November 22, 2011, Ottawa, ON – Canadian agriculture is among the most protected parts of our economy, in large part because of government-sponsored cartels, referred to as “supply management”. These cartels benefit the farmers involved by restricting output and fixing prices well above competitive levels. These monopolies have also stifled productivity in Canadian agriculture and impeded Canada’s ability to negotiate trade deals with Europe as well as the Trans-Pacific Partnership.
In the latest instalment of the Macdonald-Laurier Institute’s Straight Talk series, Professor 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.
He says, “Canada should phase out all supply management that fixes production and prices in dairy, eggs, chicken, turkey, and broiler hatching eggs.”
In order to do this he offers the Australian experience as a model for Canada. He says, “Canada should impose a temporary levy on the sale of covered products sufficient, in each industry, to pay fair compensation to all holders of quotas or licences over a period of time for the loss of those assets.”
For example, in compensating farmers who hold quota licences, the government should use a sliding scale. Farmers who purchased the licences more recently should receive close to or even full compensation. Farmers who were already in the business when the system was created, and therefore incurred no cost in purchasing the licences, should receive little if any compensation. In between the two extremes, adjustments to the total compensation should be made based on the fact that the farmers enjoyed monopoly rents, or prices above market, based on the quotas. These rents have already to some extent compensated farmers for the cost of the licences.
He concludes, “The cost to compensate farmers is a necessary one-off expenditure to shift from a rigid, overpriced, non market system to one driven by supply and demand. This change will hugely benefit consumers through lower prices. It will also allow Canada to aggressively negotiate new trade deals and thus secure access to new markets for our agricultural produce.”
Ian Lee is an Assistant Professor at Carleton University’s Sprott School of Business where he teaches strategic management and international business.
Click here to read the latest Straight Talk with Professor Ian Lee on supply management.