What tends to get lost in discussions about Canada's system of supply management is the fact that not only consumers but farmers, particularly export-dependent producers in Western Canada, are victims of the status quo.
Supply management was developed early in the 20th century as a means to empower independent producers who were vulnerable to price exploitation by middlemen and an oligopoly of food processors.
In dairy, it was even more problematic. Dairy farmers had to accept the prices of the processor oligopoly or lose everything due to the high perishability of their product. The creation of marketing boards increased their bargaining power. They could not, however, overcome problems of free-ridership. Larger producers could afford to undercut the prices of the marketing board. The mandatory system of supply management was developed to avoid these problems.
Given the economic circumstances of the time, it is understandable that producers pushed for government protection. Additionally, dairy industries in many other countries were massively subsidized.
But times have changed. In a globalized world, processors are exposed to more competition than ever before, and producers have the ability to explore market opportunities abroad. The prospects for price exploitation have diminished. Additionally, the taxpayer subsidization of dairy has massively declined among Canada's trading partners. For example, according to the OECD, the United States has reduced its overall transfers from over 50 per cent of farm-gate income in 1998 to less than two per cent today, while New Zealand and Australia have almost entirely liberalized their dairy markets. The supply-managed sector has far less to fear from a liberalized market than in the past. The arguable benefits of supply management in the past cannot justify the current costs of the system to farmers.
Over 90 per cent of farmers are dependent on the export market for a living, and their interest in market access is being sacrificed to preserve supply management. In order to maintain the status quo, we have to give up potential gains for other export-orientated industries such as the grain, oilseed, pork and beef sectors.
For example, a leaked trade memo on the EU-Canada trade talks revealed an agreement between the two parties that allows Canada to maintain supply management in exchange for the maintenance of European trade barriers to Canadian beef and pork. The supply-management lobby likes to claim there has never been a trade deal blocked over the issue. If the Canada-EU trade agreement is signed, that will be of small comfort to Canadian beef and pork producers. The interests of the vast majority of Canadian farmers in market access are routinely sacrificed by the federal government at the altar of supply management.
It is not just export-oriented producers who are held back by the government's commitment to preserving supply management. The system also blocks larger supply-managed producers from exploiting market opportunities abroad and leaves little room for small producers to enter the market.
The quota value for the average cow is $45,000 -- unaffordable for would-be producers. Efforts to sell product without quota have been met with the crushing force of the law. The farm of Shawn Carmichael was raided by the Ontario Provincial Police for selling eggs beyond quota. They seized his property, which led to the deaths of hundreds of his chickens due to maltreatment. Efforts by the Georgian Bay Milk Co. and Dairy International to export milk of small producers have been blocked by the dairy lobby in the courts.
It is a myth that supply management benefits the family farm. Benefits accrue to the wealthy, who can afford the high price of quota. They maintain the system by shutting out the enterprising "little guy."
Supply management was created with a noble aim, but it is an anachronism that is damaging our reputation abroad and compromising market access for the vast majority of Canadian farmers. Designed to help small farmers, it is a system that now benefits only a wealthy oligopoly of producers. If the Conservative government wants to stand up for the interests of Canadian farmers and make a serious effort to pursue free trade, it must immediately pursue a responsible and gradual liberalization of the supply-managed sector.
Eric Merkley is a Winnipeg research associate with the Frontier Centre for Public Policy. He is author of The Supply Management Cartel: Collective Inaction and the Failure of Reform (www.fcpp.org).