Supply management is officially on Donald Trump’s radar and Canadian dairy farmers are holding their breath. For years, farmers have defended the five-decade old system as perfect for this nation. They’re about to find out that the world has changed since the 1960s.
Our supply management system, known globally as Canada’s milk cartel, faces inevitable change. Decades of defending the status quo was the wrong strategy.
It would have been fascinating to be in the room when U.S. President Trump got his first briefing on the Canadian dairy industry. Anyone who has attempted to explain supply management to Americans is aware of the general reaction of disbelief.
Supply management is about ensuring we produce what Canadians need for dairy, poultry and eggs. Dairy, with 80 per cent of agricultural cash receipts within supply management, attracts most of the attention.
Such a program could be expected in an emerging market or a highly-organized economy. No one would expect supply management in a developed economy like Canada’s. Since Europe eliminated quotas last year, Canada is the only developed economy in the world with such a scheme.
Quotas are given to farmers so they can produce the commodities needed, and extremely high tariffs are imposed on imported products that could compromise our delicate supply and demand equilibrium.
Our marketing boards are seen as protecting farmers. Dairy farmers around the world are often exposed to dramatic milk price fluctuations and must adapt quickly. Supply management gives our dairy farmers predictable revenues.
But maintaining the system for more than five decades has come at a tremendous cost.
Our dairy industry is highly inefficient. Studies repeatedly point to how costly milk production is in Canada compared to other industrialized economies. Switzerland is the only place where production is more expensive. High farmgate milk prices don’t allowing our dairy processors and restaurant owners to become more competitive. Entire food chains have been held back for years.
Also, dairy supply management has led to a sense of institutionalized entitlement.
Dairy farmers have become great cost managers – it’s the only way to earn more. As a result of supply management, dairy farmers are bureaucrats, not entrepreneurs. They work for the state, not for the economy.
The Dairy Farmers of Canada have spent hundreds of millions of dollars over the years promoting milk to Canadians. But consumption of fluid milk per capita has dropped for almost three decades.
A growing number of entrepreneurial dairy farmers want to act differently but they’re dragged down by the mediocre class.
As Canada stood still, the world changed. For years, calls for changes to supply management were ignored – after all, the milk quotas are worth more than $30 billion. So our system has a lot of fiscal baggage. And American dairy farms are much more competitive than ours.
So quickly getting rid of supply management would lead to a complete collapse of Canada’s dairy industry.
Canada needs a plan to maintain some domestic production capacity to support our processors, who are responsible for adding value and innovation.
Unfortunately, the world economic climate – led by the Trump administration and Brexit – is forcing the issue. We’re about to see an entire industry filled with dedicated workers on alert.
So instead of establishing a vision for Canada’s dairy sector and owning its destiny, we’re about to see dramatic changes on someone else’s terms. Jobs in rural Canada and future generations of farmers are at stake.
Dairy farmers lobbied Ottawa for decades to maintain the system and Ottawa acquiesced. But don’t blame the farmers – they were simply protecting their assets.
The leadership should have come from Ottawa but it didn’t, government after government over decades. Shamefully, little strategic foresight was given to our supply management regime.
Now, Canada’s dairy farmers will pay a heavy price.