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End supply management in Canada, but do it fairly


Canada’s agricultural supply management system produces some startling numbers. Consider the following, for example:

Our import duty on butter is almost 300 per cent.

In 2015, the average Canadian dairy farm had a net worth of about $4-million, according to the Canada West Foundation.

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And according to one study by a group of University of Manitoba researchers, the average Canadian household with kids spends nearly $600 more on dairy and poultry products than its American equivalent, for the same amount of food.

If that constellation of figures seems to yield a picture of government allowing an industry to get rich on the backs of consumers, it’s because that is exactly what’s happening. Production quotas, fixed prices and high tariffs provide steady profits for producers of poultry, eggs and milk at a steep cost to people who buy groceries.

Economic liberals – along with virtually everyone who has studied the issue – have been calling for the abolition or dramatic reform of supply management for years.

Now is a good time to axe the thing. Supply management has long been an irritant to our trading partners. They reasonably see hypocrisy when we ask for lower tariffs while building a citadel around our milk and egg producers – not least the Americans, who have made the system a sticking point in NAFTA negotiations.

Even if political hurdles remain, it increasingly feels like a matter of when, not if, Canada will bring down its dairy cartel.

That leaves the question of what will happen to our dairy industry if it is no longer walled off from reality. While competition is only proper in a market economy – and a staple of life for virtually all other Canadian industries – we shouldn’t make the error, so common in recent decades, of acting callously towards those who lose out to it. That approach has led to suffering and political turmoil across the West.

Some opponents of supply management say that opening up the dairy market will do wonders for farmers, confronting them with much-needed pressure to innovate (there is a surprisingly exotic range of forms in which to sell milk) and granting them a world of markets for export. That is what happened in Australia and New Zealand, they point out.

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It’s possible to hope they are right, while fearing otherwise. Canadian dairy farms have been coddled for so long that some might wilt in the face of foreign competitors hardened by years of capitalistic rigour.

The government will have to decide what it owes these people. We can’t leave thousands of workers at loose ends.

Economists have long held that people displaced by foreign competition can always move to where there’s work. But that doesn’t always happen in practice. Recent research on the impact of trade between the United States and China, for example, has shown that unemployment in regions exposed to foreign competition has remained persistently high.

That has contributed to the blight, social pathology and resentment that have marred post-industrial regions across the developed world, from Sheffield to Cincinnati to Peterborough, Ont.

Canadian dairy farmers are well-placed to avoid the worst effects of a trade shock. Many of them are capitalists as well as workers, by virtue of owning milk-producing quota equal to about $30,000 per cow.

But the fact remains that the end of supply management could be wrenching for a significant slice of the roughly 11,000 farms with milk shipments in Canada. The government has propped them up these many years, and has led them to believe it would continue doing so. It shouldn’t pull the prop out without a cushion at the ready.

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Martha Hall Findlay, a think-tank president and former Liberal MP, has proposed one possible solution for buying out the farmers: Value their quota at a reasonable price and pay for it by putting a small, temporary tax on dairy that would still leave a litre of milk cheaper than it is now.

For farmhands who don’t own quota, the government could fund retraining programs or even hand out college tuition vouchers to help start a new life.

Free trade’s benefits are spread widely across society, but it leaves pockets of victims, too. Ending supply management abruptly risks being a prime example of that.

But by doing it generously, Canada could show voters at home and abroad that it’s possible to have globalization with a human face.

Source: theglobeandmail.com


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