End supply management for the right reasons

Canada's invitation to join the Trans-Pacific Partnership in recent weeks has led to a debate around the future of supply management. Some have suggested that consumers will finally have access to more affordable food products like milk and eggs.

Prices for food which are affected by supply management have increased significantly in recent years. Multiple reports have shown over the years that Canadians consistently pay at least 30 per cent more for milk than most countries in the world. Quebec is in worse shape, since it regulates prices at retail. Canadians also take a financial hit in the purchase of several dairy products, eggs and poultry.

Compared to other countries, though, supply management has given Canadian consumers stable, and most importantly, predictable prices for more than 40 years. To suggest that milk and eggs will be cheaper without supply management is highly speculative. If anything, by ending our trade-distorting scheme, prices will likely vary more and could go either way.

The most important wild card, of course, is the United States.

Since Americans have been operating under free-market rules for decades, farms in the U.S. are much more efficient. The U.S. could simply alienate our supply-managed sectors overnight. Such dominance could jeopardize our food sovereignty and allow American-based processors to control Canadian market conditions.

An impending price war over the short term could lead to perhaps higher prices in the future. It's a highly improbable scenario, but possible nevertheless.

Many experts often compare Canada with Australia, New Zealand, Korea and the United Kingdom, all of which ended their own supply-management schemes years ago. Yet Canada can hardly be compared to these countries since it is situated just north of the current No.1 economy in the world.

Other pressures upwards may emerge over time. Because of China and other emerging markets where many consumers are developing a taste for dairy products, many pundits expect the market for these products to remain robust. There has been a fundamental change in supply and demand for food internationally, which has pushed prices to their current high levels.

New Zealand and Australia have reaped the benefits over the last decade. The downside is that while these prices are good for food exports, some consumers in exporting economies have felt the effects of this in their shopping carts. Domestic prices have gone up since processors are lured towards international markets.

On the other hand, we may see prices decrease due to prolonged price wars and food distributors using former supply-managed food products as loss-leaders to gain supermarket supremacy. We have seen this in many countries. The reality is that most consumers don't really look at retail prices when buying essential food products like milk, eggs, or chicken.

Demand for these staple products is inelastic. Demand fluctuations, trends and consumer behavioural metrics do not matter in Canada. We have seen consumption of milk per capita decrease by more than 15 per cent in our country since 1992 without understanding the underlying market rationalities behind this drift.

That is, in itself, supply management's fundamental flaw from a domestic point of view. The downright disconnect between supply and demand has fostered a dictating sentiment of entitlement among farmers at Canadian consumers' expense.

Globally, supply management has simply compromised Canada's legitimacy in any multilateral free trade negotiations which, in turn, has affected other industrial sectors of our economy.

Regardless of how the end of supply management will affect domestic food prices, the retail prices Canadian consumers will be paying for milk, cheese and butter are the flip side of the prices we are to pay for clothing, television sets, cars, cellphones, computers and electronics made overseas.

Canada has yet to become a country that has embraced free trade as an economic policy, until now. The end of the Canadian Wheat Board's monopoly is certainly a positive step forward. The end of supply management will be a more challenging one, based on sheer politics, but it is necessary. Canada has built industries over the years by capitalizing on clear competitive advantages.

Given our genetic know-how, space and accessibility to affordable farmland, defining a strategic competitive advantage for dairy, eggs and poultry is more than plausible. This is how international trades work.

Ending supply management in our country has to be done for the right reasons, and wanting to reduce retail prices on some food products is not one of them. Embracing global trade to diversify our economy should be the main motive.

Sylvain Charlebois is associate dean of the college of management and economics, University of Guelph.

--Troy Media

Republished from the Winnipeg Free Press print edition July 2, 2012 A7