Stop lying to Canadians on supply management

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Supply management has been part of Canadian agricultural policies since the 1970s. It is a system that has quite evolved over the years, and improvement is still needed. I more than welcome discussions on supply management — I have myself been quite critical of this system over the years. It is therefore with great interest that I have started reading the Martha Hall Findlay (MHF) report.

Unfortunately, I found MHF’s report misguided and not fact based. I must confess that after one minute into the report I found a major mistake. This does not help in terms of the credibility of the report. MHF indicates that the price of four litres of whole milk in Canada is almost three times more than in the U.S. In fact, she found that Canadians were paying almost $10 for four litres.

One wonders where MHF buys her milk. She made the rookie mistake of multiplying the price of a litre of whole milk by four to get her prices. Then, she compared it with a U.S. gallon of milk. This amounts to taking the price of a beer in a pub, say $5, and multiplying it by 24 to get the price of a case of beer. In this case, $120, is quite an outrageous price, isn’t it?

Moreover, why use whole milk, which represents less than 15 per cent of the milk consumed in Canada? Two per cent fat milk represents roughly 50 per cent of what Canadians drink and the retail pricing is different in the U.S. than in Canada. This would have been a more useful comparison.

The federal government publishes detailed statistics on the price of milk by cities. MHF could have found that in 2011, on average, the price for four litres of milk in Canada ranged between $4.45 in Regina and $6.95 in Charlottetown, for a city mathematical average of roughly $5.20. These large price variations for the same milk in Canada indicate that things other than supply management impact retail prices. For instance it reflects the impact of retailers’ market position or their market power.

What’s the option?

Beside the major price mistake, MHF failed to address the real issues such as what would happen if we were to dismantle supply management. What should we replace it with? Will the alternative be better for consumers, taxpayers, processors and producers? Deregulation does not always bring benefits, especially in the long run.

As an illustration, the deregulation of the banking system in the U.S. is at the root of the recent financial crisis, as opposed to the heavily regulated one in Canada that is now our pride.

It is naive to think that all will be fine after removing an important piece of regulation such as supply management, especially given the important market power of retailers in Canada. One must know that the U.S. dairy policies imply major interventions from the government, are quite regulated and might soon include some type of supply control.

It should also be noted that in its 2004 bilateral trade agreement with Australia, the U.S. negotiated exemptions for its dairy sector.

New Zealand seems to be the example to follow, according to MHF. However, she failed to mention that the co-operative Fonterra, which is a quasi monopoly and a quasi monopsony, is not the result of market forces. Fonterra was created under the pressure of the New Zealand government with, as a reward, the assets of the former single-desk institution. This is far from a free market type of situation. In fact, in August 2011, the Commerce Committee of the New Zealand Parliament announced a milk price inquiry following numerous reports that New Zealanders were paying too much for their milk. In spring 2011, New Zealand consumers were paying a price similar to the one in Montreal for two litres of two per cent fat milk.

Another important issue that MHF seems to misunderstand is the trade implication of supply management. It is no surprise that Canada was invited in the Trans-Pacific Partnership negotiations. Canada is rich in natural resources, politically stable and economically fit. We certainly have a lot to gain from TPP, but we also have a lot to offer. Canada is likely in a strong position to negotiate and, has proven in the past, it is in a position to keep supply-managed sectors out of the TPP negotiations. This does not mean that all is good with supply management, but I would strongly argue that not all is bad and advise against dismantling this system, given that at its base it allows to correct for market constraints or imperfections that plagued numerous agricultural sectors.

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