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Supply management (Canada)

Milk for sale in a supermarket in London, Ontario. Supply management restricts the supply of milk in Canada.

Supply management (French: Gestion de l'offre) is a catch-all term for marketing boards that control the price of milk, cheese, eggs, chicken, and turkey in Canada. This system was previously used in other countries, for example, New Zealand, and Australia but has since been removed due to sector reform and trade liberalization. It is considered a cartel [1] since it restricts the supply of these products by controlling the amount produced domestically and limiting imports with high tariffs (e.g. 285% import tariff on some supply managed commodities).

Apart from minor dissent, supply management is generally supported by all four major political parties[citation needed]. There has been debate in the farm communities, politicians, academia, and think tanks.[citation needed]

Supporters of supply management argue that higher prices of goods are offset by lower direct subsidies to farmers.[2] Opponents of supply management argue that the regulated and restricted domestic supply and lack of foreign product increase prices for the end consumer. [3] Supporters states that it offers farmers a predictable and stable revenue . Critics argue that supply management is an unduly protectionist policy that creates lack of consumer choice, increase inequality, a hidden tax, poorer quality products, cronyism, a deterrence on manufacturing, creates political hypocrisy, and inefficiencies in the market to the detriment of the consumer.

The controls provided by supply management have allowed the federal and provincial governments to avoid subsidizing the sectors directly, in contrast to general practice in the European Union and the United States. Instead, consumers subsidize farmers in these sectors through the higher supply managed prices paid for the end products.[4] In addition, countries that do not have supply management have either eliminated or drastically reduced dairy subsidies, and taken advantage of growing global opportunities for their dairy products, which have limited Canada dairy farmers to a small market.[5]Other agricultural sectors in Canada (grain, beef, pork, etc.) do not have similar controls or subsidies, and for the most part compete as a normal product on the international market.

The system's controls on imports from other countries has been a major barrier in trade negotiations, such as the free trade with the European Union, Trans-Pacific Partnership, the renegotiation of the North American Free Trade Agreement as well as inter-provincial trade in Canada.

In total, there are about 17,000 Canadian farms that operate under Supply Management; this is about 8 to 13%of all farms in Canada.[citation needed] The dairy industry is the largest of the three supply-managed industries in Canada, with about 13,000 farmers. There are about 2,700 poultry farmers, and fewer than 1,000 egg farmers.[6]It impacts around 133,032 to 189,278 Canadians (or 67,000 to 79,000 households). [7]

Contents

FormationEdit

Supply management in its current form dates from Federal legislation passed in December 1971 under the Pierre Elliot Trudeau government; Trudeau has expressed support for the system since 1949 when he was as an assistant to Robert Gordon Robertson [8]. Some politicians who opposed the bill based on due to memories of the second world war and how farmers had to be liberated from a similar system.[9] However, its origins trace to the formation of the Canadian Dairy Farmers’ Federation in 1934 The group became Dairy Farmers of Canada in 1942, and its mandate was to stabilize the dairy market and increase revenues for dairy farmers.[10] In the face of lobbying, government programs were instituted in the 1940s and 1950s to increase prices and limit imports. 1958 saw the creation of the Agricultural Stabilization Board, though it was not limited to dairy.[6] In the 1950s and 1960s there was ] volatility in dairy prices, dairy producers had more bargaining power relative to dairy farmers, and the United Kingdom was poised to enter the European Common Market, resulting in the loss of Canada's largest dairy export customer. These challenges led to the creation of the Canadian Dairy Commission, whose mandate was to ensure producers received a fair return on investment, and to ensure the quality and supply of milk, (though without concern for consumer prices).[11]

In 1970, the National Milk Marketing Plan came into effect to control supply, with the federal government and the governments of Ontario and Quebec, the two largest provinces, signing on. By 1974 every province except Newfoundland had signed on. Following dairy, a national supply management system was implemented for eggs in 1972, turkey in 1974, chicken in 1978 and chicken hatching eggs in 1986.[6] Concurrently with the domestic controls on supply and price, the high tariffs on imported products were put in place to protect Canadian producers from competition, and keep foreign imports to very low levels.[12]

In 1995, World Trade Organization agreement forced Canada to remove several of its export subsidies. That decision effectively led to a major consolidation among dairy producers, and spurred the Canadian Dairy Commission, along with the federal government, to craft a new, much tighter pricing system, which remains largely in place.[13]

In 2017, the United States filed a trade complaint to the world trade organization on SM. This complaint was backed by New Zealand and Australia.[14]

How it worksEdit

 
Dairy cattle in a barn in Quebec

Supply management is based on three policies: price-setting, control of supply, and protection from competition. Supply management is a shared jurisdiction between the Federal and Provincial governments. For example, on a Canada-wide basis, there is the Canadian Dairy Commission, composed mostly of dairy farmers.[6] In Ontario, there is the Dairy Farmers of Ontario, with similar local boards in each of the other provinces.

Price settingEdit

Producers create the goods (milk, poultry or eggs), and sell them to either processors or consumers at farm gate prices. Farm gate prices are set by negotiations between the farmers and downstream processors and ratified by the Local Marketing Board (one for each Province or Territory). The farm gate price that the processors or consumer pay is the minimum legal price, but the farmer could negotiate a higher price with one or more of their customers. Factors considered when setting the price include production costs, the current market price for the goods, and a reasonable return on the farmer's efforts, risks, and capital employed.

For farmers wishing to enter the market, the price of the quota can be up to 75% of start-up costs. This can leave farmers entering the industry with a heavy debt burden, or effectively exclude them from ever starting.[15] Critics suggest the only way for the next generation of farmers to enter into supply-managed farming is by inheriting quota.

Control of supplyEdit

Dairy, poultry, and egg farmers are guaranteed revenue – the median gross income for a dairy farmer is C$250,000 a year[16] – and protection from competition. To avoid overproduction, farmers are allotted a quota of production. This quota is an asset that can be sold, subject to regulations from the respective board. The right to keep a single dairy cow, for example, is worth $28,000, and an average dairy farm has $2,000,000 worth of quota (approximately 70 cows).[6] Due to the value of the quota and the government created monopoly, most banks will loan Canadian dairy farmers up to $30,000 per cow, while banks in the USA (non-supply managed) will only loan $3,000 per cow; enabling significantly higher financial leverage for the Canadian dairy farmer. That higher leverage carries with it the potential for higher profit margins, as well as elevated risk during times of instability. Dairy quota has a book value of $3.6 billion to $4.7 billion but a current market value of $23 billion.[17]

Under supply management, consumers, as taxpayers, do not need to pay explicit subsidies to dairy, poultry and egg farmers; the paying of often substantial subsidies to farmers is common in many developed countries, though Canadian farmers in other sectors, including grain, beef, pork, food oils and pulses, receive few if any subsidies. The OECD estimates the subsidy equivalent in 2012 (producer support estimate) paid to all of Canadian agriculture as 18% of the value of the industry; a majority of this goes to the supply managed sectors although they account for only a small part of Canadian agriculture, meaning that the supply managed sectors have a much higher effective subsidy. In the European Union, the effective subsidies are 27%, with the United States at 10%, Australia (6%), New Zealand (1%), Brazil (6%), and China at 9%.[6]

Supply control enables marketing boards to have sweeping powers regarding the feeding, treatment, and conditions of animals on farms, as the board is in direct control of the quota allotted and can directly sanction farms who violate board policy.[citation needed]

Protection from competitionEdit

The prices that processors and consumers pay are higher than the price on the international market. To enable price controls, supply management must block purchasing from international farmers. This was originally accomplished by a total ban on imports, but international trade rules forbade this. Instead, there is an import quota, around 8% of the cheese market or 1% of the yogurt market [6][15] In addition to import quotas, foreign producers face tariffs on their products, that range from 168% for eggs, up to 285% for chicken, 246% for cheese and over 300% for butter. These high tariffs hamper imports in the general food market.[15][12] In 2015, the three top dairy imports into the country were specialty cheeses, milk protein substance and whey products. The largest suppliers into Canada were the United States, New Zealand, France and Italy [18]

It has been pointed that Supply Management also intervenes in trade between provinces due to strict restrictions on inter-provincial shipments.[19] It has been pointed out that if this is removed it could make it easier to buy cheaper milk from any provinces.[20]

Processors of dairy, poultry, and eggs benefit from predictable supply from the system, while having to pay higher prices for their inputs, which can generally be passed on to the consumer. However, this means they are at a disadvantage on the international market, because their inputs are comparatively expensive. Total dairy exports in Canada amount to only 5% of production. New Zealand by contrast, which has phased out subsidies and does not have supply management, 95% of dairy is exported. New Zealand’s share in world milk markets jumped from 5.8 per cent in 1995 to 16.7 per cent in 2014. Canada’s share fell from 0.9 per cent to 0.45 per cent. This has lead New Zealand, in 2014, produced 21 million tonnes and 9.5-million tonnes of milk respectively, compared with Canada’s 8.4-million tonnes. [21][22]

QualityEdit

It is believed that Supply Management is responsible for ensuring the quality of milk though it's responsible for quantity not the quality of milk.[23] Though the responsibility of milk is under the Canadian Food Inspection Agency to ensure proper oversight of dairy production and to guarantee that strict standards of biosecurity are upheld. These regulations provide clear guidelines for Canadian dairy farmers to adhere to in order for them to ensure biosecurity standards are maintained in the sectors of environmental protection, human health, animal health, and animal welfare. In adhering to these regulations, dairy farmers can make certain that dairy standards are sustained, ensuring satisfaction for consumers of Canadian dairy products.[24]

Impact of supply managementEdit

PoliticsEdit

Supply management is considered to be one of the most powerful lobbies in Canada by supporters and critics alike.[25] Critics have pointed that it is hypocritical for politicians to support supply management and claim to support "progressive, "social justice", or complain about an instances of price fixing[26][27][28][29] Critics have also pointed to instances where supporters have admitted that it is hypocritical to advocated for "free markets." yet support supply management. [30][31]

Its been rumored that there are many Canadian politicians that are opposed to Supply Management but have expressed it privately. Supporters have taken an issue to critics such as politicians or political advisers expressing opposition to the system.[32] [33][34]

Critics point out that supporters spend about $120 million per year on public ad campaigns and political lobbying. They have argued that supporters are no different than any kind of lobbies by accusing them of using propaganda and fear mongering to push the interests of a small group of highly motivated actors at the expense of overall national well-being.[35]

Dairy, poultry and egg farmersEdit

Supporters argued that supply management is effective at keeping revenue stable for farmers. For this reason, farmers lobby to protect supply management from any challenges, both domestic and international.[6] Proponents of supply management claim that it is effective at keeping small family farms viable instead of having them crowded out by large factory farms.[36] Critics have pointed out that from 1971 to 2011, the number of dairy farms in Canada has dropped by 91 percent (from 135,000 to 13,000 farms), number of chicken farms has declined 88 percent; while in the same period of time in the United States, the number of dairy farms dropped by 88 percent.[6][37]This has let to supply managed farms representing 8% to 13% of all farms in the country.[38] In 2010, The average dairy farm’s net worth was $2.5 million; now its over $4 million and the including a net income after family wagesis more than $130,000.[39]

Supporters have argued that supply management protects farmers but critics say that there are other ways for the government to impact farmers without removing supply management such as changing the Canadian food guide (such as moving from dairy-based diet to a plant-based diet).[40]

Supporters have pointed out that supply management protects Dairy Farmers due to Canada's cold climate, however, critics pointed out that New York and Wisconsin have colder climates than Canada and their industries are thriving without SM.[5] Also, Supporters of SM says that it protects customers from US milk that has growth hormones that allows the United States to be more productive then Canada. However, critics have pointed to the state of Washington (whose own cows are rbST-Free) which produces 10,800 kg milk per year per cow compared to Wisconsin (using hormones) at 10,000 kg per cow. Canada produces 8,500 kg of milk per year[41]

Supporters state that other countries use subsidies to support their dairy farmers on the global market. However, critics have pointed out that Australia, New Zealand – and yes, the United States – have either eliminated or drastically reduced dairy subsidies, and taken advantage of growing global opportunities for their dairy products, which have limited Canada dairy farmers to a small market.[5]

Critics, particularity farmers from other sectors, express concerns that SM limits potentially economic opportunities and could create new economic barriers[42]. They pointed out are over 10 times as many farmers who grow or raise crops or animals that benefit from increased trade.[37] In addition, critics pointed out that SM make farmers poorer due by to limiting the options for farmers when selling dairy products as well as missing opportunities to prevent food shortages when supplying the growing population.[43][44] Critics say this proves that Canada’s SM monopoly forces Canada, Canadian farmers, and Canadians to give up billions in GDP, exports, prosperity, jobs, and tax revenue.[45] In addition, they have pointed out that Canadians farmers that are not supply managed do as well as their American or European competitors, who receive more support from their government.[46]

ManufacturingEdit

Critics argue Supply Management can be used to deter manufacturing jobs away from Canada. In 2010, 22,650 people were employed in the dairy processing sector. Critics argue that number could be, and should be, much higher.[6]

In 2013, Chobani, a yogurt maker from the USA, had to abandoned plans to build a $76 million plant in Kingston Ontario, which would have created 1,300 direct and indirect jobs based on quota limitation.[47][48] Critics have pointed that the high cost associated with SM had led to Canada’s food processing industry bleeding market share to U.S. competitors and several major companies such as Campbell Soup Co, Kraft Heinz Co., and Kellogg Co. closing Canadian plants in recent years.[13] In addition, they point dairy processors to establish operations outside the country to meet global demand due saturation in the Canadian market caused by the tariffs.[46]

ConsumersEdit

Canadian consumers pay one and a half to three times as much for dairy, poultry and eggs than they otherwise would without the supply management system, costing up to around C$450/year per household and $600/year for households with children.[6][41] This has been criticized as a regressive tax on the poor (around 37 cents per litre),[41] for whom food is a large portion of their budget, and who are in effect subsidizing well-off farmers.[49]

In addition, a study pointed out that SM was costing Canadian consumers $2.6 billion per year (compare to SM dairy product bringing in $970 Million into the economy).[50][51] It pointed out that A study that SM impacts the poorest households five times (2.4% of income or almost 25% of income on food) more than wealthy families (0.5% of income or almost 6% of income on food) in relative household income, while another study point to that around 133,032 to 189,278 Canadians (or 67,000 to 79,000 households) are pushed into poverty due to burden of SM.[52][53][7]

By managing supply, consumer prices do not fluctuate with swings in international markets. Though one might expect that with a fixed supply of milk that efficiencies of technology and scale might bring the prices down, the opposite has happened; the price of milk in Canada has been steadily rising faster than inflation over the past 30 years. In the same time period, in the United States the price of milk has instead decreased relative to inflation.[6]

Supporters of SM says that it protects customers from US milk that have growth hormones. Critics state Canada could demand milk to be hormone-free like Europe does with Canadian beef.[23]

Another study pointed out that It estimates that dairy input costs for Canadian manufacturers, which produce everything from frozen pizza to ready-made lasagna, are between five and 30 percent higher than what U.S. companies pay. [13] Critics have pointed out that SM has attributed to butter shortages in Canada.[54]

EnvironmentEdit

Supporters have stated that Supply Management prevents dairy farmers from dumping untainted skim milk into farms or sewer. Critics argue that the quota system in SM forces dairy farmer to dump untainted skim milk into farms or sewers[55][56]

TradeEdit

Supply management has been a major issue with regard to Canada's position in international trade agreements, as countries with which Canada attempts to negotiate free trade agreements object to Canada's efforts to gain access to their markets while denying them access to Canada's own.[57][6][15][12][58][59] Over all, nearly 60% of Canada’s agricultural and agri-food production is bound for foreign markets, with nearly half of this going to the U.S. market.[46]

Supply management was a major issue in Canada's negotiations to enter into free trade with the European Union, free trade with India, the Doha round and the Trans-Pacific Partnership.[6][15] In the case of the Trans-Pacific Partnership, Canada's initial refusal to negotiate on SM and the opening of the markets protected by supply management led to Australia and New Zealand moving to exclude Canada from participation in the TPP trade negotiations.[12] Once Canada agreed to negotiate on the SM system, Canada was invited to fully participate in the TPP negotiations, but faced protests from supporters of SM. Though in the end, the TPP only managed to open 3.25 percent for dairy, 2.3 percent for eggs,2.1 percent for chicken, 2 percent for turkey, and 1.5 percent for broiler hatching eggs in market access.[60]

It was reported that supporters advocated for the Supreme Court of Canada to rule against a dispute with Gerard Comeau and New Brunswick over Section 121 of the Constitution Act, 1867. A politician explained that supporters expressed concern that if the inter-provincial conditions were removed then it would lead to consequences for the system.[61][62][63]

See alsoEdit

ReferencesEdit

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  2. ^ "Myths & Realities of Supply Management". Dairy Farmers of Canada. nd. Retrieved June 12, 2018. 
  3. ^ "The price of eggs and the Throne Speech". The Globe and Mail. October 15, 2013. Retrieved October 19, 2013. 
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  6. ^ a b c d e f g h i j k l m n Hall Findlay, Martha; Margarita Gres (June 2012). "Supply Management: Problems, Politics – And Possibilities" (PDF). The School of Public Policy SPP Research Papers. University of Calgary School of Public Policy. 5 (19): 1–33. Archived from the original (PDF) on August 13, 2015. Retrieved October 19, 2013. 
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  63. ^ MacKinnon, Bobbi-Jean (December 6, 2017). "New Brunswick needs alcohol revenue to cover social costs of drinking, Supreme Court told CBC News". CBC News. Retrieved 2018-06-11. Province appealing Gerard Comeau's acquittal on exceeding importation limits, but stakes are much higher