Supply Management Under Attack

As an entrepreneur and advocate for business, I must admit that I had trouble understanding the system of supply management used in our agriculture sector. After all, this system, at first blush, goes against the core business principle that I hold near and dear: the ability of individual business owners to compete in a global market. Supply management imposes limits on how much each farmer can produce, who the farmer can market to, and how much each farmer obtains for his product. This is hardly free enterprise and looks like government interference and control of the worst kind!

I am not alone in having this initial reaction to this system of management. Supply management has been accused of being about subsidies and protectionism and the lack of free trade. It is not easily understood. And, in the last six months, the Canadian Wheat Board, perhaps the most prestigious marketing board in the world, has been under attack by the Conservatives. In its place, a dual market system is being proposed that looks like the best of free market economy. In this article, I will attempt to shed some light on supply management systems and single desk marketing boards, tell you why I am now a convert and why we need to fight for this important system.

First of all, here’s the big picture and sales pitch about why this system works. Supply management has to do with the food Canadians eat. You may believe as I do that the government needs to be involved in ensuring that the food we get is safe to eat. And, Canadians want to be able to choose “made in Canada” food while supporting stable incomes for their farmers. Supply management allows this to occur. It gives Canadian farmers the tools to participate as world leaders in issues such as food safety, animal care, emergency preparedness, research and quality.

The economic impact of supply management and marketing boards is significant across Canada. The number of supply managed farms varies from region to region and it is more significant in Atlantic and Central Canada than it is on the Prairies. A total of twenty per cent of Canadian agriculture is supply-managed agriculture: dairy, hatching egg, laying egg, chicken and turkey. The feather industry, which includes chicken, hatching egg, laying egg and turkey farmers produced half a billion dollars worth of live chicken in Ontario, and in Canada, $1.6 Billion. The chicken farming and processing industry employs close to 50,000 Canadians - not an insignificant industry. A recent PriceWaterhouseCoopers study described as "huge" the $1.6-billion annual economic impact of the Winnipeg-based Canadian Wheat Board, "with Western Canada as a major economic beneficiary."

One of the misconceptions of supply management is that the government subsidizes the farmers. This is not true. Individual farmers pay, not the government. The farmers pay levies on their production, which pays for the operation of the supply management coordination boards. Currently it is at .0125c per kilo for chicken in Ontario.

One accusation from folks that either don’t agree or don’t understand supply management is that it is about protectionism. It is true that Canada’s national government sets limits on supply-managed product imports through import tariffs and import restrictions. This is done to ensure that Canada’s first responsibility goes to supporting our Canadian farmers and buying safe food for Canadians. I personally don’t think that protecting our farmers is such a bad thing to do.

Another concern about supply management is related to the production restrictions placed on individual farmers. Supply-managed farmers are discouraged to produce more than their quota, thereby taking away some of the natural incentive in business to produce more and along with it, make more money. It is true that under supply management, quotas are enforced. Every year, farmers, processors and retailers jointly set production targets that will meet the estimates of consumer demand. Essentially, the goal is to match supply and demand through this balanced production management system. These targets are then passed down to provincial supply management boards and are translated into production allocations for individual farmers. It is a trade-off for farmers. They sacrifice their potential to grow their supply-managed commodity without restriction for a guarantee that their product will be bought at a fair price.

The Canadian Wheat Board was established in 1935 as a marketing system for wheat and barley. As with other supply management systems, the purpose of the Wheat Board is to act as a marketing board and create a level playing field for all farmers. For many years, the Board has been under attack by the Americans and a source of real friction in bilateral talks between Canada and the U.S. American producers continually complain that the CWB is a system of government subsidy. Ironically, Canadian farmers have almost no government subsidy while Americans and their European Union counterparts are heavily subsidized by their governments.

Since December 2006, we have seen that the enemy is no longer the Americans, it is our own government. Chuck Strahl, Minister of Agriculture, has worked towards the dismantling of the Wheat Board. This has included the replacement of government appointees to the Board of Directors in favour of individuals who oppose the Board's monopoly, a gag order on wheat Board staff, the firing of the pro-Board President of the Board, and intervention in the election of farmer elected members of the Board of Directors.

The dual market system being proposed by Strahl looks like a perfect compromise: those who want to take advantage of the marketing board can do so and those who wish to sell on their own outside of the board would be free to do that, too. However, there is ample evidence that the dual market system would effectively end the board's monopoly and any benefits that that monopoly may give to farmers. Agriculture minister, Chuck Strahl, says barley will be removed from the board's jurisdiction by August 1; a decision on wheat will follow.

Single desk selling, marketing boards and supply management systems work for Canadian farmers. In learning about these systems and thinking about them in reference to free enterprise, I have come to two conclusions. The system is like any other system where an individual business joins together with other similar businesses, for the betterment of the group and the industry. In supply management, the entire value chain benefits: the suppliers, the producers (farmers) the processors, the retailers and finally, the consumers. Canadians are the ultimate winners in this system, benefiting from the knowledge that our food demand will be met with safe, largely Canadian product, while at the same time, ensuring that our farmers are being supported by being paid a fair price, and our farmland preserved. And just as in business groups that you join to take advantage of collective purchasing power or joint selling opportunities, you can’t just bow out when it looks like you can do better on your own. It is the collective pooling of resources that gives the group the power. This power is tremendous and needs to be honoured and protected.

A free market approach does not work for all sectors, Far from socialism, protectionism or government subsidies, supply management and single desk marketing systems works for everyone. When it comes to readily available food to eat and the safety of its supply, fair prices and support for our farmers, and protection of our agricultural land, our federal government needs to take a lead role in defending our supply management system.