While food prices at the supermarket are rising for most Canadians, the federal government can grab the opportunity to reduce grocery bills, especially for the poorest households.
The negotiations surrounding the Trans-Pacific Partnership (TPP) between 12 countries, including Canada, would indeed be a good time for the government to put an end to the supply management system for dairy, poultry, and egg farms, a policy that is a matter of dispute with our trading partners.
Supply management – which fixes prices, establishes tariff barriers in order to keep foreign goods out and limits production with quotas – is a highly regressive policy. By raising the price of these goods, it hurts the poorest Canadians 5 times worse than the rich.
While it imposes a burden of $554 a year for the richest 20 per cent of households, representing 0.47 per cent of their incomes, it sets back the poorest quintile of households $339 a year, which represents 2.29 per cent of their incomes, according to a study by the University of Manitoba researchers.
As for families with children, they are hurt 55 per cent more than childless households in absolute terms, and 21 per cent more in relative terms.
Not only do consumers pay more, but the system leads to waste. Canadian dairy farmers in Ontario, grappling with a glut of milk, have to dump it on farms or in sewage systems, as was recently reported in the news. Why? Because as communist “planners’” would tell you, it is sometimes difficult to achieve a perfect equilibrium between supply and demand.
Of course, the supply management system benefits certain farmers. Namely, those who were initially given production quotas or who bought them cheap early on. But it hurts all 35 million Canadian consumers by forcing them to pay more.
Even the intended beneficiaries are harmed by the system. The farmers who subsequently entered the market or expanded their operations paid large sums of money for pieces of paper granting them the right to produce—sums that could have been spent on real things like livestock, equipment, buildings, and wages.
To put an end to this archaic system, the federal government could follow the example of Australia, which successfully dismantled its dairy industry supply management system fifteen years ago.
To help dairy producers adjust, the government bought back their production quotas, a measure financed with a temporary 11-cent-per-litre tax on the retail sale of milk from 2000 to 2009.
Contrary to what some may have feared, the Australian dairy industry did not collapse after this deregulation. Less efficient farmers cashed out, but those who remained expanded and prospered.
A similar solution could be used to phase out supply management here in Canada in a way that treats dairy, poultry, and egg farmers fairly — especially those who had to go into debt to purchase production quotas.
In the end, most Canadians would be better off. Especially the poor.
Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.
This op-ed was also published in the Calgary Sun, the Ottawa Sun, the Edmonton Sun, the Winnipeg Sun and the Daily Herald-Tribune.