Supply Management Is Impoverishing Canadians

Viewpoint showing that production quotas and high tariffs for dairy, eggs, and poultry keep the prices of those products above market levels and are particularly harmful to low-income households

Technical Annex

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This Viewpoint was prepared by Gabriel Giguère, Senior Policy Analyst at the MEI, and Tiago Lambie, Research Intern at the MEI. The MEI’s Regulation Series aims to examine the often unintended consequences for individuals and businesses of various laws and rules, in contrast with their stated goals.

Canada’s supply management agricultural policy relies on production quotas and high tariffs to limit the supply of multiple food products (dairy, eggs, and poultry) in order to keep their prices above market levels. The resulting costs are broadly shared between Canadian consumers, although the significance of these costs varies depending on household income levels.(1) Keeping prices artificially high is particularly harmful to low-income households, and contributes to keeping 41,279 Canadian households (120,083 individual Canadians) in poverty.(2)

Higher Prices for Lower Incomes

The expense borne by lower-income households is significantly lower than for higher-income households, reaching $279 for the first income quintile (the 20% of households with the lowest incomes) and $1,142 for the fifth (see Figure 1a). This situation is explained by several factors, including the smaller average size of households with lower earnings, and their lower consumption of the foods subject to supply management.

Proportionally, however, the burden on the disposable income of the less fortunate is far greater. The additional cost associated with supply management policies accounts for 1.25% of the income of households at the bottom of the ladder, compared with just 0.33% for those at the top(3) (see Figure 1b). This disparity demonstrates that the impact on the incomes of the poor is quite significant, despite the total annual cost being lower. Nonetheless, the costs of supply management are paid for by all 41.5 million Canadians.(4)

Families Stuck in Poverty

Beyond raising costs, supply management also has measurable effects on poverty in Canada. To assess these effects, we used the same methodology as in a similar paper published by the MEI a decade ago: “Supply Management Makes the Poor Even Poorer.”(5) This approach involves comparing the prices of food products subject to supply management with prices that consumers in the American Midwest have to pay. We first constructed a basket of groceries consisting of milk, eggs, and chicken.

After compiling this Canadian basket, we created an equivalent U.S. basket in order to calculate the price difference between the two. The discrepancy for the average person amounts to $224 a year, which represents the cost of supply management.(6)

Using Statistics Canada’s Canadian Income Survey and low-income cut-offs, we calculated the number of individuals and households kept below the poverty line by the additional costs associated with supply management.(7) For this calculation, we used after-tax income minus mandatory expenses, since this indicator provides a more comprehensive and accurate measure of household disposable income by taking into account not only taxes, but also various fixed expenses and financial obligations.(8)

A family is considered low-income when it must spend a significantly higher proportion of its budget on basic necessities than the average Canadian family does – approximately 20 percentage points more.(9) Based on our estimate of the cost of supply management, we established a counterfactual low-income threshold corresponding to what we would see if the prices of these products were set by the market. We then calculated how many fewer individuals and households would be below the poverty line in the absence of these costs.

Our calculations indicate that 41,279 Canadian households and 120,083 individual Canadians are kept in poverty due to supply management. These figures show that this policy contributes directly to the exacerbation of economic hardship, particularly for the least affluent Canadian households.

Conclusion

Supply management policies increase the cost of many products via mechanisms that limit their supply on Canadian grocery store shelves. Given how this policy drives up prices, it’s clear that everyone would benefit from repealing it, most of all the poor.