Canada’s supply management for dairy and poultry is obviously going to spark tensions during upcoming trade talks with the United States and Mexico, so agricultural economist Al Mussel is challenging Canadians to ponder the costs and benefits of supply management.
He said public perceptions have been slanted towards losses of efficiency, higher food prices, entitled farmers and akwardness in Canadian foreign policy and trade.
“But we did not just fall into supply management. Supply management presented a bold intervention to address a range of market distortions and failures,” he wrote.
It was iinitially controversial among those most directly impacted, and challenging to carry out. As with any regulation, its impact should be understood and evaluated in the context of market failures and distortions it was developed as a mechanism to address and on relative rather than absolute merits,” he wrote in a paper published by Agri-Food Economic Systems.
He said the context leading up to supply management was strong demand for cheese and dairy products for England fighting a war, but when the war ended, so did export contracts and the Canadian market was left with more than could be sold at prices that covered milk production costs.
At the same time, technologies such as artificial insemination and continuous butter churns were unsettling the industry.
Most farms were small and diverse, so there was little incentive to stop keeping a few milk cows. But with processors consolidating into larger facilities with modern technology, the balance of market power shifted against farmers.
Fluid milk processors favoured larger-scale farms close to their processing plant, leaving smaller-scale farmers in remote areas at a distinct disadvantage.
The government offered support prices for butter and skim milk powder, imposed tariff protections and export subsidies.
Although Mussel does not mention it, the costs of this dairy policy bothered the federal politicians who were ready for new ideas, such as supply management. They could also see the benefits that farmers contracted to fluid milk processors enjoyed because they provided a steady volume of high-quality milk in all seasons – i.e. supply management.
The egg, chicken and turkey farmers noticed how well supply management worked for dairy farmers and lobbied for similar supply management.
Mussels’ paper delves into economic models to illustrate how the system can distort markets and he also examines the impact of recent developments such as lower-cost cheese production and the split in the chicken market between dark and white meats.
While it’s tempting to believe that the trends to larger-scale and better-managed farms and new technologies should make supply management no longer necessary, Mussel notes that there are significant risks.
The farms and processing plants in the United States are much larger and could swamp the Canadian market.
On the other hand, anything that wipes out the large operations – eg. a contaminated ingredient in infant formulas or highly-pathogenic avian influenza wiping out multi-million-bird farms is disruptive to markets.
In conclusion, Mussel wrote that “a better understanding of the purpose of supply managed systems in Canada, designed to solve critical
and persistent economic problems in agricultural, marketing, should facilitate a more balanced view.
"The threats of legacy economic problems, now well over 50 years old, have not disappeared- they can come back.
“We cannot simply trade the system away, nor chip away at its institutions, without also forgoing its benefits- in
terms of persistent problems resolved- and without incurring unknown costs to replace it with alternative policy measures with unknown efficacy.”
