Supply management hurting businesses, consumers, report says

MONTREAL—With the cost of a basket of groceries rising for most Canadians, it would be a good time for the government to put an end to the supply management system for dairy, poultry and egg farms, according to the Montreal Economic Institute.

At a time when Canada is among 12 countries negotiating the Trans-Pacific Partnership, Canada’s supply management system is a matter of dispute with our trading partners, the bipartisan think tank’s viewpoint report said.

Moreover, MEI researchers argue that such a dismantlement could take place all while protecting Canadian farmers.

“Supply management disproportionately hurts the poorest Canadians,” said Mario Dumais, associate researcher at the MEI and former economist for the Union des producteurs agricoles. “This system imposes an additional cost of $339 a year on the poorest households. As a proportion of income, this represents a negative impact that is five times greater than for rich households. This policy is therefore heavily regressive.”

The supply management system fixes the prices of certain foods, establishes tariff barriers in order to keep foreign goods out, and limits production with quotas. While it benefits certain farms, it hurts all 35 million Canadian consumers—as well as processors who use these products as ingredients—by forcing them to pay more.

Canadian businesses that rely on international trade are also harmed by supply management, since the existence of this system in Canada has stood in the way of greater access to markets in other countries. Indeed, seven of eight Canadian farms are not protected by supply management, and could benefit from a liberalization of agricultural trade, Dumais said.

To that end, the federal government could take inspiration from Australia, which successfully dismantled its dairy industry supply management system 15 years ago. To help dairy producers adjust, the government bought back their production quotas, a measure financed with a temporary 11-cent-per-litre tax on the retail sale of milk from 2000 to 2009.

A similar solution could be used to phase out supply management here in Canada in a way that treats dairy, poultry, and egg farmers fairly—especially those who had to go into debt to purchase production quotas.

“Contrary to what some may have feared, the Australian dairy industry did not collapse after this deregulation,” said Youri Chassin, co-author of the publication and Research Director at the MEI. “Less efficient farmers cashed out, but those who remained expanded and prospered. If we let them, Canada’s dairy, poultry, and egg farmers can similarly flourish.”