November 22, 2011 – MLI author Ian Lee discusses why Canada has supply management, why we shouldn’t, and the fairest way to help consumers and farmers out of supply management in today’s Toronto Star. An excerpt below:
The termination of supply management would not only dramatically reduce these unfair prices to all Canadian consumers, but even more importantly, it will allow Canada’s highly productive farmers to access new markets and allow Canada to remove the most critical barriers to trade negotiations.
The op-ed is based on the recently released Straight Talk issue by Ian Lee on supply management. Full op-ed below:
By Ian Lee, Toronto Star, November 22, 2011
Thirty-four million Canadians are being milked and their wallets plucked by approximately 14,000 dairy farmers, 2,800 chicken farmers, 1,200 egg producers and 500 turkey farmers under a system of government protectionism called “supply management.”
In Canada, supply management protects farmers producing dairy, eggs, turkeys, chickens and broiler hatching eggs, representing $8.6 billion or 19 per cent of a $44.4 billion annual Canadian farm income. And yet these farmers earn an average of $100,000 net profit per farm.
Supply management started under the Pearson government with the establishment of the Canadian Dairy Commission in 1966 and was expanded to cover eggs, chickens and turkeys during the Pierre Trudeau and Brian Mulroney years.
It was created to “stabilize” farm incomes from the ups and downs of unpredictable prices and earnings.
Parliament gave these select farmers the power to act like a cartel and fix production through permits called “quotas.” The price is fixed by a government-sponsored agency — a marketing board — at a price higher than it would be in a competitive market. And foreign imports were radically restricted through tariffs ranging from 150 per cent to 300 per cent in order to ensure that no one undercut the fixed price in Canada.
This was like winning the lottery. A 2008 OECD report found that the price of dairy products in Canada is more than double the market price, while the Conference Board of Canada found that on average consumers are paying 60 cents more per litre of milk than Americans where they have no supply management.
Policies that raise the cost of basic food harms low-income people more because they spend a much higher percentage of their income on basic food than higher income people. This is the true example of the 1 per cent exploiting the 99 per cent.
But supply management also hurts the farmers themselves. The most obvious way is by limiting entry to farming because licence quotas must be purchased. They have become more valuable over time because the number of quotas is restricted in order to limit production.
For example, it now costs roughly $25,000 to buy a quota for one cow and about $140 for the quota for one hen.
Indeed, Statistics Canada reports that the total value of the supply management quotas across Canada in 2010 was worth $31 billion.
Moreover, supply management has become a major obstacle in negotiations with the European Union to gain access to their markets. And it was such a significant barrier to the Trans-Pacific Partnership (TPP) countries that Canada was excluded until this year when the U.S. ensured we were invited.
The solution is to terminate supply management and buy out the quotas from the farmers. The Australians did this successfully in 2000.
The Australian dairy farmers responded to new opportunities by becoming more efficient, investing in new technology and ramping up production to a more efficient scale. The result was that farms got bigger while the number of farms declined, due to the increasing economies of scale in agriculture.
Those same economies of scale are a driving force in Canada. According to Statistics Canada, the number of farms has been declining steadily for a half century from 574,993 in 1956 to 229,373 farms in 2006 or a 60 per cent reduction.
However, the net worth or equity in Canada’s farm sector continued its long-term increase in 2010, rising to an aggregate $282.4 billion.
Contrary to some statements alleging increasingly indebted farmers, Statistics Canada 2010 data show that farm debt-to-asset ratio is 17.7 per cent in 2010 — far less than overburdened households with consumer and mortgage debt, which often reaches 85 per cent or 90 per cent of the property value.
The bad news is that in the past 15 years, Canada’s global agriculture market share has shrunk to 15 per cent from 25 per cent, and Canada has dropped from third to ninth in terms of total food exports.
The termination of supply management would not only dramatically reduce these unfair prices to all Canadian consumers, but even more importantly, it will allow Canada’s highly productive farmers to access new markets and allow Canada to remove the most critical barriers to trade negotiations.
The 80 per cent of Canadian farmers — primarily the grain and beef farmers in Western Canada responsible for about 80 per cent of our exports — have demonstrated they can successfully compete without government sponsored cartels.
There is no need to immunize a small minority of farmers from the ups and downs of the business cycle that all other farmers and Canadians experience.
It is time to stop plucking and milking Canadians.
Ian lee is a professor in the Sprott School of Management at Carleton University, where he teaches strategic management.
