AIMS on Campus is pleased to announce that Heather Bone is the winner of 2nd place in our op-ed essay contest on the subject of supply management. Heather is a fourth-year economics student at the University of Waterloo. See below her great submission. Thanks to all students who participated in the contest.
It’s time to stop feeling proud about supply management
By Heather Bone
Canada’s dairy, poultry, and egg producers have been gaining a lot of attention lately. Supply management, the collection of policies that shelter these farmers from market forces, has gained opposition, most notably from Maxime Bernier, a frontrunner in the Conservative Party of Canada’s leadership race. A complex framework of regulations supports supply management, but its purpose is crystal clear. Simply put, supply management exists to set prices higher than their natural level in a competitive market. In essence, the policy supports the existence of egg, poultry, and dairy cartels.
Supply management operates through producer and import quotas, limiting the quantity of products on the market to facilitate price-setting above market levels. The resulting markup is staggering: with Australian consumers in deregulated markets paying 36 percent less than Canadians for the same product. In effect, supply management facilitates a transfer of wealth from a large group of Canadian consumers to a small, yet powerful, group of farmers, who on average earn an amount approaching twice as much as the average Canadian household.
You may think that, given the policy’s clear disadvantages for Canadian consumers, supply management would be wildly unpopular. Unfortunately, you’d be wrong. Not only is supply management supported by all three of Canada’s major political parties, but it is also supported by the majority of the electorate, with 58 percent of Canadians expressing their willingness to pay more for poultry and dairy in order to protect these industries. At the end of the day, the majority of Canadians are proud of supply management.
Much of this pride stems from the rhetoric surrounding “food security” and “predictability” coming from lobby groups such as the Dairy Farmers of Canada, whose intentionally vague language has been adopted by political parties and has dominated the popular discourse. As a result, many Canadians equate support for supply management with support for farmers and Canadian agriculture more generally, without knowing the policy’s true cost. The fact of the matter is that the true cost of supply management is much larger than the premium paid at the grocery store. Supply management has massive opportunity costs, which are frequently left out of the discussion.
Time and again, supply management has weakened Canada’s bargaining power on the international stage, complicating negotiations of trade agreements like CETA and the TPP. Most recently, however, it was Donald Trump that brought supply management back into the spotlight. Trump rightly labelled Canada’s regulatory framework as “destructive” and insisted that the US would respond with “a tool you know very well – it’s called the sledgehammer.”
As Canada’s largest trading partner, strong relations with the United States are vital to Canadian exporters, who are a cornerstone of the economy. It is simply unjust to continue to prop up cartels at the expense of Canadian industry more broadly, including non-supply managed farmers, who are particularly dependent on opportunities to export.
Another cost of supply management is the thousands of dollars wasted to maintain the very system itself. Standard economic analysis of supply management often neglects the resources expended in lobbying the government to uphold the system, and money spent on PR campaigns to convince the general public of its merit. A clear example of this kind of waste was seen in Quebec, where the province’s dairy farmers ran full-page newspaper advertisements warning against the potential loss of jobs and incomes that the Trans-Pacific Partnership could bring.
Supply management is not a system to be proud of. Not only does it transfer millions of dollars from Canadian households to egg, dairy, and poultry cartels, but it prevents our country from meeting its full potential because of trade agreements forgone or threatened, or wasted resources diverted into maintaining the system itself.
While the historical dependence of dairy, poultry, and egg farmers on supply management would make adaptation tough in the event of deregulation, history proves that the transition is not an impossible one to make. The dairy industries of Australia and New Zealand, which once had similar supports for dairy farmers, still thrive after their deregulation. For the sake of Canadian consumers, the Canadian government should do the same and bring an end to supply management.