Government would face major battle on supply management, experts say

The Conservative government would face a major battle from thousands of farmers, industry and labour groups across the country if it decided to dismantle a complex supply management system as part of global trade negotiations, experts say.

On June 19, the Trans-Pacific Partnership (TPP) member countries invited Canada to join its free trade negotiations as an official member.

Lobby groups in favour of supply management, such as those representing the dairy, poultry and egg sectors, have encouraged Prime Minister Stephen Harper to protect Canada’s supply management system in the negotiations while proponents of open markets say Canada should phase it out.

Supply management is a system of marketing boards that match domestic supply with domestic demand. Regulators of the system require dairy, egg and poultry farmers to purchase quotas that limit the amount of product released into the market. The boards also set prices for milk, cheese, chicken, eggs and other products and place tariffs on imported goods.

The Tory government, if it is considering dismantling supply management, should be prepared for a “much more strenuous fight than with the wheat board,” University of Waterloo professor Bruce Muirhead said in a phone interview. Whereas there was about a 50-50 split on support for the wheat board, he said, almost all farmers want to keep supply management.

Economist Stephen Gordon, a professor at Université Laval who has written about supply management, said there would be a significant political battle over dismantling the system. He estimated the government is looking at opposition from 13,000 dairy farms and a few thousand poultry farms, plus “the usual gang” of groups that oppose the TPP like unions and the Council of Canadians, Gordon said.

Farmers' groups fighting to protect the system include the Egg Farmers of Canada, the Turkey Farmers of Canada, the Chicken Farmers of Canada, the Canadian Hatching Egg Producers, and the Dairy Farmers of Canada, all of which have lobbied the federal government to support the system as it is.

Canada’s supply management system is complex, with several layers and a patchwork of supporting organizations and institutions. The protected sectors have separate regulatory bodies and commissions in each province.

For egg producers, the Canadian Broiler Hatching Egg Marketing Agency and the Canadian Egg Marketing Agency regulate annual national production for hatching and table eggs. Each province also has its own egg commission and producer group to lobby for the sector's interests.

For chicken producers, the Chicken Farmers of Canada sets provincial volumes of production, and each province has a producer or farmer association. The same system is in place for turkey farmers, through the Canadian Turkey Marketing Agency.

The Canadian Milk Supply Management Committee oversees a national supply management system for milk and dairy. Fluid milk, such as two per cent milk and cream, is regulated by the P5 Supervisory Body in Ontario, Quebec and the Maritime provinces. Provincial bodies control milk entitlement quotas, or MEQ, which regulate the production of ice cream.

The Canadian Dairy Commission (CDC), formed in 1966 as a Crown corporation, also plays a key role in setting dairy prices and policies.

The Farm Products Council of Canada provides expertise to the federal government on all aspects of supply management and has a supervisory role for national marketing agencies.

The system's backers include provincial premiers. Last year, Quebec Premier Jean Charest said supply management is “non-negotiable,” the Canadian Press reported Nov. 15, 2011. The Ontario Liberals, led by Premier Dalton McGuinty, in their 2011 campaign plan for rural Ontario, said the system “helps keep rural Ontario strong, and supports our farmers and food processors. It provides opportunities for growth, and contributes to a strong economy.” The party added: “We’ll also continue to support supply management in international trade talks and fight for its place in Canadian farming.”

While experts say Canada will be under pressure to take a hard look at supply management—with reports saying U.S. and New Zealand negotiators have sought Canada's commitment to open up its dairy sector—the Conservative government says it will defend supply management.

In the House of Commons, Prime Minister Stephen Harper has said he will defend the system, responding to the opposition in question period on June 20 by saying that “we intend to maintain our systems and promote our exports throughout the world.”

Agriculture Minister Gerry Ritz visited Waterloo, Ont., on July 4, where he reiterated the government’s support for supply management, a release from the Agriculture Department said.

Muirhead, who has spoken in support of supply management at the annual dairy industry policy conference in Ottawa, said the system is a “bread-and-butter issue” for many Canadians, especially farmers in Quebec and Ontario, the two provinces that supply 80 per cent of Canada’s dairy.

“I actually can’t even imagine how the government could ... dismantle that system,” Muirhead said.

To start, the government would have to do it in a way that eliminates its prime political opposition: the farmers.

Muirhead suggested that the government would have to compensate farmers in protected sectors for the money they have invested in quotas, which would total about $25 billion.

Dairy quotas now trade at about $25,000 per kilogram, he said, which is the cost of obtaining the right to ship an average cow’s daily production of a kilogram of butterfat.

“I think the system has to stay as it is. You can’t have some people operating within supply management and others outside,” Muirhead said in response to a question about tweaking the system.

Gordon, who opposes supply management, likened the system to price fixing. Quotas are very expensive, about $28,000 for the right to own a dairy cow, he said, and too many farmers have borrowed heavily to buy them.

The government could phase out the regime by flooding the market with more quotas to reduce their value, Gordon said, but that could take 10 years, and for members of the TPP, “that’s probably not going to be good enough for them. They’d want the quotas gone.” New Zealand and Australia, especially, he said, could not wait 10 years.

In 2001, Australia dismantled its supply management system for dairy after more than 80 years of regulation, Martha Hall Findlay, a former Liberal MP for Willowdale and fellow at the University of Calgary’s School of Public Policy, wrote in a study published in June.

The report described how Australia dismantled its system by engaging the Australian Dairy Industry Council for input and agreeing to $1.6 billion in payments to farmers under the Dairy Structural Adjustment Program.

Farmers received quarterly payments over eight years, as well as other assistance, such as exit payments and community financial funding, the report said.

Gordon said another option for the Canadian government would be to buy farmers’ quotas, impose a tax on dairy products, and use the tax proceeds to cover the cost of the quotas.

Australia used this model to fund its readjustment program by imposing a levy of 11 cents per litre on retail milk sales for eight years, Findlay’s report said.

Gordon said the tax would last for a few years and consumers wouldn’t see much change because the prices of dairy and other supply-managed products are already high. The move would provide a level playing field for foreign dairy producers, he said.

If the TPP forces the Conservative government's hand, and protected sectors are opened up, the Tories would have the backing of a number of influential lobby groups. Those include the Canadian Restaurant and Foodservices Association (a $63-billion industry with 30,000 members), the Canadian Council of Chief Executives (CCCE), and Conservative think tank the Fraser Institute.

The Retail Council of Canada (RCC) is also counted among groups that hope the TPP negotiations will draw a spotlight on supply management.

David Wilkes, senior vice-president of the grocery division at the RCC, said in a phone interview that “these programs have been a fabric of our country for a number of years and those groups that benefit from them will probably voice some concerns with the changes.”

Wilkes said the supply management system has its structure rooted in the federal government, the Agriculture Department, and provincial governments, and dismantling it would be complex.

The RCC hopes that “ongoing global negotiations, the TPP negotiations, are going to draw a pretty bright spotlight onto these issues,” Wilkes said.

The RCC and its members say supply management negatively impacts retailers and consumers because Canadian grocery stores and retailers cannot compete with the United States' cheaper prices, Wilkes said.

He said this “competitive imbalance” will probably be a catalyst for changes to the supply management system in Canada.

yberger@lobbymonitor.ca