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Retailers set prices, not supply management

It’s as regular as the seasons–trade talks ramp up, and so do the calls from think-tanks and researchers for the end of supply management.

It’s time for these bodies to stop hiding behind theories and rhetoric and tackle the issue out here in the real world.

Supply management exists to solve a very specific problem: price volatility. Every country faces this problem. Most–including our partners in the United States and European Union – solve the problem with generous farm subsidies: if farmers face a bad season, the government will compensate them. In the United States, this subsidy bill runs into the tens of billions of dollars.

Canada takes a different approach. By allowing farmers to work together to match supply with demand, they earn a fair return for their labour and investment, and Canadians are guaranteed access to a supply of fresh, local, and high-quality food.

This is all very well and good for farmers, say critics. But what about consumers?

The truth is, retailers set prices based on what the local market will bear–ending supply management does not guarantee that any reduced costs would be passed on to consumers.

Look at prices in beef and pork–pork retail prices are up 21% and beef retail prices up 27% over the past two years. At the same time, the retail price for chicken is up a modest 3.5%.

Supply management has nothing to do with the price we pay at the store.

Take the case of Australia, which supply management critics across the board like to cite as a case of deregulation done right. First, contrary to the piece, deregulation occurred in 2000, not 1990– and since then, the number of farms has decreased by over 50%, production has fallen by 15% and exports have decreased by 13%.

Egg farmers in Australia are squeezed by a hyper-concentrated retail market – retailers in that country hold ‘reverse auctions’, driving farmgate prices down to the point where family farms simply cannot stay in business, and disappear. Meanwhile, consumers in Australia are faced with higher egg prices than consumers in Canada, thanks in part to that same concentration. Two retailers – Coles and Woolworths – control 80 per cent of the market in that country, giving these two companies the leverage they need to drive farmgate prices into the floor and expand their margins.

The case of New Zealand shows that deregulation can also be ruinous.

It is true that New Zealand has a dominant position in the global dairy market. Leaving aside the protections they implemented to achieve that position – their dominant producer co-op, Fonterra, operates much like Canadian supply management boards in setting production quotas. In addition, NZ hasnon-tariff trade barriers in place to prevent imports – it has also left them exposed.

The global price of milk has collapsed in recent years, driven by slowing Chinese growth and a drive towards Chinese dairy self-sufficiency. Fonterra presently pays farmers NZ$4.70 per kg of milk sold, down 50 per cent from last year, and far below NZ$6 they need to simply break even.

And consumers have not seen a cent of these savings, with NZ domestic milk prices up 6% since last year.

Canadian supply management guarantees consumers access to fresh, high-quality, Canadian food, and ensures that a bad season will not put a farmer out of business. And by contributing $28 billion to our GDP, it supports jobs across the country.

Canada has successfully negotiated twelve trade agreements with 43 countries since 1994, all of which have opened up markets while preserving supply management.  Our government knows that it is a system that provides immense value to Canadians.

Published by The Globe and Mail.