Another Side of the Supply Management Debate in Agriculture
Canada’s supply management system for the dairy and poultry industries has been very much in the business news in 2011. Canada’s future economic success is largely being tied to the Pacific Rim and the European Union. But Canada’s attempts to gain access to the emerging Trans Pacific Partnership trade group are being resisted because Canada refuses to budge on its supply management system.
Canada and the European Union have been negotiating a comprehensive economic and trade agreement with the aim of concluding in 2012. Not surprisingly, Canada’s supply management system is a point of contention. Critics of supply management are quick to point out that Canadians pay too much for dairy, poultry and egg products. The system shelters a small group of farmers behind tariffs that restrict imports, manages supply and demand with production quotas and sets minimum prices. What the critics do not talk about is how the rest of the Canadian agriculture sector is supported by the Canadian consumer. Over the past ten years, Canada’s federal and provincial governments have spent an average of $6.3 billion annually to support agriculture. Of that expenditure, income support to the Canadian farmer, excluding those under supply management, amounts to an average of $3.7 billion. Canadian dairy and poultry farmers receive their income entirely from the marketplace.
Supply management is transparent. The farmer has the chance to earn a fair market return –paid for directly by the consumer.
As for the rest of the agri-food sector, income support subsidies help keep the retail price of food lower. The consumer can not readily see how those tax dollars are spent. The consumer does see low prices at the retail level but does not realize how much they have already paid in the form of taxes in order to get those low prices.
Canada’s current and potential trade partners have long pushed for Canada to dismantle supply management as an unfair trade practice. But, eliminating supply management does not level the playing field. There are few places in the world where farming is a truly free market activity.
Some of supply managements’ harshest critics – the United States, European Union and Japan – all current or potential free trade partners, provide in excess of $300 billion worth of direct and indirect farm subsidies. Annual support for agriculture in Japan, the EU and United States comes to $52 billion, $168 billion and $96 billion respectively. In addition, indirect, misclassified and unreported subsidies reportedly add up –in the US to over $180 billion.
All of these countries propose phasing out subsidizes. Yet the US farm bill, up for renewal in 2012, still includes massive agricultural subsidies including substantial direct payments to farmers. The EU has in recent years, reformed its agricultural support systems and has proposed eliminating export subsidies altogether by 2013.
However, as recently as January 2010, when faced with tough global competition in the dairy industry, the EU provided subsidies of $400 to $1,000 a tonne on its dairy exports to cover the shortfall between the EU domestic and the global market prices. The US promptly followed suit and reintroduced dairy export subsidies so that US dairies could match the competition.
Not many countries have truly addressed subsidies and supply management. New Zealand, for one, has become an agri-food powerhouse with few subsidies. Few others have acted in good faith to level the playing field when it comes to subsidizing their agriculture.
Getting rid of supply management may well be the right thing to do. That is a debate for another day, both sides of the debate having valid arguments for their position. But if supply management is to go (perhaps most of the other income support subsidies should go as well) Canada needs to make sure that it goes under the right circumstances and for the right reasons. The playing field must be level domestically so that no segment of the agri-food sector is favoured and internationally so that Canada’s trade partners cannot have it both ways. If Canada makes major concessions to how it financially supports the agri-food sector, so too must our current and potential trade partners.
And finally, if supply management and other income supports and tariffs are to go, Canada needs to ensure that a reasonable mechanism is in place to allow our farmers to transition to a new reality (and the opportunities that come with it) without facing financial ruin. Agriculture should be treated as a business; government policies should not assume the risk of producer decisions. A carefully considered approach is required to achieve these outcomes and farm sector viability.