Canada’s supply management has survived over more than forty years of trade negotiations because it is fair and doesn’t put competitors at a disadvantage.
Once again Canada’s supply management system has remained intact after another trade agreement. The fact Canada agreed to relinquish some market share for poultry and dairy products in the United States-Mexico-Canada Agreement (USMCA) does nothing to threaten the integrity of our supply management system. And giving a small amount of dairy market share under the Comprehensive Agreement for Trans-Pacific Partnership (CTPP) and the Canada-EU Comprehensive Economic and Trade Agreement (CETA) did not undermine our supply management. We have always shared some of our market with other countries, so now we will have to share a bit more. It’s nothing to fear. Canada believes in trade and we’re world class players. Canada is the world’s 5th largest importer and 5th largest exporter of agricultural products.
Our supply management has survived under GATT rounds, the WTO rounds, the US-Canada Free Trade Agreement, the North American Free Trade Agreement, CETA, the CTPP, and now the USMCA. What’s the secret to Canada’s brilliance? Could it be that we are tough negotiators? Is it because we are willing to give away anything to preserve supply management? Is it because Canadians are “nice” people? Nonsense.
Canada’s supply management system has survived over more than forty years of trade negotiations because it is fair and does not break trade rules. It is seen as not breaking rules because it is not a subsidy program that puts competitors at a disadvantage. Under Canadian law, farmers can stabilize prices by getting together and sharing the market. We are deemed fair because the share of the market given to the US and others is calculated the same way we calculate the share for Canadian producers.
Supply management is a standard business practice. With any form of supply management, a business is simply trying to limit production of something to satisfy the demand in the market. If you oversupply, the price drops dramatically. If you undersupply, you lose customers.
Finding the balance is difficult for any commodity, but it is especially difficult in food. We consume food on an ongoing, daily basis, but animals and crops cannot be turned on and off daily. If we want food everywhere at any time of year, as we have become accustomed, then we must produce a surplus. That’s the problem. When commodity markets have supply greater than demand, prices can drop below the cost of production. That serves no one.
Producers of non-supply-managed commodities like pork and beef often experience price cycles below costs. Our tax dollars and producer fees support beef and hog farmers in bad times caused by overproduction. We do not have to pay tax dollars to poultry and dairy producers. They have elected to establish a system that maintains a fair price by preventing surpluses from becoming available. Non-supply-managed commodities rely on stabilization programs financed by both levels of government and producers. Whether you live in the US, Europe or Canada, it appears the choice is you either pay for your food in the store or you pay with tax dollars. For countries that don’t support farmers, their only option is to rely on imported food. I hope we do not make that choice.
Our main trading partners practice some form of supply management for farm commodities. In the US competition laws do not allow producers to take control of their industry, so it has found other ways to manage supply. For example, the US Department of Agriculture runs food-purchasing plans for school lunch and food stamp programs. In fact, the US recently announced that these programs would be a central part of the compensation for US farmers hurt by the trade war with China. To illustrate, let’s say wholesale prices for frozen fries or canned peas in the USA are softening. As the price drops over a few weeks, you can expect the United States Department of Agriculture to announce a major food purchase of fries or canned peas for school lunches or another program. The surplus is managed and prices improve.
That’s only one example of programs that operate in the US. Other parts of the world also have such programs. The European Community (EC) has a myriad of support programs including supply management to support agriculture. At one time the Common Agriculture Policy consumed around 70 percent of the total EC budget. It has been reduced in the last number of years to around 40 percent of the budget.
Companies that process food, particularly in the fruit and vegetable sector, control supply through contracts thereby managing supply by estimating industry wide inventories and market demand. Thus they can ensure supply and a stable price by contracting their needs annually with producers. The Manitoba Vegetable Producers Marketing Board uses single desk selling to keep prices substantially higher than those in Prince Edward Island and enable Manitoba to overtake PEI as the largest potato producer in Canada.
Although supply management as a business practice is ubiquitous, supply management programs are not all the same. Our large trading partners also employ a range of support programs that differ from commodity to commodity. A key difference between Canada and the US is that in Canada producers are given power by governments to control the marketing of their farm products, while in the US producer-support programs are controlled directly by the government. That is an important distinction, and keeping supply management programs that work well for Canadians is a large part of our success as a world class trader.
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