Critics of Supply Management Should Get Their Facts Right

by Bruce Muirhead

A few tired articles have been published by the usual suspects to encourage the government to get rid of supply management, which matches domestic demand with domestic supply in the five sectors it covers -- eggs, dairy, chicken, turkey and hatching eggs. Generally, they are based on nothing but a right wing ideology and full of shoddy research, suspect interpretation and half-baked conclusions that are not supported by data.

What are the authors' "findings" that can be laid at the feet of supply management? First, they raise the old canard that food prices in supply managed sectors are artificially inflated in Canada, and are an unfair tax on poorer Canadians. It is true that low income Canadians pay more for food, but that is a function of their relative poverty, and not a result of supply management. Rather than focus on a single, very small area to alleviate this, we need a broader, more wide-ranging public policy approach.

Clearly a case could be made that all consumption taxes, or price increases, impose an unfair burden on the poorest quintile of Canadians, so why focus on this one area, represented by supply management which comprises only a tiny part of the overall burden? A recent study concluded that the poorest 20 per cent of Canadians pay an additional 92¢ per day for all the supply-managed products they consume than they would if the market were deregulated. However, the assumptions made in the article about pricing in a deregulated market are just that -- assumptions. What if a "free market" set prices higher, as it has in the case of New Zealand milk , where it sells for about 35 per cent more than the Canadian equivalent? Or eggs in deregulated Australia, where a dozen costs about the equivalent of more than C$5 -- much more than our price of C$3.25.

And there are so many other things that need to be factored into the topic of price, especially compared to the United States, which the misinformed critics use as the comparator. Our climate is more challenging, fuel and electricity costs are much higher, transportation and feed is often more and Canadian farmers don't have access to the very cheap illegal immigrant labour so available in the U.S., and so essential to keeping milk and egg prices low. A 2009 study completed in the U.S., calculated that consumers would see a 61 per cent increase in retail prices if U.S. dairies were forced to completely cut their illegal work force. Indeed, one American dairy farmer has insisted that "the US dairy industry absolutely cannot survive without this." In Canada, as a matter of public policy we do not allow employers to hire illegal aliens and pay them a fraction of what they would Canadians for similar work.

And given their interpretation of supply managed pricing as regressive for poorer Canadians, where is the outcry over beef and pork prices, which have risen dramatically from a year ago, up by 12 per cent and 15 per cent, respectively, in April 2015? Surely the critics should denounce these increases as unfair taxes/increases on poorer Canadians. But they don't -- I suppose the so-called free market gets a free ride.

Nor should we assume that lower milk and egg prices will accompany the repeal of supply management. Indeed, the opposite could well be the case with the corporate sector accruing most of the benefit. In NZ , the price of raw milk to processors has fallen by 50 per cent during the past year while supermarket prices have increased by six per cent.

And what of Australia, the example that critics suggest we should emulate given that it deregulated its dairy sector in 2001? Unfortunately for their argument, it proves the opposite point.

With deregulation, milk production in Australia plummeted as farmers were left to cope with the vagaries of "the market." Consumers have benefited with A$1 per litre milk, but producers have suffered tremendously resulting in thousands fleeing the industry as they are unable to cover costs in a deregulated regime. This massive shift is unsustainable in the medium-term, and has unbalanced a formerly-healthy relationship while also creating catastrophic social and economic impacts in rural areas.

Repercussions rumble throughout the industry. As an Australian senator from South Australia, Nick Xenophone, remarked following the 2013 bankruptcy of a large dairy, "The fact is, the industry needs government intervention to some degree or we'll end up losing the dairy industry in this country."

Even the dairy farmer who led the deregulation charge in Western Australia in 2000,Danny Harris, now thinks it was a mistake, also fearing for the future of the industry. The sector's income is quickly moving toward zero.

Critics of supply management should get their facts right. By any measure, the Canadian system importantly works to the benefit of all in the supply chain, from the producer to the consumer -- even for the poorest quintile. It remunerates the former appropriately while providing an affordable and secure product to the consumer. There is no country in the world where so-called deregulated agriculture works. As the old aphorism has it, if it ain't broke, don't fix it.