Supply management. It’s the sacred cow of Canadian politics—the federal government’s price-fixing scheme that costs everyday Canadians hundreds of dollars each year, enrages the United States, and is paid reverence by all four of the major federal political parties.
But as an unpredictable trade war is waged between Canada and our more powerful neighbour to the south, it’s time to seriously think about scrapping the cartel that controls prices on dairy, eggs, and poultry.
First, a quick primer.
In Canada, dairy (and poultry and egg) farms are tightly regulated. They’re only allowed to produce as much product as the government says so, using a system of “quota.” If a farmer gets more milk than is allowed by his quota, the excess must be dumped. You can go on YouTube and watch videos of farmers dumping perfectly good milk down the drain because they’re not allowed to sell it. At the same time, farmers who don’t own quota are banned from even selling dairy. To top it off, the government sets the prices for milk, cheese, etc.
Is this a free market economy, or Soviet Russia? In this sector, it’s much closer to the latter. An Alberta egg farmer has been arrested and Greek Orthodox nuns in Quebec have been threatened with ludicrous fines for the horrendous crime of trying to sell food.
Don’t step out of line, comrades.
The end result of not having a competitive market is that it costs Canadians more for milk, dairy products, chicken, and turkey. Research by SecondStreet.org found that supply management results in Canadian consumers paying 29 percent more than their American counterparts for milk. Isn’t life expensive enough as it is?
Of course, the entire system would collapse if foreign competitors were allowed to enter the market. That’s why Canada levels tariffs of 241 percent on U.S. milk imports, effectively stopping American milk from being sold north of the border.
Understandably, this tends to tick off the United States.
While the trade situation has fluctuated greatly since President Donald Trump decided to target Canadian goods in March, the result has been clear: Life has, yet again, gotten more expensive for Canadians. Food inflation is one clear example.
And yet Prime Minister Mark Carney refuses to use a very powerful tool to help smooth over these trade negotiations and lower the tariffs on Canadian goods—drop supply management.
“With respect to supply management, I have been clear from the very first day of the launch of my leadership campaign. We will never have discussions with respect to supply management, it’s off the table.”
Why is this? Phasing out the policy would certainly help Canadian families save money, but would also help in trade negotiations with the United States.
Keeping the cartel is justified by all major federal political parties for one reason: It satisfies the farmers unjustly enriched by the quota system. The average net worth of a Canadian dairy farm is just over $6 million; it’s not so hard to do well when competition is banned and the government sets prices.
The solution is a simple one. Carney could hop on the phone and tell Trump that the Canadian government will immediately begin the process of phasing out the dairy (and egg, and poultry) cartel. First, by eliminating quotas and price-setting in Canada, allowing a true market to emerge. Second, tariffs on U.S. products could be eliminated over a five-year period.
It’s not impossible. In fact, it’s been done before in a country that’s similar to Canada in many ways. Australia used to have a similar regime, but it saw the writing on the wall and gradually phased out supply management. To placate the irritated dairy farmers, that country implemented a temporary 11-cents-per-litre tax on milk, the proceeds of which went to the farmers to “adjust to deregulation by consolidating, changing practices, or exiting the industry.” Even with this tax, the price of milk dropped immediately, and the tax was eventually removed as well.
It should be clear as day that Australia got it right, and the stakes were considerably lower for them at the time. They didn’t have the largest economy in the world on their border, levelling gigantic tariffs at them. Yet they still made a choice that annoyed a few for the good of the entire nation.
That’s the kind of leadership Carney could show. Dropping the dairy cartel might ruffle some feathers (or get a chorus of annoyed “moos,”) but it’s the right thing to do.
Dom Lucyk is the Communications Director for SecondStreet.org, a Canadian think tank.
