Canada's Supply Management
Policy Brief by Maggie Smith
The dairy industry is the second most profitable sector in Canadian agriculture, only behind red meat. It generated $6.99 billion in 2019 alone and provided close to 46,000 jobs in both farming operations and related manufacturing [1]. The stability and profitability of the dairy industry is crucial to Canada's agricultural economy, so providing protection to producers is key. This is achieved through a system called supply management.
Supply management was first introduced in Canada almost 50 years ago as a response to decreasing dairy prices which put farmers in financial jeopardy. Supply management allows farmers of specific products (e.g., eggs, dairy, and poultry) to limit production to match consumption. The Canadian Dairy Commission provides a national monthly quota for farmers, which changes to reflect supply and demand. The national quota is divided into regional pools, which equally divide the quota between farmers [2]. Regulating production guarantees stable prices for consumers as well as stable incomes for producers and manufacturers; it also reduces waste by discouraging overproduction [3]. The system as a whole helps the federal government avoid subsidizing the dairy industry [4].
However, supply management is widely contested. Consumers and politicians alike lament the artificial prices and international trade partners dislike the high tariffs. Despite these criticisms, supply management remains integral to the Canadian dairy industry.
One issue often discussed is the impact of supply management on international trade. By fulfilling a specific quota internally, imports from external industries are limited [5]. The U.S. government has continuously pressured the Canadian government to remove the system entirely, allowing American dairy access to the Canadian market. Former U.S. President Donald Trump publicly called out Canada's tariffs at the 2018 G7 Summit, saying that “The United States pays tremendous tariffs on dairy. As an example, 270 percent. Nobody knows that. We pay nothing. We don’t want to pay anything. Why should we pay?" [6]. But these tariffs are conditional— applicable only when the import would be in surplus of what Canadian farmers have produced. If there is a market for imported dairy (i.e., the product would be within the quota), tariffs on milk are 7.5 percent [7].
Canadian dairy is expensive. According to Numbeo, an Internet database that provides statistics on the cost of living around the world, Canadian dairy is the tenth most expensive in the world [8], and Canadian consumers on average pay 29 percent more for milk than Americans [9]. Domestically, critiques of supply management usually center around the high cost of dairy for Canadian consumers, and particularly how this impacts low-income households. According to the Financial Post, Canada could switch to a subsidy-based model that encourages more competition within the industry, ultimately saving Canadian households an average of $438 per year [10].
With these savings in mind, as well as the possibility of increased international trade, there are many who call for the removal of the supply management system; but, opening our borders to foreign dairy could cause Canada to lose hundreds of its family farms, which are the majority of producers in Canada [11]. Canadian dairy farms are smaller and fewer in number than their American counterparts—according to Alberta Milk, Canadian dairy farms have on average 85 cows, while American farms average 225. In addition to this, while there are 11,000 Canadian farms, the American industry dominates with approximately 41,800 farms [12]. The USA is one of the largest producers of dairy in the world, second only to India [13]. If Canada allowed a "free market" for dairy, the industry would be decimated, unable to compete with the larger production capabilities of other countries.
Australia demonstrates a problematic example of a country that retired supply management. The system of determining egg prices for the upcoming year is, to quote Bruce Muirhead, external vice president of research at the University of Waterloo, a "cutthroat" system of auctioning where individual producers take the brunt of potential loss [14]. While other countries like New Zealand have found success after abandoning the system, Canada would be unable to follow the model. Our three largest producers would be forced to merge to follow the Fonterra Model used in New Zealand, where one co-operative controls 90% of the industry. As convincing our main producers to combine would be highly unlikely to happen, Canada leaving supply management would follow the trajectory of the European Union, where dairy prices were incredibly low in the "post-quota" system and farmers suffered financially as a result [15].
Supply management is a critical method of protecting our farmers and industries. While it is criticized for increased cost and restriction of international trade, it protects Canadian farmers and the dairy industry. Although abandoning or switching away from supply management may save consumers money, it would mean sacrificing the income of thousands of Canadian families.
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Agriculture and Agri-Food Canada. “Canada's Dairy Industry at a Glance,” August 27, 2020. https://www.dairyinfo.gc.ca/eng/about-the-canadian-dairy-information-centre/canada-s-dairy-industry-at-a-glance/?id=1502465180911.
Canadian Dairy Commission. (n.d.). Retrieved March 24, 2021, from https://cdc-ccl.ca/index.php/en/supply-management/national-target-of-milk-production/
Tasker, John Paul. “Supply Management in Canada - a Primer | CBC News.” CBC News. CBC/Radio Canada, June 16, 2018. https://www.cbc.ca/news/politics/canada-supply-management-explainer-1.4708341.
“Supply Management in Canada.” The Canadian Encyclopedia. Accessed March 17, 2021. https://www.thecanadianencyclopedia.ca/en/article/supply-management-in-canada.
Ibid.
Wingrove, Josh, and Erik Hertzberg. “Does Canada Really Charge a 270% Tariff on Milk?” Farm Progress, December 10, 2018. https://www.farmprogress.com/dairy/does-canada-really-charge-270-tariff-milk.
Ibid.
“Price Rankings by Country of Milk (Regular), (1 Liter) (Markets).” Numbeo Cost of Living. Accessed March 17, 2021. https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=8.
Milke, Mark. “Canadian Milk Prices Much Higher than in U.S.” secondstreet.org, 2019. https://www.secondstreet.org/wp-content/uploads/2019/10/Policy-Brief-%E2%80%93-Supply-Management-Final.pdf.
“Supply Management Is Literally Driving Tens of Thousands of Canadians into Poverty.” financialpost. Financial Post, August 31, 2016. https://financialpost.com/opinion/supply-management-is-literally-driving-tens-of-thousands-of-canadians-into-poverty.
“Exploring a Future without Supply Management.” Canadian Poultry Magazine, November 21, 2019. https://www.canadianpoultrymag.com/a-future-without-supply-management-30457/.
“What Is the Difference between Canadian and American Milk?” Alberta Milk, July 13, 2020. https://albertamilk.com/ask-dairy-farmer/difference-canadian-american-milk/#:~:text=Canada's%20farm%20sizes%20are%20also,the%20US%20is%20about%20225.&text=Canada%20has%20about%2011%2C000%20dairy,on%20their%20product%20and%20industry.
“Milk Production.” Food and Agriculture Organization of the United Nations. Accessed March 17, 2021. http://www.fao.org/dairy-production-products/production/en/#:~:text=India%20is%20the%20world's%20largest,%2C%20China%2C%20Pakistan%20and%20Brazil.
“Exploring a Future without Supply Management.” Canadian Poultry Magazine, November 21, 2019. https://www.canadianpoultrymag.com/a-future-without-supply-management-30457/.
Ibid.