shielding certain industries from market forces, especially when we receive worse trade deals as a result.