Supply management of milk, eggs and poultry is adding at least $300 a year to the food bills of a family of four in Quebec, or $575-million for the entire population.
Despite a general trend toward market liberalization and competition, most politicians and most people involved in Quebec agriculture continue to defend the supply management system. This system, motivated by protectionism and operating largely as a cartel, is costly and unfair. The agrifood sector must adapt to international competition. It must stop penalizing consumers – and farmers themselves in the long run. The longer the delay in adapting to competition, the harder the transition will be.
Supply management lets Canada’s milk, poultry and egg producers, the great majority of them located in Quebec and Ontario, adjust production to protect their incomes. To this end, quotas are set to match an arbitrary evaluation of domestic demand and desired prices. The interests of consumers become entirely secondary. Astronomical customs duties and the setting of high prices for these food items amount to an especially regressive tax on low-income consumers.
Milk prices in Canada have risen 53% in the last 12 years, double the rate of inflation, whereas production costs have actually fallen by 3.8%. Consumption has declined accordingly, falling 18% for milk and 30% for butter since 1980. Milk consumption is forecast to slide a further 12% by 2020. There exists a gap of more than 37% between retail prices for milk in Quebec and prices observed in the United States. For eggs, the difference is 55%, and chicken sells in Quebec for more than twice the U.S. retail price.
Supporters of this supply management system, along with pressure groups in the food and agriculture sectors concerned, take pride in receiving no subsidies. However, supply management resembles in practice a taxation power granted to farmers by the government. Rather than subsidize them directly with tax dollars collected from citizens, the government lets producers raise prices by giving them monopoly privileges. This amounts to the same thing, except that the government does not have to face the ire of consumers, who are unaware of the situation.
These Canadian farm marketing mechanisms are regarded by the international community as protectionist government actions that run counter to greater opening to international trade. A policy of economic isolationism such as “food sovereignty” risks harming Canada’s reputation and could lead to reprisals affecting non-farm products. Canada should end its double-talk, which favours liberalization of international trade but is protectionist in certain areas of food and agriculture.
As the world’s fourth largest exporter and fifth largest importer of agricultural products, Canada could play a leadership role in resolving the impasse in the Doha round talks held by the World Trade Organization. By abolishing its supply management system. Canada would gain legitimacy in demanding that the United States and Europe get rid of their own government assistance programs. Success at the WTO talks would result in lower prices for Canadian consumers. It would also improve developing countries’ access to markets in the industrialized countries and help them emerge from misery.
Rather than protect an inefficient industry. Canada should be preparing to respond to increasingly diversified demand in a rapidly changing context. These changes are related to the environment, genetics, production methods and, above all, innovation and information. Only the establishment of international distribution channels will provide the Canadian agriculture industry with access to indispensable strategic information. Our industry could then provide innovative products to compete with Brazil, Australia, China and India, which have taken a lead on the road to a globablized, competitive and open farm economy. It would also help Canada compete with the United States and Europe, which hold and will continue to hold dominant positions.
Marcel Boyer is Vice President and Chief Economist of the Montreal Economic Institute. He holds the Bell Canada Chair in industrial economics at the University of Montreal.