Canada’s system of supply management for its dairy, poultry and egg sectors has been getting a lot of attention in the business press over the past few months. Ongoing trade negotiations have prompted some pundits to argue that local poultry, egg and dairy farmers stand between us and final deals.
The point of disbelief arrived when two economists from the Fraser Institute, known for promoting the power and good judgment of unfettered free markets, argued against supply management, all in the name of low income households. The C.D. Howe Institute also offered similar positions, suggesting they know better than average Canadians about what is good for them.
Despite all these efforts, a new poll commissioned by Canadian Business Magazine at the end of June concludes that Canadians remain overwhelmingly supportive of poultry, dairy and egg farmers, with 81 per cent agreeing that these industries are worth protecting.
These results echo all our research, which also shows that the vast majority of Canadians want their food produced locally and farmers to receive fair returns. Indeed, the poll, conducted by Forum Research, likely underestimates this support because the questions were highly biased against supply management. Specifically, respondents were told “Canada’s supply management system is an obstacle to freer trade.”
The claim that supply management is preventing trade deals is simply not supported by the facts. Some observers are quick to blame supply management for dragging out negotiations with the European Union over the Comprehensive Economic and Trade Agreement. But when was the last time one of them admitted that it’s actually the EU holding up negotiations by refusing to give Canadian beef producers market access?
Lost in all the debate is the acknowledgement that farm economics do not fit your Economics 101 model of how free markets work. Farm commodities naturally follow a ‘boom and bust’ cycle, with farmers riding a roller-coaster of prices, which often ends with bankruptcies or government payments. According to theory, when prices drop to a point where they no longer cover the average variable costs of production, a producer can opt to stop producing food, which in turn can help to push prices back up.
Thing is, you can’t tell a hen to stop laying eggs and a cow still needs to be milked, not to mention fed. Supply management smoothes out this cycle by making sure that production levels match demand, and nobody goes out of business. Moreover, by setting fair producer prices, individual family farms are not subjected to the market power of buyers at national retailers.
Governments around the globe protect their farming sectors from imports, and many directly subsidize farm incomes, including the United States. Despite these issues, Canada successfully negotiated a trade deal with the U.S. that is the envy of the rest of the world.
Supply management ensures stability in the poultry, egg and dairy sectors, which add $25-billion to Canada’s GDP every year, as well as paying $4.8-billion in taxes and directly supporting more than 300,000 jobs.
And supply management doesn’t receive a dime of direct government payments. Critics even challenge this fact by insisting that the fair producer prices received by dairy, poultry and egg farmers drive up consumer prices. In reality, retailers set prices that the market will bear. Blaming farmers is either naïve or disingenuous–retailers often spend more on marketing and packaging than what the farmer receives for producing the food.
Canadians simply do not accept the alternative–dairy, poultry and egg products imported from abroad that are not subjected to the stringent food safety measures and environmental testing all supply managed farmers adhere to. As demonstrated in the Canadian Business poll, 58 per cent of respondents are willing to pay a fair price in order to protect dairy and poultry farmers.
The importance of a thriving domestic farm sector may be lost on the so-called economic think tanks, but the average Canadian knows and appreciates where their dairy, poultry and eggs come from.
Published by The Globe and Mail.