Essay Contest – First Place Winner: John Keays

AIMS on Campus is pleased to announce that John Keays is the winner of 1st place in our op-ed essay contest on the subject of supply management. John is a fourth-year economics student at Saint Mary’s University. See above him being presented with first place by AIMS President Marco Navarro-Génie, and below his great submission. Thanks to all students who participated in the contest.

Supply management should offend left and right alike
By John Keays

Under the rules adopted by the World Trade Organization’s 1995 Agreement on Agriculture, a cartel system like that of Canada’s supply management – were it created today – would be illegal. The global community has decided that policies which artificially inflate domestic prices, and protect them with outrageous import tariffs, are a thing of the past. Ironically, public opinion in Canada still favours supply management, even though it perfectly embodies the protectionist policies that Canadians love to hate when they come from the White House.

Canadians roll their eyes at Donald Trump’s “America First” economic policies. Yet most Canadian politicians continue to support their own archaic system of supply management. Consumers are forced to pay nearly $600 more per year on groceries than their American counterparts. Import tariffs have made it nearly impossible for Canadians to buy foreign dairy products, forcing low-income families to pay a huge price to provide their children with a healthy diet.

Prior to supply management’s introduction in 1971, Canada had over 140,000 dairy farmers who were struggling to break even, due to price volatility in the dairy market. Fast forward 46 years, and we can see that the Canadian dairy industry has undergone a great change.

For starters, the number of dairy farmers in Canada has dropped by over 90 percent to less than 11,000 nationwide. More importantly though, over this 46-year period, the average wage and net worth of Canadian dairy farmers have increased dramatically. According to the 2008 OECD Economic Survey of Canada, the average Canadian dairy farmer had a gross income of over $250,000 and held over $2 million dollars in assets, in the form of dairy quota.

Today, the average Canadian dairy farmer is a millionaire, yet policy makers still believe we should be taking money from low income families to support them.

Clearly, supply management has accomplished its goal of reducing market volatility for Canadian farmers. However, it has stagnated the Canadian dairy market in the process. Inflated profit margins, massive barriers to entry, and a lack of foreign competition have left farmers with no incentive to increase efficiency. Additionally, inflated input prices have become a disincentive for dairy processors to invest in Canada.

If Canadian policy makers began a sustainable program to transition supply managed farmers to a market system, Canadian farmers would finally be rewarded for increasing their efficiency of operations, Canadian processors would gain greater access to international markets and foreign investment (employing thousands of Canadians in the process), and Canadian families would have more money in their pockets as the price of supply managed goods would drop to global market levels.

With the potential renegotiation of NAFTA on the horizon, Canadians should not be willing to make sacrifices in negotiations to maintain our agricultural cartels. The government needs to begin repurchasing quota from dairy farmers as soon as possible to ease their transition into a market system and ensure that the Canadian dairy industry succeeds in the global marketplace.

Finally, supply management should be viewed unfavourably by those on both sides of the political spectrum. For those on the left, it should be viewed as a regressive policy that takes money from poor Canadian families and gives it to affluent farmers. For those on the right, it should be viewed as a protectionist, anti-trade policy that contradicts free-market principles. Regardless of political leanings, it is clear that supply management has overstayed its welcome. Canadians should demand reform.

Essay Contest – Second Place Winner: Heather Bone

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.

Essay Contest – Third Place Winner: Victoria Nader

AIMS on Campus is pleased to announce that Victoria Nader is the winner of 3rd place in our op-ed essay contest on the subject of supply management. Victoria is a fourth-year Canadian studies student at the University of Toronto-Mississauga. See below her great submission. Thanks to all students who participated in the contest.

The need to create a proper agriculture market
By Victoria Nader

Lack of consumer sovereignty is the greatest disadvantage of a monopoly and is present in the monopoly amongst Canadian agricultural producers, namely dairy and poultry, upheld by supply management. Supply management utilizes policies based on price-setting, supply control, and protection from foreign competition, guaranteeing the stability of farmer’s profits and reducing variation in the price of their goods, but at the cost of increased prices for consumers.

The desires and needs of these producers are prioritized above those of Canadian consumers in the name of protectionism, however the only thing being protected is age-old elitism. Supply management has implications for Canada’s entry into international trade agreements, farmers trying to enter and remain in the industry, and consumers. Federal and provincial governments must abolish supply management to remove its impact and enact policy that protects Canadian farmers, while promoting a free market by emulating the discontinuation of the Canadian Wheat Board and the Australian dairy model.

In October of 2015, Canada entered the Trans-Pacific Partnership (TPP) between eleven nations surrounding the Pacific region, which is now ten since the United States’ recent withdrawal, creating the world’s largest free-trading zone. An incredible opportunity, it provides Canada access to “40 per cent of the world’s population and nearly 50 per cent of the world’s [gross domestic product].” However, Canada was initially denied entry into the agreement as a result of the supply management system’s imposition of import quotas and high tariffs that block foreign competition. Canada gained entry by giving TPP members “duty-free access to 3.25 per cent of Canada’s dairy market and 2.1 per cent of its poultry market.” The participation of 34 million Canadians in the trade agreement was nearly compromised in favour of supply management, which “benefits fewer than 14,000 Canadian farmers, mostly in rural Ontario and Quebec.”

Furthermore, “eight per cent of all farms in Canada” operate under supply management. Clearly, the interests of generationally-wealthy farmers are upheld and farmers entering the industry are excluded due to exorbitant prices of quotas that “can be up to 75 per cent of startup costs.” Supply management is often said to protect small family farms from being crowded out by large corporate farms; nevertheless, between 1971 and 2011, “the number of dairy farms in Canada dropped by 91 per cent.” The system issues a limited amount of expensive permits to producers, thus limiting the supply and options of goods to consumers. It is the “small family farms” that possess power, expelling competition to retain profits for themselves. The lack of competition they create through heavy lobbying enables them to charge consumers high prices for lower quality goods.

As the Canadian population increases, so does the demand for agricultural goods, resulting in higher prices due to lack of foreign export corresponding to high tariffs. Consequently, “189,000 Canadians are pushed into poverty because of the cost of supply management” because the burden of rising prices weighs heavily on consumers. If the agricultural sector operated as a free market and imported goods, then “the average household would save $438 per year.” Higher prices benefit the producers opposed to the consumers, thus exhibiting the lack of consumer sovereignty within the monopoly.

Canada should adopt a market system for agricultural goods, specifically dairy and poultry, thereby sending the current model the way of the Canadian Wheat Board, which was discontinued in 2012 giving market freedom to grain farmers. Then, to protect producers, they can imitate the Australian dairy model where a transition cost will be implemented and covered by the government, opposed to the consumers, since they have the funds.

Moreover, import quotas and tariffs can be significantly reduced to permit foreign competition. These changes will encourage Canada’s international trade and relations, level competition amongst existing and aspiring farmers, and reduce the price of goods for Canadians, assuring that those on the poverty line are not severely impacted. Therefore, it is recommended that the administration pursue these options within the next year as Canada would benefit from demolishing elitism and promoting equity in the agricultural sector.