“You can do it but it’s really complicated.”
– PETER CLARK, TRADE LAWYER
The financial crisis in the cattle and hog sectors has some producers uttering two words out loud that they would never previously have whispered even in the dark: supply management.
The question heard at farm meetings and in coffee shops is: would it be better if beef and pork were produced solely for the domestic market in order to stabilize prices and improve returns?
It’s a question which a few years ago would have been considered heresy among Canada’s free-enterprise, export-oriented hog and cattle farmers.
But the near-collapse of the American market because of BSE, COOL and the strong Canadian dollar has created a climate of desperation so strong that financially ravaged livestock producers may be starting to rethink their traditional position as meat packers to the world, or at least to the U. S.
Several developments suggest the idea may have traction.
The Ontario hog industry recently commissioned a study into a proposed sow-licensing scheme to regulate production.
The Canadian Pork Council last year sought a legal opinion on the possibility of introducing supply management for live swine.
British Columbia ranchers at a recent Kamloops Stockmen’s Association meeting discussed the possibility of a provincial beef-marketing board to control production and set prices.
The National Farmers Union has long advocated alternative systems allowing farmers to receive better prices at the farm gate, starting with a ban on packer ownership of cattle.
“I think the majority of farmers would agree the present system isn’t working very well for them,” said Terry Pugh, NFU general manager in Saskatoon.
The fact is, though, that Canada’s cattle and hog sectors are built largely on exports. Production far exceeds domestic requirements. To supply manage beef and pork would require a 180 degree U-turn.
Is supply management possible for Canada’s red meat industry? And, if so, is it practical?
Yes and no, say the experts.
“You can do it, but it’s really complicated,” said Peter Clark, a trade lawyer with the Ottawa firm of Grey, Clark, Shih and Associates.
In a July 2009 paper for the CPC, Clark said it would be virtually impossible to defend against trade challenges to an effective supply management system for pork.
While the ability to supply manage commodities still exists under previous GATT rules, its interpretation is so narrow that defending against trade challenges to “a truly watertight system is essentially impossible,” Clark wrote.
Because Canada is such a major exporter of pork and live pigs, as well as a large pork importer, import restrictions would be hard to implement and enforce, he said.
“When you have an industry which is heavily dependent on exports and there’s a significant volume of imports, it’s very difficult to make the system watertight,” said Clark in an interview. “It can put you in a very awkward position.”
Can of worms
Economists agree that, while technically feasible, supply management for hogs and cattle would open a huge can of worms.
“It might be possible but we would need to understand the ramifications of it,” Al Mussell, a senior research associate with the George Morris Centre, said in an interview. “It’s a very complicated regulatory issue.”
An October 2009 paper prepared by Mussell shows how complicated it can be.
There’d have to be federal rules restricting imports. Provincially regulated marketing boards would need to be established. Interprovincial marketing agreements would be required because a province’s livestock production does not always match its processing capacity (e. g., Alberta has virtually all of Western Canada’s beef-processing plants).
Internationally, Canada would have to compensate its trading partners for abruptly limiting beef and pork imports. The only way to do that would be to relax import restrictions for other supply-managed commodities: eggs, poultry and dairy, according to Mussell.
“(I)n effect, a new supply management scheme for beef or pork would create the imminent risk of retaliation against, or compensation from, products that are currently supply managed, resulting in a decrease in market share for dairy, eggs and poultry,” he wrote.
While supply management can deliver “relief from price volatility and low prices… pursuit of these benefits in isolation of other market factors that frame beef and pork is apt to be dangerous and reckless,” Mussell concluded.
“The nature of demand in pork and beef appears unsuited to a successful supply management scheme.”
To produce only for the domestic market, the industry would have to downsize far more severely than people realize, Mussell added.
Despite the debate about supply management, some feel most producers really aren’t all that serious about it.
“It’s mostly just talk by some organizations. I don’t think there’s really any appetite among progressive producers to do anything like this,” said Martin Unrau, a cattle producer from MacGregor, Manitoba.
Unrau used to be a milk producer on the family farm but decided he couldn’t afford to buy the quota when his father retired.
Today he prefers open-market beef production to the highly regulated dairy industry.
“It’s mostly the freedom to make decisions when you want and sell and buy when you want and how you want.”
While recognizing current problems in the industry, Unrau, a former Manitoba Cattle Producers Association president, said switching to a totally different system is not the answer.
The solution lies in giving livestock producers the ability to insure against price or production, just as other farmers have with crop insurance. That, and developing new global markets, he said.
“We can’t have any more supply management systems in Canada unless we want to cut ourselves off from the rest of the trading world.”
Talking about supply management is futile because markets will eventually recover, as they always do, said Unrau.
“I’ve said it before. I don’t mind taking a lick once in a while. I’ll lose money. I don’t care. I just want to be there to make it back when the thing turns. It’s always happened. It always will. There’ll always be a cycle.” [email protected]