Archive for Government subsidies

Are We Playing Hide and Seek With Supply Management?

When it comes to supply management, many proclaim to know the absolute truth. They either profess “It will never be sold out.” or they’re emphatically on the other side stating “Supply Management is dead!” (Read more: Why the Future of the North American Dairy Industry Depends On Supply and Demand) Unless you can read the minds of the politicians (and even The Bullvine won’t pretend to go that far), you are putting your future in someone else’s hands.

Come Out Come Out Wherever You Are!

The issue of supply management raised its head in the late 60s. Many think that once implemented that’s all there was to it! WRONG.  In 1976 the MSQ was decreased by 18% in response to a serious surplus of production.  RIGHT MOVE. Then later on the word was out that Supply Management was coming to an end. Some prepared instantly. WRONG.  Today many aging dairy farmers want to retire … but their children are not sure whether the “security” their parents had is going to continue.  Others worry that a closed off dairy industry will be unable to provide the opportunities they’re looking for.

In the Beginning

Supply-management was introduced by the federal government in the 1970s as a way to ensure local farmers could meet domestic demand and be rewarded fairly for their effort.  The introduction of quota levels helped to control supply while creating stable prices for Canadian consumers. Prices for milk worldwide had led to fluctuating prices and instability in Canadian markets.  The government sought to fix this by implementing a system to provide milk and poultry for the Canadian market by Canadian producers.

Is Government the Game Changer?

Why do we modern day business people never ask ourselves what our parents did to adapt to change? Unlike them – we accept that their solution is “forever”. At a certain age somewhere between 40 and 65, we assume that we have done all that there is to do and the way things are right now is the way they should remain…. full STOP.  But that’s just the problem.  Why would the next generation want to come into an industry that is fully stopped?

But back to the issue of supply management.  What if— supply management ends in the next 5 to 10 years? What if supply management stays?  How will your children continue dairying? Oh! They’re not interested you say.  Well then how will the next generation of dairy farmers get interested in getting into the industry?  We know it’s an awfully expensive entry price.  And, if we keep the status quo, the industry is shrinking from both ends of the marketplace.  Less consumption.  Fewer producers.  What’s the game changer that we MUST find?

Is Everybody Playing Fair?

Canada`s milk supply management is increasingly a hot button issue when it comes to trade negotiations.  Many quote rules of fair trade that exclude supply management never acknowledging that there are hidden subsidies supported by other players in other countries.  Subsidies accounted for only 14% of gross farm receipts (2011) in Canada.  Considerably less than the 19 per cent average of among OECD countries.  This raises the question of what would happen if in the interest of big picture trade negotiations Canadian officials eliminate farm marketing boards and subsidies while other countries were able to keep subsidizing their farmers?  In Japan, South Korea, Norway and Switzerland that means more than half of what farmers earn is from government support.  Yes! Over 50%!!

Are Governments Changing the Playing Field?

Everyone loves to throw the term “level playing field” into the discussion.  But is it really possible?  After all can you name any industry that isn’t subsidized?  And secondly, is a level field really what you want when it involves food production.  After all, without food we die.  That’s more level than I’m looking for!

True Lies

The theory is that if supply management was terminated, larger more efficient farms would readily compete against cheaper imports.  Really?  And who is prepared to deal with how “larger” farms will rile up the anti-large contingent?  But consumer prices will be lower and that makes it all worth it, right? WRONG. The cost comparison between supply management and the market-determined price is like comparing apples and oranges. When the market sets the price, the direct expense to consumers does not generally reflect the outlays incurred by the farmer.  As a result, government must provide billions of dollars worth of subsides annually to farmers if they are to stay in business. The critics of supply management do not factor these hidden taxpayer dollars into the cost of a litre of milk, no matter how critical that support may be to its production.

Is Free Trade Fair Trade?

Economists Jason Clemens and Alana Wilson of the Fraser Institute unfortunately get it wrong in their assessment of Canada’s supply-management system for dairy products in their May 15 column: “Free market for groceries is better for the poor”. Where is their proof that there is suddenly a lower retail price without supply management? A real example is the experience in New Zealand.  They once had supply-management before switching to a free-market situation in the mid-1980s. Surprisingly, to some, prices increased for consumers and a monopoly was established where one dairy controls 90 per cent of the milk farms.  A parliamentary investigation has been undertaken to determine why prices increased. Milk is known there as white gold.

It’s Better for the Consumer

Opponents claim that supply management gouges consumers at least when compared with prices set by “the market”. They talk glowingly about free trade and the positive impact of open markets on industry.  Where do they look when there are market meltdowns, rising unemployment and natural catastrophes? It’s obviously their choice to turn a blind eye to the crutch provided by governments in these “healthy” economies. Even if we could accept the global marketplace who decides the priority markets when drought devastates the food supply of your global partner?  I suspect that the home market would be highest on the list.

Who (or What) is Hiding?

There are certainly a considerable number of issues with the Canadian food system. Surface comparisons would suggest that food is much cheaper in the States.  Closer to reality, is the fact that there are 300 million more people to share the cost of subsidizing the industry. Ron Versteeg of Dairy Farmers of Canada says Canadians have nothing to hide. “We stand alone in providing, clean, consistent and transparent access to our market, while other countries hide behind phony non-tariff barriers.” There is no hidden subsidy provided by Canadian taxpayers to dairy farmers.  Each time consumers buy milk or cheese they contribute to dairy sustainability and resilience, to say nothing of this country’s food security.   By comparison, U.S. Subsides to dairy producers represent about 40 per cent of American dairy farmer incomes, when it reaches them.  These subsidies come directly from taxpayers’ pockets.  At the store, the U.S. consumer pays only a portion of the overall cost of producing milk.  The rest is paid through their taxes. Without that hidden support, American dairy products would be much more costly for consumers, and much more expensive than the equivalent Canadian product.

But You Can’t Get Into the Game!

The quota value for a small forty cow operations is over $1 million. Barrie McKenna, columnist with the Globe and Mail, suggests decline in farms is directly related to barrier of entrance in the industry. Making it impossible for young farmers to finance that in addition to cattle, land, barns and equipment.  Supporters of supply-management argue the high quota shows that the industry is healthy and, like other profitable businesses, dairying require high start-up costs, similar to purchasing franchise fees to begin operations. There are many other non-agricultural businesses that no longer have “mom and pop” operations.  Decreasing economies of scale make it difficult for small businesses to compete; this decline in numbers extends beyond the dairy industry.  Having said that, just because the problem is difficult does not mean that we should give up.

The BULLVINE BOTTOM LINE “Nowhere to Hide!”

You can hide in the bushes and hope that it will all turn out right in the end. But wouldn’t you rather be “It!”  In the past successful builders of the dairy industry did not wait for the dreaded pronouncement “You must be caught!”  Supply management was their solution.  What is ours?


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