What tends to get lost in discussions about Canada’s system of supply management is that consumers aren’t the only victims of the status quo. The system also hurts farmers, particularly export dependent producers in Western Canada.
Supply management was developed early in the 20th century as a means to empower independent producers who were vulnerable to price exploitation by middlemen and an oligopoly of food processors.
In dairy, it was even more problematic. Dairy farmers had to accept the prices of the processor oligopoly or lose everything due to the high perishability of their product. The creation of marketing boards increased their bargaining power.
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However, they could not overcome problems of free ridership. Larger producers could afford to undercut the prices of the marketing board. The mandatory system of supply management was developed to avoid these problems.
Given the economic circumstances of the time, it is understandable that producers pushed for government protection.
Additionally, dairy industries in many other countries were massively subsidized.
But times have changed. In a globalized world, processors are ex-posed to more competition than ever before, and producers have the ability to explore market opportunities abroad. The prospects for price exploitation have diminished.
Additionally, the taxpayer subsidization of dairy has massively de-clined among Canada’s trading partners.
For example, the Organization for Economic Co-operation and Development says the United States has reduced its overall transfers from more than 50 percent of farmgate income in 1998 to less than two percent today, while New Zealand and Australia have almost entirely liberalized their dairy markets.
The supply managed sector has far less to fear from a liberalized market than in the past. The arguable benefits of supply management in the past cannot justify the current costs of the system on farmers.
More than 90 percent of farmers depend on the export market for a living, and their interest in market access is being sacrificed to preserve supply management.
To maintain the status quo, we have to give up potential gains for other export-orientated industries, such as the grain, oilseed, pork and beef sectors.
For example, a leaked trade memo on the European Union-Canada trade talks revealed an agreement between the two parties that allows Canada to maintain supply management in exchange for the maintenance of European trade barriers to Canadian beef and pork.
The supply management lobby likes to claim that trade deals have never been blocked over the issue.
If the Canada-EU trade agreement is signed, it will be of small comfort to Canadian beef and pork producers. The market access interests of the vast majority of Canadian farmers are routinely sacrificed by the federal government at the altar of supply management.
It is a myth that supply management benefits the family farm. Benefits accrue to the wealthy, who can afford the high price of quota. They maintain the system by shutting out the enterprising “little guy.”
Supply management was created with a noble aim, but it is an anachronism that is damaging our reputation abroad and compromising market access for the vast majority of Canadian farmers. Designed to help small farmers, it is a system that now benefits only a wealthy oligopoly of producers.
If the Conservative government wants to stand up for the interests of Canadian farmers and make a serious effort to pursue free trade, it must immediately pursue a responsible and gradual liberalization of the supply managed sector.
Eric Merkley is a research associate with the Frontier Centre for Public Policy. He is author of The Supply Management Cartel: Collective Inaction and the Failure of Reform. This column was distributed by Troy Media and has been edited for length.
