Canada’s dairy dilemma: insight into supply management
Although the local supermarket is not typically considered a policy battleground, due to the controversial practice of supply management, the process behind getting poultry, eggs, and dairy on Canadian shelves has become an increasing concern in both the realms of domestic and foreign policy.
Supply management refers to a system used by Canada primarily to regulate the amount of production of poultry, eggs, and dairy products in order to guarantee a price acceptable to the producers based on estimated consumer demand. In order to produce any of these products, a farmer must possess a quota, which acts as a licence allowing one to produce a certain quantity of the specified commodity. Ultimately, this requirement leaves entry into the market highly restricted, similar in function to taxi medallions. Whatever the farmer produces is then sold to a dairy board at a fixed price, which in turn sells the products to the private sector.
The main intent behind this system is primarily to guarantee profitability for these industries, in theory allowing smaller producers to stay afloat, though it has sometimes been referred to as a way of ensuring quality. It certainly has succeeded in the former, as dairy farmers possess an average net worth 30 per cent higher than other farmers and see average profit margins of 23 per cent compared with cattle farmers’ 6.4 per cent. However, the system has been largely unsuccessful in its goal of keeping smaller producers in the industry. Since the implementation of the program in the 1960s, the number of dairy farms in Canada has decreased from an estimated 174,00 to 10,600.
Critics of supply management not only point out these shortcomings, but claim that it privileges the producers of these commodities at the expense of Canadian consumers. In a 2014 study, the Conference board of Canada found that Canadian families paid an average of $276 more on dairy products than they would have were this system not in place. In contrast, dairy farmers’ unions argue that supply management ensures price stability, as well as fair farm gate prices for farmers, and some economists have even contested that abolishing supply management would not guarantee a fall in prices at all. However, case examples such as that of Australia have seemed to indicate otherwise; since abolishing their supply management system in 2000, consumers have seen a consistent decrease in the price of milk, which fell 12 cents per litre following deregulation. By 2006, prices had fallen between 18 and 29 per cent, depending on the milk brand.
Opposition to the system has come not only from domestic sources, but also from those abroad. In a tweet that has since sparked further debate on supply management, President Donald Trump lambasted Canada for the high import tariffs the government imposes on dairy.
While this criticism is an oversimplification, it does have some truth to it; although small amounts of imported dairy can enter the country duty-free, the vast majority faces a tariff of 270 per cent. This measure is designed to increase the price of imported dairy, thereby discouraging Canadians from purchasing it. While this practice has been argued as necessary to ensure food sovereignty (a country’s ability to domestically produce its own food), it has undoubtedly created a sticking point in the negotiations of the North American Free Trade Agreement, Canada’s most important trade deal. With trade through the agreement representing 78 per cent of Canada’s exports, Canadians may soon have to decide how badly they want to keep the system of supply management.